Pre-Approval Letters, Are They Helping or Hurting You?

When you present your preapproval letter to the listing agent does it help, or hinder your chances of getting an accepted offer? Financing preapproval letters are widely dismissed by the real estate industry as not being worth the paper they are written on. The reason is there are no consequences for the loan officer who issues a preapproval letter and is unable to follow it up with a full approval. It's especially true in this market when underwriters (the people who actually approve your loan) are under strict scrutiny and are nitpicking every detail of every potential loan looking for potential problems.

This is also the result of earlier years when loan officers were disinclined to spend allot of time getting initial approvals and would produce letters like flyer's knowing some would stick. I'm not throwing good loan officers under the bus here. This was a market reality born from too many poor loan officers and fickle buyers who would drop you for a $20 difference in closing costs.

Here is the verbiage from a B of A Approval letter;

Not too inspiring. My first reaction as a listing agent was B of A?  I have the unfortunate task of dealing with them daily on short sales. I recovered from the initial reaction and had a few questions.

1. Did the buyer actually make a loan application?
2. Has the credit been pulled and reviewed?
3. Have they provided bank statements and other required documentation?
4. Has the buyer provided income verification yet?
5. Do they actually have a loan program picked out yet?
6. Do they actually meet the underwriting guidelines for that loan program now?
7. Has an underwriter actually looked at the file or has the loan officer talked to an underwriter regarding this file.

This example instills no confidence that anything has been done beyond a phone interview from a too big to care banks call center. It's not really worth the paper it was written on.

In order for your pre-approval to have some weight have your loan officer include the following elements;

1. A statement that loan application has actually been made.
2. Income documentation has been provided and reviewed.
3. Asset documentation has been provided and reviewed.
4. Credit has been pulled and reviewed.
5. Based upon the provided documentation the borrower meets the underwriting guidelines for the FHA/VA/Conventional loan program selected.
6. There are no outstanding issues that would prevent the borrower from obtaining a loan (like a bankruptcy).

The typical disclaimers are going to follow but at least the listing agent reviewing the letter knows the buyer has actually met with the loan officer and brought bank statements, pay stubs and other basic documentation in for review. It is more of a hassle for the borrower to provide this information but it demonstrates they are more serious, committed and thoughtful about what they are doing. In the current real estate and lending market this carries allot of weight with regards to how your offer is viewed.

If you really want to have your letter seriously considered have a well known, veteran loan officer take your application and put their name to the letter. Bringing in a computer generated pre-approval letter from some online lender is not going to help your offer get accepted and suggests to the listing agent that you are not serious, possibly flighty, and probably have qualification issues. You may not, but history suggests there is a probability that you do.

If you really want to get a great deal in this buyers market take the time to sit down with a great loan officer and thoroughly review your financing options BEFORE you go out and tie up a property. Take the time to provide them every thing they need to really preapprove you. Your time and energy will be well spent. You will be more confident and capable and the seller who's house you are buying will have more confidence in you as well. That alone should help you get a better deal. Even in this market....especially in this market, well qualified buyers have a distinct advantage over their competition. In my market the best properties are still getting multiple offers and preference goes to the best qualified buyers.

Are you thinking of buying? Call me and I will set you up with a great loan officer that will be an asset to your offer and go the extra mile thoughout the transaction.

Ken Crotts

Broker, Certified Short Sale Specialist

www.KenCrotts.com

Ken@KenCrotts.com

425-432-8600

 

When Credit Card Companies Lower Your Credit Limit

 

 

When Credit Card Companies Lower Your Credit Limit

 

Has this happened to you? It may have happened and you didn't know it because it was tucked into the fine print of your recent bill. But if you aren't using the full limit..... Does this action by the credit card company help you or hurt you!?!?!?!?

It will hurt!! Plain and simple.

There is a term used by the experts in credit scoring.... And that word is Utilization. We are referring to how much of your revolving credit lines that you are currently using. And this is about 30% of your FICO Score.
So how can this hurt? Let's start with an example:

Joe owes $750 on his Visa card. The limit is $2500. Joe is currently using 30%(750/2500) of his credit limit. Experts agree that you should strive to keep that utilization % below 30% and the lower the better. Why? Because once you start approaching the higher percentages.... The FICO Scoring Method sees you as a great risk. Think about it.... Someone with 30% utilization vs someone with all of their credit cards maxed out.... Who is the better risk? Well, FICO knows.... and the person with the high utilization will have a much lower FICO Score as a result.

Ok.... So Joe is being responsible. His hot water heater breaks and he put that purchase on the card to the tune of 30% utilization. But then the credit card company lowers Joe's limit to $1000 to reduce their exposure to risk. Overnight, Joe went from a responsible 30% to utilizing 75%(750/1000) of his credit limit. Ooooops!!! Now what? Well, it is quite possible that Joe's respectable 720 credit score falls into the high 600s. Let's say 660 or so. What is the impact? Go try and buy a car with a 660 FICO and  720 FICO and see what interest rate difference you get. Try to buy a home on a conventional mortgage with a sub 680 FICO Score and see the if you are eligible for PMI.

 

But, Tom, I pay off the balance in FULL each month? So this doesn't affect me!!
Not so fast.... If you put $800 travel expenses on that $1000 limit credit card and that gets reported to the credit bureaus on the 4th of the month..... Yet you pay your bill on the 5th.... What number will FICO use? That's right, they will assume 80% utilization and dock you many points for it right then and there.

