In a recent episode of “The Loan Officer Podcast,” host Dustin Owen and guest John Coleman explore key tips that all aspiring real estate agents should know when navigating mortgage financing for a potential client. Owen emphasizes the importance of understanding these principles whether an agent is new or experienced, allowing them to focus on helping the buyer.
The first tip explores a phenomenon called “the condo curse,“ which refers to instances where agents fail to understand the difference between warrantable and non-warrantable condominiums when searching for financing. As a result, many condo deals don’t close due to a lack of understanding on the agent’s part.
In general, condos are harder to finance than single-family homes since lenders have to qualify both the buyer and the condominium association, adding another step before funding can be disbursed. Warrantable condos are easier to finance, while non-warrantable condos and condotels are typically harder to fund. Owen urges agents to be meticulous when searching for loan officers and only work with those who know how to handle condo financing.
“There’s a lot of things that go on with condo financing, and it doesn’t matter how strong and solid the homebuyer is — 800 credit score, a million dollars in the bank to make a million dollars a year, but if the condominium project is not approvable, then your financing options are going to be limited, or those that are available will require a larger down payment,” Owen says.
Unfavorable contract terms may also burden condo buyers with a higher interest rate or a larger lender point requirement. Coleman follows up with a key question about who can afford a condo, given the high prices and difficult financing scenarios. To Coleman’s surprise, Owen says that one in four condo buyers use cash instead of financing.
The conversation then moves toward a tip about buyers with specific jobs who often don’t qualify for traditional financing. Owen advises agents to be careful with self-employed clients, as they commonly seek loopholes to avoid paying taxes and fees. Because they do not have W-2 wage documentation, self-employed clients often don’t qualify for preferred loan types but may have a few high down payment alternatives.
Similarly, attorneys and doctors often have issues with credit qualification and overall personal finance. Attorneys are often savvier than the average buyer, while doctors tend to be apprehensive about spending money.
The next tip deals with building a rapport with buyers by profiling them based on appearance. Owen and Coleman offer an example for how to properly ask a buyer about their financial situation without offending them or making assumptions.
“I would ask it this way: ‘Hey John, out of curiosity, are you looking to pay cash for this transaction or do you want to take advantage of financing?‘” Owen explains. “I don’t want to offend the guy paying cash by assuming they need a loan, and I don’t want to make the person who needs a loan feel bad about themselves.”
A final point urges agents to not rush mortgage preapprovals before moving forward in the process. Preapprovals can take days due to the need to verify borrower data, but prequalifications take significantly less time. Owen suggests that agents take their time to do the preapproval process cleanly and thoroughly, rather than rushing it.