Wholesaling Smarts: Worthless Mortgage Pre-Approvals & How to React
Mortgage pre-approvals are a key component in 70% of real estate transactions today, but are so frequently unreliable that they also pose one of the biggest threats to real estate investors too.
Investors have to have mortgage pre-approvals when out shopping for inventory and ought to demand them from buyers of their homes when reselling but those with true wholesaling smarts also educate themselves on their pitfalls and how to combat them.
As a real estate investor out there making offers, unless you can provide verification that you have enough cash to buy you’ll need to be armed with a mortgage pre-approval. Sadly most of these letters whether dubbed ‘pre-qualification’ or ‘pre-approval’ letters aren’t just worthless but even devalue the paper that they are printed on.
What’s wrong with these mortgage approvals? The issue is that while they are supposed to be proof of a home buyer’s ability to qualify for a home loan, they are so unreliable that no one can or should count on them, no matter which side of the table they are on. Loan officers and mortgage brokers throw them out like they are handing out business cards in order to make borrowers feel locked in or obligated to them. Yet, they are so full of loopholes and conditions that once a loan application and deal actually get into underwriting they can quickly be shot down for a huge variety of reasons.
Wholesaling Smarts for Buying Homes
When making offers and buying homes to flip investors need to be aware of the risk that their loan won’t go through and know how to improve their odds of success.
- Constantly building their real estate education and mortgage lending knowledge
- Know the conditions of their approval and potential threats to funding
- Speak in depth with loan officers about what could derail the application and work to pre-empt issues
- Get due diligence and paperwork in fast
Wholesaling Smarts for Selling Homes
On the flip side, when reselling homes real estate investors also need to be aware of the threats that could derail their transactions and work to minimize them.
- Finding out the lender and loan program and the potential issues they could have with the individual deal or property
- Determine how strong the buyer really is (size of down payment, rates)
- Get a list of outstanding conditions
- Remain in contact with the mortgage company
- If not confident keep taking backup offers until a ‘clear-to-close’ is given
There are some advantages to working with financed borrowers, including they are often willing to pay more. Cash buyers can often close faster, and are more of a sure thing, though proof of funds letters can be faked too and many make themselves look like cash buyers when they are not.
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