Understanding the Mortage Process With Michael "Smit" Smith
Today's episode is all about what goes on behind the mortgage curtain. REALTORS® work closely with lenders and need to know how to ask better questions of the experts. Our guest, Michael "Smit" Smith, shares advice on how to choose more qualified lenders and what questions you can ask to work better with lenders.
It is important for REALTORS® to have some knowledge of the lending process, so they can communicate effectively with the lender. This communication is a two-way street, with the lender communicating just as much with the agent. The REALTOR® has a lawful obligation to their client, so they should be leading the conversation and guiding the deal. There are important aspects of both roles, so communication and partnership are key so everyone is on the same page throughout the transaction.
The contract is really in control of the transaction, and the date of closing should guide the lender and their processes, as well as the REALTOR® and their processes. As a listing agent, you should make contact with any lenders prior to meeting with their clients to consider any offers.
Smit talks about the policies of many banks, and how they handle the process of underwriting. Some banks have private mortgage lending, but the majority of banks require that a property is identified before underwriting. One of the most important questions a REALTOR® should ask any lending company is whether they qualify a borrower separate from their property, or whether their underwriting process only begins when everything is in with the property.
Making a call to a lender is incredibly important in establishing a relationship. Especially in this time of COVID-19, talking on the phone is really the most genial and personable way to get to know someone you will be working with throughout the transaction.
Michael has a list of questions that REALTORS® should have in their arsenal in order to vet lenders to make sure that they've done their homework. He talks about what things you can ask your clients to provide, and things that are off-limits.
Questions from Michael "Smit" Smith for the lenders:
- How pre-approved are they?
- Have you talked with or met "our" clients?
- What paperwork have you received?
- Have you verified funds needed to close the transaction?
- Can you provide evidence of funds?
- Has the client made an application?
- Have you run it through an Automated Underwriting System — AUS? Desktop Underwriter — DU — (Fannie Mae) or Loan Processor — LP — (Freddie Mac)?
- Are there any outstanding conditions not met?
- Have you pulled a tri-merge credit report?
- What is your appraisal delivery time?
- Can you close in 30 days?
- How long have you been in lending?
- Will you make a pre-emptive call to the listing agent?
There are three main lending groups that most residential agents work with: the bank, mortgage lender companies, and mortgage brokers. Each group has their own underwriting processes. Mortgage brokers provide options for the borrowers, but if they don't have delegated underwriting they turn the package over to a lender.
For agents, put together your own list of five to 10 questions that you ask any lender to get to know their process. If you understand what it is, you can better work in partnership with them for the benefit of your client.
REALTORS® can also do a few things to help the lenders. Having open lines of communication is absolutely key. You can also check in with them to see if there is any documentation you can get from the client to make sure the lender has everything they need. In the case that there's an addendum, make sure you get in contact with the lender and provide it if needed. Make sure you also keep an email record of your communication.
Michael talks about some of the reasons contracts might be extended. It all comes back to communication and relationship. The lender should be communicating with agents at least once a week with progress on the deal. The agents should also be reaching out to the lender, so everyone is holding each other accountable.
With the final words, Smit shares the most important questions to ask. The main question you want to ask is how pre-approved is the client, or ask whether an underwriter has seen the file. You can also use their NMLS number to get an idea of their experience. With the questions you ask up from, you as the REALTOR® can set the tone for the whole deal.
"You need to make sure that right upfront, you are setting up a stage with that lender that we need effective, continuous, contiguous communication throughout the entire process." — Michael "Smit" Smith
"A lender can make or break a deal." — Michael "Smit" Smith
"Real estate should be open and notorious. There shouldn't be any hidden agenda; it's a contract." — Michael "Smit" Smith
"We need to be an advocate for our client. Once you stop being an advocate for your client, you just failed your client, and you failed the transaction, and you failed yourself." — Michael "Smit" Smith
About Michael Smith
Michael Smith, a.k.a. "Smit" has been working in the residential real estate industry for over 20 years. Smit's trifecta expertise combines his experience as a real estate broker, owner, and mortgage lender and his degrees in economics and law bring a well-rounded approach to his teaching. Smit's NAR designation courses have been taught throughout the Pacific Northwest. His passion for real estate, finance, and teaching has led him to create and launch several custom courses as well, addressing current trends such as Survival Skills in a Changing Market (COVID-19), What you should Know about STR (Short Term Rentals), and Real Estate Finance for REALTORS®. Smit's classroom is an energetic experience as he drives towards a high level of participation by students. You will enjoy his style of teaching, where "Smit Happens" quite often and with memorable results.
He works in Kirkland, WA with Windermere Real Estate and can be found at SmitsRealEstate.com