A very common and expensive mistake in seller finance is failing to properly pre-screen a borrower before going under contract and starting the underwriting process.
When this happens you lose a lot of time waiting for the borrower to get all of their information in to us and for the underwriting, then to find out that the borrower has credit or income issues that mean you can’t create a compliant loan, or the risk level is above your tolerance.
At that point the lender is painted into a corner, and faces the ugly choice of either starting all over and finding a new borrower, or proceeding with a borrower who has a high risk of default.
You prevent this by pre-screening your borrower before submitting the term sheet.
This is not complicated and it does not take long. A brief conversation can help you identify 90%+ of the issues that later derail underwriting.
You’re not underwriting the borrower. You’re just filtering obvious problems early.
Ask a few core questions:
• Have you been current on housing payments for the last 12 months?
• How do you earn income, and can it be documented?
• Can you show a two-year income history?
• What other monthly debt obligations do you have?
• Any active bankruptcies, foreclosures, or judgments?
• Do all borrowers have an SSN or ITIN?
These questions alone surface the majority of deal-killing issues:
- Unverifiable income
- Insufficient income history
- Excessive debt load
- Active credit events
- Eligibility problems
Without this step, you’re often trying to put together deals around borrowers who aren’t going to work out, which wastes everyone’s time.
I have a simple pre-screening guide you can download here, https://calltheunderwriter.com/wp-content/uploads/2024/10/Pre-screening-guide.pdf, and there is more detailed information on this topic on the website here:
I also created this prescreening form: https://forms.zohopublic.com/calltheunderwriter1/form/BorrowerPreScreeningForm1/formperma/pNJjs2fbIlmB_K-sx_Wd7cK103XVHYvxvrABTAKIJXA. To use it you can send it to your borrower and have them fill it out. It will ask them for your email address. As long as they submit your email correctly you’ll be sent a copy of the results (either way we’ll have a copy in our records we can retrieve if needed)
This is one of the simplest ways to improve the quality of your loans and the velocity of your deals.