Is a Prequalification Letter Worth the Paper It's Written On?

As Bill L says, we only accept pre-approval letters and most agents worth their salt call the buyer's lender to double check.  In some instances we ask for proof of funds.  There is only so much anyone can do to ensure a healthy buyer.  So far, I have been lucky.

Sally pre-qualification letters are only as good as the Loan Officer who has pre-qualified the Borrower.  That is why it is important to use Loan Officers that do their job the way it should and needs to be done.

I have had about ten deals fall through this year because the lender assured me that the buyer was good to go and then the wheels fell off before closing.

Sally - oh, so true. While I personally have been fortunate I know a numebr of folkf who have run into big problems. I always like to talk to the mortgage officer to get the lowdown and the reality.

Jeff

Woo Hoo, You nailed it. When I check on the lenders that I get pre-approval letters from, I ask a lot of tough questions. I also sum up the lender as to how they are going to perform. And on a few occasions I got the answer we were hoping I wouldn't get. Marginal at best. Just because they tell us the buyer is qualified, I want more than a letter. I want to know what kind of conditions they will face and especially what the plan is to over come them when they come up.

I love that you wrote this and that once again, the 30 second quiz by the lender generating a letter is not enough. At least for my client, it isn't.

PS, On a personal note ,I finally met Kathy. She was at REBarCamp. Drop over to that post and look at the pictures. Got at least a few of the AR attendees. Though there were a number there that I finally met, I didn't get nearly enough photos.

I prefer to speak with the loan officer for my buyer clients before submitting an offer.  I think it should be commonplace to do so and in everyone's best interest. Good points here Sally

Sally - Good for you. Too many times these days people are just taking these letters as gospel when the truth is they aren't even worth the paper they are written on.

Sally - In my area the strongest and less rsiky buyers are those who come from lending institutions that take 2-3 days to give a decision on pre-approval. I'd rather wait for an answer than be uncertain early on and suffer the pain later. 

Sally George makes a good point, the letter is as good as the person issuing it.  I have had a couple that went badly because my recommendations were ignored. 

Sis - It's pretty simple.  Take a 1003 application, gather supporting docs to substantiate the information presented and if all that checks out ... run a tri-merged credit report.  Then, and only then, will you have something in black that is worth the white of the paper it is presented upon.

It seems there are a lot of folks in this thread that are in agreement here, yet the practice should meet, if not exceed, the preaching of such matters.

To an extent, I agree with Bryant.  I'm pre-qualified for pretty much anything, as are most folks.  A 'pre-qual' is a sales pitch to garner interest, at least generally.  I find little sense in garnering interest if you are wasting everybody's time.  Efficient & selective marketing is what I'm about...

Pre-qualification means little more than nothing.

Pre-approval may not be much better.  All pre-approvals are not created equal.

A buyer's agent who has not verified that the buyer is truly pre-qualified has done that client a disservice when it comes to negotiating price or competing in multiple-offer situations.

My buyer closed on his first home Monday.  I won't go into the story, but months ago I would never have thought it possible.  His ability to get financing was questionable and getting that letter took some time.  This lender was not willing to provide it until he was sure (it was a portofolio loan with a bank).  The seller was a nervous wreck for weeks, but he knew what the situation was when he accepted the offer.  Thankfully it worked out.

I insist my buyers get pre approved, I do not believe the pre qual is worth the paper it is written on. Sellers want to see that potential buyers are actually able to purchase the home, and the pre qual letter does nothing to ensure that

I even had a contract on one of my listings where the buyer had a preapproval letter that stated they verified the cash funds.  The contract later fell out because the buyer did not have the cash.  I am amazed how many mortgage brokers are giving out bogus loan approvals.

I go directly for the pre approval. And it helps to have done business with the lender in the past.