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How often do deals with pre-approved buyers fall through?
Often enough.
I have sold 12 properties in the last 10 years. The two with zero down loans fell through. One with a 5% down payment fell through. Another with a 3% down payment had a very delayed close (due to issues that arose during underwriting.) The other properties I have sold have either been cash deals or anywhere from 20% to 50% down payments. In my personal experience, less money down means more risk.
All of my buyers were pre-approved by lenders. Lenders do a cursory pull when determining whether they will lend. The real issues come up during underwriting. And as stated, federal loans have an extra layer of red tape for the buyer and risk for the seller. Just cruise around the Mortgage subforum and see how many pre-approved people have issues getting to closing.
The only differences are the appraisal and inspections. You can have 3 "pre-approved buyers", but the appraisal of the property is key. Pre-approved without a property under contract still has some hurdles to jump. Every agent should pre-qualify their buyers before looking at homes. Buyers should get pre-qualified before even going to an agent. Neither of which is a done deal, however. The seller still has to wait for the bank to approve the deal.
I got a USDA loan because I could... they had lower rates and qualified for tax credits. I have enough money where I could write a check and pay the house off in full right now, but I'd rather invest it and pay the 3.125% interest rate I got.
Let me put it another way.. most big corporations have a significant amount of low interest rate debt. Analysts will actually criticize corporations for paying down debt.. they'd rather have them issue stock buybacks. This may change with interest rates now rising, but there's nothing wrong with taking on low interest debt if you can service that debt and meet your obligations.
Just checked in on this after a weekend away- wow! Lots of strong opinions. I sent it to my husband who had a good chuckle.
I don't think he is changing his mind on this issue anytime soon.
I read somewhere that the average down payment in the US is something like 6%. I must live in a bubble because it shocked me. We have never paid less than 20% if we didn't buy cash and have always accepted offers much like the ones we make ourselves. But thank everyone for their opinions and experiences.
Just checked in on this after a weekend away- wow! Lots of strong opinions. I sent it to my husband who had a good chuckle.
I don't think he is changing his mind on this issue anytime soon.
I read somewhere that the average down payment in the US is something like 6%. I must live in a bubble because it shocked me. We have never paid less than 20% if we didn't buy cash and have always accepted offers much like the ones we make ourselves. But thank everyone for their opinions and experiences.
VA loans were created to protect the veterans returning from war; veterans that were unknowingly buying shanties unsafe for habitation. Standards were set whenvthe program was created. I hear everyone itching and moaning about the appraisal requirements, when those requirements rarely matter where there is no deferred maintenance. It's the homes with poor upkeep that need worry. Minor safety items (handrail or smoke detectors) have no impact on value. Every single appraisal repair requirement I have called out to the Realtors has been due to deferred maintenance.
Where someone got the idea an approval drops dead after 90 days, what about the new home buyer closing 9 months out? There is no drop dead date, I would never push someone to buy, tapping my toe and watching my watch. Lenders go by the oldest doc in the file and update as needed, with the buyer's situation as the guide. The credit report expires after 120 days, but if I am working with some that has a 700 or higher, I am not updating until they find something.
There are conventional programs that allow for 100% financing, but the 3% down is the most popular. All funds needed by the buyer can be a gift. Actually, all loan programs allow for a gift, even the 20% down. Ironically, I have had more fallout over the past 20 years over the gifted down payment, than the buyers with $0 money down. That brings me to my next question, don't most states allow for a buyer to change their financing, as long as there is no impact to the seller? So, couldn't the buyers make an offer showing 20% down in their offer, but apply for 3% down? (and remain a conventional loan, I am not talking about switching to a VA loan).
Doing this job for a long time, you get really good about sounding like you are giving up the goods on a buyer, yet you say nothing at all. Just a reminder, it is illegal for a loan officer to provide any imformation about the buyer to a listing agent. Do we do it anyway? We see it all the time. It's just a matter of time before we start seeing lawsuits and charges filed. Both Federal penalties and civil penalties are high for violation of the Privacy Act. So, for the listing agents calling on the lender letters, what questions are you asking when determining who gets the home? It doesn't matter if you know the loan officer, actually that's worse, I think.
When my buyers go through the pre-approval process, they are provided with a written loan commitment from an underwriter. For those buyers, I will offer to call the listing agent and point out to them how my letter differs from the others, in the fact they have a written loan commitment in hand. I tell the buyers, if they are asked to share, to only show page 1 of our commitment letter. I've had preapproved buyers win the contract, even with competing higher offers. It's a shame that a small percentage take the time to get preapproved. For those battling to buy, are you preapproved (with an UW review and loan commitment)?
Pricing - I saw some information that is incorrect regarding down payment vs rate. It is actually a bit different than what was said. 0% to 5% down carries the highest rate, unless a HOMEREADY. But a loan with 10% down will actually have a lower rate than a loan with 20% down. Why? The former will have PMI, making it the better value loan (from a lender's perspective). There are ways to "game" the system, like put 19.9% down and use a refunable PMI rate, but most buyers are so far over the whole buying experience, they just want to be done with it all.
Those refusing to accept offers from low to no down payment loans, it's your home, you're entitled to decide in any manner, as long as it's not dicriminatory, and then Lord help you if it's a protected class, then someone could really mess with you.
Just checked in on this after a weekend away- wow! Lots of strong opinions. I sent it to my husband who had a good chuckle.
I don't think he is changing his mind on this issue anytime soon.
I read somewhere that the average down payment in the US is something like 6%. I must live in a bubble because it shocked me. We have never paid less than 20% if we didn't buy cash and have always accepted offers much like the ones we make ourselves. But thank everyone for their opinions and experiences.
I think people put down what they think they have to. I want to clarify what that metric means.
Not that “most people put down 6%”. It’s likely a lot of 0’s and 3/3.5’s mixed in with 10s and 20s.
People whose income exceeds the qualifying range for USDA, FHA loans sometimes penalize themselves for having high income and no / low down payment. The “Conventional 97” seems to be addressing this “hole” in the loans offered for consumers, but the jury is still out on whether it’s incentivizing the right behavior.
A high income / low net worth individual would be categorized as such for a few reasons.
1.) Only recently becoming high income, or being just outside of the USDA/FHA profile
2.) Experienced a recent catastrophic loss of assets
3.) Maxing out lifestyle despite basic needs being met
None of these cases demonstrate a borrower is ready to sign a 15-30 year commitment to make a consistent - or increasing - monthly payment.
Would-be homeowners get very defensive when they find the perfect house, and are willing to take all kinds of risks to get what they want. If you think someone is emotional over buying it, think of how much of a hassle it will be when it’s foreclosed upon. Likely the inhabitant will destroy the home out of rage and vindictiveness.
We have been lucky with real estate sales. Multiple offers on every home we have ever sold in quick turn around of listing. And as this is the case, we have our pick of buyers. We always look for (in order of preference) 1) full price or over listing cash offer 2) full price or over listing conventional loan with at least 20% down 3) everything else. My husband is very leery of any kind of loan with 0% down.
I got to wondering if this is just a quirk of his or if other sellers also view a no money down loan as a red flag. And really, is that fair to a buyer? How do others view this?
Why does money down matter? I've purchased multiple homes in my life and never put a single dollar down. What does this matter to you at all? How the home is financed doesn't affect how much money you get at all. I'm super confused how this is even a factor for a seller? If anything, 0 down often means that the buyer has better credit, and I would take it as a good sign that they've qualified for a loan without 20% down.
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