Technology TransactionsHow To Work With A Poor Credit Risk
Not everyone who walks into your office is going to have pristine credit. So how do you serve those with less than perfect credit in a way that helps them while making good use of your time? Push for preapproval instead of prequalification.
A prequalification is a cursory look at a borrower"s financial picture, without a commitment from either the borrower or the lender. A preapproval is comprehensive and binding from the lender. From a lender’s perspective a preapproval reduces the risk involved with financing the transaction because the borrower has been given the required disclosures, returned to the lender the completed paperwork, granted the lender permission to check his or her credit scores, answered any questions raised by the loan processor or underwriter, and agreed to finance the purchase with them rather than with their competitors. Everyone knows how much the buyer can spend, and more, everyone involved has more confidence. Barring any other glitches, a preapproval is as sure an early sign that the deal will go through as you can hope for.
Getting your customer preapproved is a great way to help change that person"s life for the better. Wouldn"t that be an easy way to earn all that customer"s personal referrals and make more money? Wouldn"t you enjoy what you are doing more knowing the rewards of making such a positive impact on someone"s life?
People have poor credit for a wide variety of reasons, and many times, those reasons are out of their control. Take this scenario as an example:
Picture yourself in the office. A middle-aged buyer walks in and asks whether you can help him buy a house. You notice the buyer’s head is down. He walks with a shuffling gait. His back is bent. Following smart risk-reduction procedures, you begin your initial interview with the same set of questions you ask every buyer you meet:
"Shall we chat in the conference room? May I offer you a cup of coffee, tea or bottled water?"
As the discussion continues, you build a rapport. You find out about the neighborhood and style of house your buyer"s interested in buying. You learn he’s had a tough time. His wife was diagnosed with breast cancer or his father has Alzheimer’s.
More than that, you realize the man sitting in front of you is a hero in every sense of the word. When this tragedy hit his family, he was there for them. Their health insurance ran out. They spent their life savings on medical bills. Taking care of his family, he lost his job. The bank foreclosed on their home or they were forced into bankruptcy.
Your heart goes out to this poor guy and what he"s been through. Yet, now he"s getting back on his feet with a new job. The medical crises are two years behind him. He"s rebuilding his credit.
Next, you begin to help him and assess his motivation by asking:
"Have you been prequalified by a lender in the last two months?"
He says no and you offer to get him prequalified with your favorite mortgage lender or the lender in your office. Explain the difference between prequalification and preapproval. You ask:
"How would you like to make your finances your strongest asset when you buy a house?"
He looks up at you with an expression of disbelief:
"Didn’t you hear what I’ve been through? Getting my loan approved will take some doing," the buyer sullenly replies.
You respond that you are aware of the challenges, but if he will give you just another minute you would like to explain. You propose he become preapproved by your mortgage broker or inhouse lender instead of prequalified.
"A smart listing agent or seller will always want to know that the potential buyer for his or her property is qualified financially before the seller signs a sales contract and takes his or her home off the market," you explain. "Should you accept my advice and become preapproved, the only thing the listing agent or seller will know is that your finances are fine. In effect, with a legitimate preapproval, the lender has already given you the loan. Your loan is contingent only on the property appraising for the sales price."
You add, "Since I would work with you as a buyer agent representing your best interests and since the lenders I work with know to keep quiet about my preapproved buyers’ financial details, our offer would seem much less risky to the seller."
"Then I could help you buy the house for less money. Should we be in competition with other buyers for the house you choose, I can help you negotiate the transaction successfully if you are already preapproved."
The gentleman across the table looks up at you. He begins to understand. You see your first smile on his face as he asks, "You can do that for me?"
"Yes, sir. In a buyer agency relationship with your finances preapproved, I would love to do that for you."
He stands up, shakes your hand, and walks with you to meet with the lender. You notice his head is held higher. His gait is more confident, and he’s whistling an upbeat tune.
What just happened? You have changed someone"s life. Your buyer arrived a scared, worried consumer and left a happy, excited client. All it took was you knowing the benefits of getting a preapproval, and explaining them to your customer"s benefit.