 

So, how can you protect yourself?
Keep more than one credit card.
Spread out large expenditures over a few cards.
Open a store card for that one time purchase(hot water heater example)
Know when your credit cards report your balance and pay history to Experian, Equifax & Transunion so you can pay off/down those cards before you apply for that big purchase like a car or new home.

Note: FICO says that it adds up all of your limits and all of your balances to calculate FICO. However, I have seen people suffer greatly by maxing out one card when they had 3 other cards with zero balance. Don't ask me why... This has been experienced by me more than once.

This credit scoring tip has saved many of my clients thousands of dollars... And it could save YOU many thousands too!!!

 

Did you know: That if a credit card company raises your interest rate that you have a right to cancel the card and pay it off under the old terms**?

** Remember: If you close that account, it lowers your total revolving credit available balance and could raise your 'utilization' which we discussed.

 

Tom Burris
DallasLoanGuy.com
Dallas, TX

http://www.dallasloanguy.com/

I write about Texas Home Loans , live in the Dallas, TX area and lend across the entire Great State of Texas!!

 

 

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High Offers Offset By Low Appraisals - Fair And Balanced? Or Unfair?

With the amount of offers coming in on REO properties(Bank Owned Properties), there has been a new trend among buyers. The trend is to just offer as high as possible to get the property under contract. After the contract is accepted by the bank, they have to get an appraisal for the loan.

The appraisal comes in quite a bit lower then their original offer price, which means the buyers won't be able to get the financing. These buyers then have the right to withdraw from the contract based on the appraisal contingency. The deal is dead right? 

Not so fast. The buyers agent has been planning this all along. The agent and the buyers will submit an addendum to the price to meet the appraisal, and will re-submit to the bank.

Now, the bank wants to get this deal done, and knows the same thing will happen with any other buyer. The appraisal has already been done. So, the bank just accepts the lower price, and the buyers get away with it. They knew the appraisal would not meet the original offering price, and they get a great deal.

With the new appraisal guidelines, this is happening more and more.  Appraisals are coming in low, buyers are aware this is what's happening, they are offering high to get the property over the competition, and just wait out the appraisal to get a great deal.

How fair is it to the buyers that put in an offer closer to asking price?  Is this fair and balanced? Is it unfair to the other buyers that put in a reasonable offer? Or is it a smart way to get your buyers the house they wanted?

Thank You for Your Service: Now Get Served for Free!

Veteran's Day is coming up in just one week.  It's an important time to pause and say thanks to those who have served our country so valiantly.

To honor our United States veterans, some local restaurants will be providing free meals on Veteran’s Day (November 11th) to current and former service members.  Bring an ID card, DD Form 214, or something else identifying you as a Veteran (VFW/American Legion membership card). 

Here's some info on the free deals:

Applebee's (even accepting an old picture in uniform as proof of service)

http://www.applebees.com/vetsday/

Proof of Service: US Uniform Services ID Card, US Uniform Services Retired ID Card, Current Leave and Earnings Statement (LES), Veteran's Organization Card (VFW, American Legion), Photograph in uniform, Wearing uniform, DD214, Citation or Commendation.

 

 

 

McCormick & Schmick's

http://www.mccormickandschmicks.com/featured-promotion/Veterans-Appreciation-Day.aspx

The McCormick & Schmick's Veterans Appreciation Event is offered to veterans defined by the Veterans Administration, Title 38 US Code 101, which is "a person who served in the active military, naval, or air service, and who was discharged or released under conditions other than dishonorable."

Please present proper identification to your server when you are seated. Proper ID includes VA card, VFW card, American Legion card, discharge papers, DD214 or other Veterans ID.

Note that in an effort to accomodate as many Veterans as possible, restaurants will not be able to seat parties larger than 6.

 

Golden Corral: The Military Appreciation Monday dinner will be held on Monday, November 16, 2009 from 5 pm to 9 pm in all Golden Corral Restaurants. The free “thank you” dinner is available to any person who has ever served in the United States Military. If you are a veteran, retired, currently serving, in the National Guard or Reserves, you are invited to participate in Golden Corral’s Military Appreciation Monday dinner.

 

 

 

 

 

Lowe's: Lowe’s Companies, Inc. will offer all active, reserve, honorably discharged, retired military personnel and their immediate family members a 10 percent discount on in-store U.S. purchases made during the Veterans Day holiday. The discount is available Nov. 6 – Nov. 11. The discount is available on in-stock and special order purchases up to $5,000. To qualify, individuals must present a valid military ID or other proof of service. Excluded from the discount are sales via Lowes.com, previous sales, and purchases of services or gift cards.

 

Home Depot: The Home Depot is offering all active duty personnel, reservists, retired military, veterans and their families a 10 percent discount off their purchases in honor of Veteran’s Day. The offer is valid on purchases of up to $2,000 for a maximum of $200 between November 6 and November 12, 2008, at The Home Depot stores, The Home Depot Design Center locations, Yardbirds and EXPO Design Center locations.

 

 

 

 

Thanks you for your service and Welcome Home!

 

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If you plan to purchase or sell a home in the Northern Virginia or D.C. area,
you can visit my main Northern Virginia & D.C. real estate website at www.brianblock.com.

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