Unbelievably, many tenant buyers do not know what is required to complete a successful mortgage transaction. They do not know they need to be able to prove they can afford the house and show they are credit worthy. Therefore, if you really want to ensure your Tenant/buyer gets to the second closing table, the one, which places their name on title, then follow these steps.
- Perform a debt to income ratio analysis in consideration of futuristic circumstances. Get their income documentation; calculate the prospect’s current and potential future income. Next, total all their bills then divide total monthly debts into monthly income. If their ratio us under 43% they can afford the mortgage payments providing they do not change their income, debt load or interest rates don’t materially change.
- Provide disclosures, get your tenant buyer’s acknowledgement they understand how much income will be required and maximum debt load on their credit report when they apply for a mortgage. It is best to get this in writing on your debt to income worksheet; this holds the tenant/buyer accountable for their representations of earning capacity and debt load (disclosure 1). In addition, it is a good idea to have them sign a separate addendum (disclosure 2) at the initial closing, which holds the tenant/buyer accountable for any credit enhancement plan.
- Track and measure the success of your tenant/buyer’s credit enhancement action plan. A few credit enhancement companies will allow referral affiliates access to customer files through their on-line portals. Make certain if the tenant/buyer fails to complete the credit enhancement service, they will notify you
- Get a credit enhancement’s professional opinion up front, how long the credit enhancement service will take until your tenant/buyer will be mortgage ready. If the tenant/buyer engages, have them pay the monthly service fee. If you do not give them the home you control, you will be growing your active buyers list.
There is a company which brings together all these services and disclosures Screen The Tenant. For more information:
http://www.screenthetenant.com – for tenant screening, tenant buyer can complete the application directly. Once completed report is emailed to you. You must provide the tenant/buyer prospect your email address.
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