Deciding whether to go wholesale or retail on a file is always tricky. Wholesale can pay you more, but you carry more of the risk and the costs. Retail is more certain, because the investor has already built in its costs and most of its risk. Here is how to think it through.
Why a pre-approval is never a promise
Remember that an investor who gives you a pre-approval “subject to underwriting” can find any reason to cut the file, change the pricing, object to the appraisal, or ask for documents or information you cannot get. It is entirely in the investor’s discretion.
So weigh where you are in your processing and packaging experience, and how able or willing you are to risk the costs of appraisal and title. At the time of writing, our office estimated those at $800 to $1,000 per file. How much more will you make for the risk, and are you in a position right now to take it?
How a file moves from pricing to approval
Here’s how it typically goes.
Get the file priced
You submit a copy of the note, credit on the payor, the closing statement, and a basic worksheet and description of the property. Most investors will price the file with just this information. Only a few require a complete package before pre-approval, with pay records, proof of fire insurance, mobile home titles and so on.
You can gather that information while you wait for the title report and appraisal, which is a better use of time. Keep in mind that even after you get a pricing offer based on what you provided, the investor can learn something new or reread a credit report at any time and change its pricing.
Or package it fully first
You also have the option of putting your entire package together without pre-approval, if you are sure the deal is a terrific one that will get funded. You can then get final approval and set the deal for closing documents and funding.
This can be risky unless you are absolutely certain there won’t be more underwriting issues. I don’t recommend it for notes on commercial properties, because far more underwriting issues come up there than with residential properties.
Read the pre-approval form
Once you send in a deal for pricing, you will probably receive a pre-approval form stating the number of payments the investor will buy, at a certain yield or minimum discount, or at a particular investment-to-value (ITV) limit. Most investors publish their wholesale rates, but they are all open to interpretation.
What wholesale leaves on your plate
If you go wholesale, your job now is to gather the rest of the documents and information listed on the investor’s conditional approval or pre-approval form. These are usually the items on almost every investor’s document request list.
Your pre-approval is conditional. It is subject to:
- Your gathering and providing every required document, including a thorough pay history and employment information and verification on the payor if required, the mobile home title, affidavits, proof of fire insurance, proof of tax payments and so on.
- The appraisal showing adequate value in relation to the sales price, and whether there is deferred maintenance, adequate pride of ownership or any other valuation issue that may affect the investor’s comfort and interest.
- Title being clear and clean.
- Acceptable conversion documents being signed by the payor and the seller.
- Anything else, in the investor’s discretion, that might upset the apple cart.
