Let’s face it. Both the real estate and mortgage industries speak in “foreign tongues” (as far as the consumer is concerned).
It creates a lot of confusion and mis-communication, and sometimes results in closings that never happen. I’m listing some of the biggies here so when you use the “lingo,” you might want to think about providing further explanation to your clients.
Good Faith Estimate – While lenders must provide an “accurate at the time” good faith estimate, the costs can vary drastically when it comes time to closing the loan. You may want to suggest that they save some extra money to make sure they have enough money to close.
Pre-Approval – Clients think a pre-approval is as good as gold. But what they don’t realize is that if they change jobs, buy a new car, or miss a payment that affects their credit score, the pre-approval and sometimes the final approval is null and void. In fact, even if the loan is fully approved, lenders must re-verify everything for compliance reasons. Advise your clients not to make a financial move without consulting the loan officer first.
Earnest Money – A buyer may not realize that the earnest money check is actually “cashed” when the offer is accepted. If the deal falls through, the seller may not realize that (depending on the circumstances) they may not be entitled to keep the earnest money. In addition, lenders require a buyer to have a paper trail that the money has not been borrowed. Consider a conversation with the buyer as to why a lender needs to verify the funds.
Comps – When listing a home, you prepare a CMA to help you and the seller determine the listing price of the home. From the buyer side of things, there is confusion when it comes to the appraisal value, the comps the appraiser had used (versus the comps you provided them to determine the offer price) and, to further complicate things, the assessed value of the home for property tax purposes. And if the appraisal does not match the sales price, well, that’s where the deal may start to fall apart. You may want to explain the whole “Comp” concept to your homebuyers before the appraisal is ordered.
Sales Concessions – So the buyer writes an offer and wants the seller to give them the washer and dryer and the TV, and pay closing costs – and because the carpet color is purple, include a $2,000 carpet allowance. What buyers don’t understand is that there is a limit to the dollar value that a seller is allowed to give back to the buyer. It depends upon the type of loan and the down payment. Suggest that your buyers check with the loan officer regarding the sales concession limit they are allowed because if it exceeds that amount, they may have to bring additional money to closing.