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Why Lenders Prefer Refis to Purchases
Home/Why Lenders Prefer Refis to Purchases
Why Lenders Prefer Refis to PurchasesDaniel Dobbs2025-03-18T19:11:59-07:00
Refi’s are easier to process than purchase transactions.
Completing purchase transactions separates the “paper pusher” MLOs from the battle-tested purchase MLOs.
It doesn’t matter how many of a buyer’s offers are written if none are accepted.
Here’s why refis are so much easier:
1) Faster Closings – Leaders can close most refis in 30 days (even with a 3-day right of rescission for refis).
Purchase Deals Involve Time-Consuming “Hand-Holding.”
To close a purchase deal in 30 days, the MLO must take a very proactive approach with the buyers, starting with the first phone call.
Often, it involves telling a buyer they don’t qualify, describing the issues that need to be addressed, and telling them when they CAN buy, and then cluing the agent in.
If a deal is going to die, it is better to die at the start than at the last moment.
Many buyers need time to get “squared away” and given a “road map and signposts” on how to be ready months from now.
Agents and MLOs will need paychecks as well.
Many purchase deals (their agents) are considered a one-off” by an MLO’s sales manager, as the chance of getting distant and future referrals is often regarded as nebulous.
For lenders’ sales managers, it’s all about their monthly funding goals, not an agent’s commission (or their referrals), and thus they prioritize quicker, easier refi closings. If you had a cushy manager’s job, you might as well.
2) Refis requires fewer phone calls to a lending staff. A refi involves only the borrower, the lender, an escrow officer, and an appraiser, plus the interest rate market’s ups and downs.
Purchases, in contrast, involve a
1) seller and listing agent,
2) a buyer and buying agent,
3) numerous inspectors (termite-seismic and the typical home inspection), and
4) A more detailed title search for the property and the buyer.
More parties = more phone calls = more fantastic processing time, which interferes with the MLO’s time on the golf course, at the bar, or on vacay. LOL!
Purchases are labor-intensive, and good MLOs can fund three refis in the time it takes to fund one purchase deal! In addition, the average close rate (start to finish) is 60+% % + for refis and less than 40% for purchase deals.
Most Purchase Deal Killers result from the Lender’s Lack of Due Diligence or the MLO’s failure to communicate a Master Plan.
Purchase deals often die due to income and credit issues that need to be preemptively addressed, the MLO’s unclear focus, or buyers zig-zagging instead of zag-ing (e.g., impulsively buying a new car).
If an MLO isn’t proactive when the loan app began (in the prequal phone call) and does not manage expectations and timelines.
With a purchase offer, acceptance of a “first offer” is a gift from the heavens and means more future business for both the buyer’s agent and their MLO.
There is one action an MLO can take to
vastly increase the buyer’s offer’s chance of being accepted.
After a DU (formal) approval, while the buyer’s offer is being submitted, an MLO should initiate a call to the listing agent to introduce themself and discuss the buyer’s loan qualifications.
Avoiding talking to the listing agent is a deal killer!
In contrast, as buyers lose out on offers, their frustration will grow (as will their agents and the MLOs). Too many declined offers often lead to buyers making a “pitching” (agent) change, which is all the more reason why agents need an MLO who communicates the buyer’s frustration before it boils over.
Credit Issues for Both Buyers and Sellers
“The Last Minute Landmine”
MLOs usually know of a buyer’s credit issues, but rarely does anyone know about a seller’s past credit issues, which can derail a COE at the very last moment.
When a purchase escrow opens, both buyers and sellers must fill out a “statement of information” form that reviews all their addresses, name changes (e.g., divorces, lawsuits, etc.), and public records for the previous ten years!
That’s a lot of time for both parties to easily “forget” and not own up to their past issues. Unfortunately, these deal-crushing issues are revealed only at the last step before COE.
Sellers often have equity and can pay off the (undisclosed) lien(s) from the proceeds from the home sale. On the other hand, buyers usually purchase with the least down possible, and hidden liens often derail a buyer’s COE..
With a lifetime of future referrals and repeat business on the line, when a deal blows up, it’s a “sleigh ride to hell,” complete with reindeer, elves, and a large man in a red suit, but he’s NOT yelling “Ho Ho Happy COE.”
Another reason purchase deals are more difficult than refi is the issue (s) of “gift money and/or co-signers.”
In addition to the siblings’ rivalries, gift money is usually the most delicate issue. Parents can think of many reasons why the kids don’t need a house (right NOW!) and give them $100k+.
Also (to avoid fraud), lenders are forced to verify the source of every dollar that goes into every purchase, and that can be tedious as buyers deposit cash in their ATMs.
Purchase Deals are a “Paper Chase.”
All gift funds need to be sourced OR”seasoned” (in the account for between 59 and 89 days, depending on the bank statement cut-off date), and all deposits ($200+) need to be explained.
In addition, another sibling rivalry issue that rears its head is: PARENTS’ CO-SIGNING.
Parents can also consider why their kids don’t need a house (right now!) and why they shouldn’t put their life plans on hold by co-signing a child’s mortgage.
In Conclusion
For all of us on commission, every time a deal dies at the last second so do the agent’s life plans, referrals, and plan for a better lifestyle.
Copywrite © August, 2018 Daniel Dobbs MHM Mortgage /// All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed “Attention: Daniel Dobbs, Author- VP-Broker Mutual Home Mortgage 265 S. Randolph #120 Brea, Ca. 92821 Cell: 949 250-3981 Dandobbs6@gmail.com NMLS #307631 BRE #00986886
