Consider the Buyer Financial Information Form in a Real Estate Transaction

Consider the Buyer Financial Information Form in a Real Estate Transaction
Posted By Jeffrey Hogue @ Aug 7th 2020 4:10am In: Real Estate

The Buyer Financial Information Form (BFI) may be one of the most important, misunderstood, and debated documents in real estate. After all, subjects relating to individual privacy often lead to vigorous debate. As with all sensitive personal information, it is essential to understand when providing it is necessary to achieve your goals and when it is not.
 

Those of you that have purchased or sold a home understand how much information it takes to complete the task. Homebuyers get pelted with requests for personal data from the time they inquire about a home until long after they own it. The info requests are four times greater if they need a mortgage. The intelligence gathering on the seller side is equally as robust. For example, at the onset of the listing process, the seller must fill out a ten-page document called the Seller Property Disclosure Statement, and that is only the beginning.

 

Why Consider the Buyer Financial Information Form (BFI)

In July 2018, I wrote an article called "Berks House Deals Falling Apart at Higher Rate Than Normal." The article featured data showing over 10 percent of all home purchase agreements in Berks County did not make it to settlement. At that time, the national average was around 3.5 percent. I sought an answer to the anomaly and discovered most counties around Berks had lower transaction failure rates. One interesting observation was that several of these counties required a BFI submission with every offer. Needless to say - real estate brokerages and agents in the Berks area rarely, if ever, requested the BFI.

 

I shared my findings with my seller clients and told them I thought it prudent to ask all buyers to submit a BFI with every offer. I received a fair share of pushback from my local real estate colleagues, but thanks to a robust seller's market, they complied. It may have been one of the best pieces of advice I ever gave my seller clients. The BFI provides a level of clarity and understanding of the buyer's overall qualification and ability to purchase that exceeds most mortgage prequalification letters.

 

A mortgage preapproval letter alone, while helpful, does not paint a full picture. Many mortgage lending professionals have shared with me how busy they are. They have little time to close the deals they are working on, let alone process a detailed mortgage prequalification with the hundreds of would-be home buyers submitting offers every day. Prequalification letters can be vague, full of disclaimers and conditions, and rarely are signed by prospective buyers. Without a signature, there is no indication that the buyer has even seen the letter. Either way, it is not an impressive look for a prospective buyer in a bidding war.

 

In cash only deals, it is customary to ask for proof of funds. The BFI is perfect for this task. In the same way, most transactions that include a mortgage require funds from the buyer. For example, if someone finances 80 percent of a $300,000 home, they will need 20 percent of their own money plus enough funds to settle, which may total $75,000. The BFI should show proof the buyer has the funds. You will not find this information on most mortgage approval letters. On the contrary, one of the conditions of the letter may be proof of funds.

 

How the Buyer Financial Information Form (BFI) Benefits the Buyer

Anyone shopping for a home today can tell you that available home inventory is abysmal. When a buyer finds the right home, you can almost guarantee that other buyers have seen it too. I have been practicing real estate since 1993, and I have never witnessed as many multiple offer situations as now. Often, these offers are very close. A BFI provides the next level of information that can tip the scale in favor of the most qualified buyer. Submitting a quality BFI is better than writing a letter telling the seller how much you love the house.

 

Buyers ask sellers to trust them and take their homes off the market because they are qualified for a mortgage but still want the deal to be contingent on getting the mortgage. If the mortgage is no issue, then why the contingency? It is because the buyer needs more information from the lender to be positively sure. That is what a BFI does for the seller, gives them more information on whether they should remove their home from the market for that particular buyer.

 

Buyers should be aware of the risk the seller is taking. It is a terrible thing for the seller to have to put their home back on the market after a failed transaction. They lose much of the momentum you get when a listing is fresh and new. It can also cause people to question the reason it is once again available.

 

To me, the Buyer Financial Information Form is equivalent to the Seller Property Disclosure Statement. The Seller Disclosure is a necessity of Pennsylvania Property Transfer Law, and the BFI is optional, but so is a mortgage prequalification letter or proof of funds. Even so, there are very few agents who would submit an offer without the PQ letter or proof of funds.

 

An excellent real estate agent will give their buyer options on how to own the home they desire. They should not throw out the BFI because they believe it infringes on someone's privacy. That is solely their client's choice and could be the piece that tips the scale in their favor.

 

Knowledge is Power!

Jeffrey C. Hogue


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