If you have any desire to buy a property in Hawaii right now you know how crazy it is. Local residents are competing against mainland and foreign buyers. We are now unfortunately seeing record low inventories of properties to buy coupled with higher than usual demand. Foreign buyers are coming into our market because the decline of the dollar makes our real estate look like its on sale. Mainland buyers are either retirees wanting out of covid-plagued areas, or those individuals that can now work remotely and would rather work from a home office in Hawaii.

A couple of weeks ago I detailed in my weekly newsletter just how backed up lenders, appraisers, and escrow/title people are with all these transactions. I cautioned against being too aggressive with your offer having a short closing timeline to complete against a possible all-cash competing offer. Last week I took great lengths to give you a road map to get your documentation in order, to provide for a smooth transaction.

The primary purpose of these articles was to remove stress. Buying and financing a property can be one of the more stressful endeavors you embark upon. It’s not because the process is arduous. Most of the stress is self-inflicted. By not being prepared for the process beforehand, you cause undo stress that can be avoided. Trust me on this one – yes you can avoid all the stress! To make is as clear as possible, I will share with you the tale of two applications. You read on and decide which path works better for you.

Story #1 – The Mess:
Dave contacted me last Monday that he and his brother wanted to buy a 2nd home on Maui together. It was urgent, as they needed to get their offer and pre-qualification letter submitted the next day, due to multiple offers. I informed Dave that I don’t issue pre-qualification letters, only pre-approval letters (more on that further down in this article). In order to issue their pre-approval letter, I would need completed applications and their income and asset documents. They were stunned that a lender couldn’t take some information over the phone and produce something they could present with their offer. Dave and Jim’s stress levels quickly hit the top of the scale as they did their best to provide all the required documentation. After our evaluation, it turned out that Jim, who was self-employed, was rather aggressive with his write-offs and didn’t show very much income. Dave didn’t realize or remember that he never paid the last payment on his cellphone and cable bills and had 2 small collections for less than $150 each, but it tanked his credit. If you haven’t guessed already, they did not qualify and didn’t get the house.

All of the stress put on both the applicants and us, to move as quickly as possible, could have all be avoided. I am sure Dave and Jim didn’t wake up last weekend and say let’s put an offer on a property tomorrow. They felt in their minds they easily qualified for the loan, and therefore getting what they needed from us was only a formality. Had they come to us a couple of months ago, we could have alerted Jim of his credit issues and had him deal with it then – possibly raising his credit score back up. As for Dave, after the review of his documentation, we could have worked with his accountant to not take so many deductions and show more net income.

Story #2 – A Refreshing Anomaly
Many of the applications I receive come from people I have never spoken to. They were referred by my past clients or their Real Estate agent. I received a new application this week from Lisa and Bobby. They want to buy a home here on Oahu. My initial review of the application concerned me because neither of them listed military service and they are seeking 100% financing with no money down. That left them with USDA as their only option. USDA has both an income cap but also since the program is designed for “rural” housing, on Oahu you have to buy way “outside of town”.

I reached out to Lisa and Bobby to alert them of their limited options with USDA. What I heard next nearly made me drop the phone. Lisa said that she has been preparing for their purchase for a couple of months. In researching low down payment programs, she came across USDA. She read up on the program regarding income limits and geographic restrictions. She first checked to make sure their income was in line with the program, and then used USDA’s area map to make sure the area they wanted to buy in was approved for this program.

Lisa and Bobby also had their taxes, W2’s, pay stubs, and bank statements ready to go. With everything we needed in hand, we issued them a pre-approval letter and told them to go hunting! The pre-approval process was very beneficial to them. Seeing their actual income documentation allowed us to provide them examples of monthly payments and how much they could qualify for. It turns out that based on what they can afford, they can look at a slightly higher price bracket. That will give them more options. But the most important lesson in this example is that never was there any stress. It’s amazing what a little bit of planning can do to eliminate all the hassles.

The two stories I shared are not made up, but actual events. The names and circumstances were changed to protect the applicants. One last plea for you to get organized. In these current times where everyone wants financing, having your application completed fully and all your documentation in order will make your file move to the front of the pack. It’s just human nature for the Originator or Processor to pass over the “mess” to work on the organized “anomaly”.

Pre-Qualification vs. Pre-Approval:
I’ll come right out and say it: A pre-qualification is meaningless and worthless. A pre-qualification is when an applicant self-provides the lender their income and assets. That can be from over the phone, or what they submit on the online application. The only obligation of the lender is to pull a credit report. And most lenders that do pre-qualifications only pull credit from a single repository like Equifax in order cut costs.

So what you end up having is a borrower-supplied income figure, unverified assets, and a credit report from only 1 of the 3 bureaus. And Real Estate agents wonder why transactions fall out after an offer is accepted?

Our pre-approval process is more stringent. We require your income and asset documentation. We also take all your data and use either Fannie Mae or Freddie Mac’s automated underwriting system to obtain a pre-approval. That pre-approval is the roadmap all lenders and underwriters use for your eventual full Conditional Loan Approval.

Real Estate Agents, you know first-hand how busy the market is. And I know everyone wants to get that offer in and get it accepted. The great agents that regularly refer their clients to me know a pre-qual, while satisfying the standard Hawaii sales contract, means nothing. They send their clients to me to get pre-approved. You should demand the same from your clients and their choice for their mortgage financing.

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