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Is my loan approved or not? I have a letter!

Shocked couple John and Mary are frightened and more than a little upset. They need to ask for an extension on the closing of their new home purchase because the financing is not ready. They made an offer on their new home 26 days ago and had no idea their Loan Approval Letter was not worth the paper it was written on! Now their Earnest Money is at risk and the money they already spent on a moving company is in question. In addition, they have already paid for the appraisal.

When is a loan approval not a loan approval?

This is not a frequent occurence. It does happen often enough that savvy Realtors® and experienced sellers are somewhat wary of Mortgage Pre-Approval Letters from loan officers they don't know through previous transactions. The reason they are wary is simple. Experienced Realtors® know that Pre-Approval Letters are written by loan officers, and loan officers can't approve loans!

This is the follow up article to yesterday's post on pre-approval letters and why a buyer should have one.

Colleen Kulikowski of Orlando asked for a more detailed explanation of pre-approval letters and potential pitfalls to offer clients in her part of the country. (The link above will open in a new window)

Another Real Estate Article from SoundBiteBlog

Posted by Mark Flanders on 06/11/2007 07:50 PM

Comments (16)

mortgage preapproval letter, preapproval letter pitfalls, soundbiteblogcom, colleen kulikowski

This post has been included in Florida Information Orange County, FL Information Orlando, FL Information

16 Comments on Is my loan approved or not? I have a letter!

JUN

2007

great educating posts...I think buyers stay confused with preapproval and prequalify terms. It is our job to be sure they understand so they are armed with the right documents and understand their positon in the process of buying real estate.

Mark: I read your profile and was interested in how you became involved in providing loans to the automobile industry. I still own an auto leasing company, and was in that business for 20 years. I have NOT gotten any clients out of the auto industry, but my lease clients have become a great source of business!

Great post on pre-approval letters, and thank you for the comment on my post about subordination. Some posts only another LO can appreciate.

Mark, good point "Pre-Approval Letters are written by loan officers, and loan officers can't approve loans!" No matter how good the Loan Officer is, there is no Loan Approval until the loan goes through underwriting. That is not to say that a good Loan Officer does not have a very good idea about the chances of the loan being approved, because if the Loan Officer took a full 1003, ran Credit, looked at documents, and ran it through Automated Underwriting he can have a very good idea of whether or not the loan is going to be approved. But the final say so lies with the Underwriter, and until it gets approved there, it is not approved.

JUN

2007

Great post, discouraging news! This is an area that I now know I need to spend more time. I have been feeling so much better getting the pre-approval letter rather than the pre-qualified letter that I did not dig deeper to see what's really going on. I wrote a post on the differences between qualified and approved, but really they are both written by the loan officer and just may be of equal value = none.

see my post: Pre-APPROVED or Don't Offer!

In Arizona, we have what is called a "Loan Status Report." Loan officers are to meet with the buyer, run their credit, tri-merge, get copies of taxes, paycheck stubs, etc. FIRST. They basically do a loan approval based on their expertise in the loan market. That is why it is so IMPERATIVE that we work with a loan officer that we can trust. This LSR is attached to the offer to purchase per the language in the contract. No longer do we get a loan "approval," it's a real loan. The loan officer is basically commiting to lending the buyer the money. Since I work with someone who is especially qualified in this arena, I am always confident that the closing will take place. On the other hand, I've also been a listing agent where the buyer's agent has no clue about who the buyer hooked up with for the loan. That is WHY it will soon be a requirement for loan officers to be licensed in Arizona. Too much fraud!!!

JUN

2007

Teri, I agree all loan officers should be licensed. That is the least they can do.

JUN

2007

Do you mean you would not accept a pre-approval letter from LoKal Wayman?

Tony that was cute. If LoKal have a license and an approved buyer, send them on. My job will be easy to sell, sell, sell!

JUL

2007

Mark,

Thanks for the post. Here in New Jersey we migrated from the "often" useless pre-qualification letter to the pre-approval letter. We quickly learned that these were also being distributed without any substance. Unfortunately, the practice was seen more amongst brokers, rather than the bankers. Naturally, the pendulum swung swiftly in favor of the: Wachovias of the lending world.

JUL

2007

Here in California Loan officers have to have a RE license. Now, that doesn't mean anything unless you know the loan officer and have worked with them before. We still get the very unprofessional pre-qual/pre-approval letters. This is a signal to me that I have to do more home work on the buyers side. I never true just letter at face value.

JUL

2007

Mark -- Thanks for the thought provoking post. As a loan officer, when I issue a pre-approval letter I am approving one leg of a three legged stoll. The other two legs are the appraisal and title. Any problems on those two legs negates my leg. Your point is well taken though. Aloha

JUL

2007

I have a buyer who just learned about this the hard way when he thought the guy buying HIS home was pretty much a done deal so we could set a closing date for June 19th on the new house and that day came and went with his house still not closing and my seller getting very aggitated because we are STILL waiting on the final approval to go through on the other house. Contingency deals can be a real headache.

JUL

2007

very true

i dont issue pres unless i have reviewed stuff and KNOW i can get it done for a fact

every realtor that i deal with knows that when they send a client tpo me and a pre approve them that its gold

I dont want to left w egg on my face and piss my realtor off

you issue fake pres then the realtor srtops sending you clinets

if i cant do it i tell them from the get go

if they get a pre from me i have reviewed credit and income and have discussed the scenario and have already priced it with 2-3 wholesale lenders

reputation is everything......if you are just a yes man you wate the clients time, the realtors time, inside tsaffs time and your own time

JUL

2007

Mark - Been kinda of silent lately. Waiting for another monster post over at Frogland. It felt weird not having one of SoundBites posts on my faves this week.

AUG

2007

Not having financing in place can be frightening for anyone...

SEP

2007

Mark -- thank you for your posts on this topic. As a listing agent however, we've still had purchase and sale contracts fail even when the Buyer has a legit pre-approval letter. Somewhere in the traditional 30 days between Mutual Acceptance of the Offer and Closing, the Buyer torched their credit by purchasing a car or furniture, etc.

As a counter measure to the above, some listing agents have put into Counter-Offers the requirement that all contingencies, including Financing, be waived in 14 to 17 days. In this way if the Buyer cannot truly qualify, the home is back on the market two weeks earlier than it would be otherwise.

From your point of view, can the Mortgage side of the transactional equation reasonably determine full approval for a Buyer two weeks prior to Closing, and then commit to that approval through Closing; or, does this create a "fire-drill" that may kill more deals than it saves?

Thanks!

John

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