Recently, there has been allot of hype about how to present a offer to purchase when the lenders wont' provide a PRE-APPROVAL LETTERS So I did my research and found this very informative post by Joe Mezler, for more information you can contact Joe direct at Joe@Joemezler.com With no futhure ado here is Joe's Blog of Are Pre-Approval Letters Dead? NO, just a minor change in thinking-
Can you get or even give one in today's market? There is a lot of confusion with Lenders, Loan Officers, Home Owners, and Realtors in regards to the sweeping new Good Faith Estimate rules and how they apply to the industry. A LITTLE PRE-APPROVAL LETTER HISTORY
Years ago, the standard way of buying a home was a potential buyer met with a Real Estate Agent, and wrote a financing contingency into the offer. After the offer was accepted, the potential buyer went searching for financing. Assuming all was well, the buyer got a home loan and closed on the home. Unfortunately, some people didn't qualify, and after a few weeks, the home was put back on the market. The Pre-Approval Letter was seen as a way to eliminate having the house off the market, and give comfort to both the listing agent and seller that the buyer could actually get a home loan by having their financing reviewed PRIOR to making any offers. Get a home loan in MN WI Minneapolis St Paul Rochester Duluth Marshall Madison MilwaukeeMany of the original pre-approval letters were written with a maximum approval dollar amount; "Mr. Homebuyer is APPROVED for up to $200,000". While this served the purposed, over time, most pre-approval letters changed from a maximum dollar amount, to the actual property address; "Mr. Homebuyer is approved in an amount significant enough to purchase 123 Main St". This was done to retain the buyers negotiating power. For example the customer can afford a $200,000 home, but is making an offer on a home listed at $190,000 and they are offering $180,000. If the listing agent and seller see an approval letter listed for $200,000 and a purchase agreement saying $180,000 - the sellers had an unfair advantage.
In theory, this sounds like a great industry practice, smart for both buyers and sellers. The pre-approval letter, if done correctly by the Loan Officer is still valid today. Of course a pre-approval letter, is still only as good as the person writing it, and is NOT binding on the lender. Because some lenders don't do a proper and real pre-approval process, many Real Estate Agents now ask for "Commitment Letters". A Commitment letter is supposed to be issued AFTER a full and complete application has been submitted to underwriting, and should include a review of the appraisal and title. This document is supposed to tell the seller that everything has been finalized with the lender, and they are just waiting for the closing date. Commitment letters are also NOT binding on the lender! FYI TO REALTORS: Lenders do NOT care or pay any attention for "Commitment Dates" written into purchase agreements.
WHAT HAS CHANGED? The Good Faith Estimate provided by mortgage companies is NOW BINDING. Without knowing all the property details (purchase price, taxes, seller paid closing costs), the mortgage lender is taking greater risk by providing a BINDING Good Faith Estimate without all the transaction details. The new rules require lenders have six (6) main items, including PROPERTY ADDRESS, to be mandated to provide the binding Good Faith Estimate. PRE-APPROVAL LETTERS TODAY Can you, and should you continue to get a pre-approval letter today? YES. There are no real changes to the basic theory of the pre-approval letter. The difference is that smart Loan Officers will tell Realtors they DON'T WANT TO KNOW THE PROPERTY ADDRESS until AFTER a successful offer has been made! Once the successful offer has been made, and now knowing all the exact transaction details, the mortgage lender will have three days to provide the buyer with their binding Good Faith Estimate. IN THE END All the changes will simply mean that the days of a pre-approval letter WITH A PROPERTY ADDRESS are GONE. They will be replaced by either generic pre-approval letters with no address, or pre-approval letters with a dollar amount. I have instructed the Real Estate Agents I work with when calling for the pre-approval letter to give me the OFFER price only (no address). I will then re-verify the buyers offer price fits within the buyers pre-approval parameters (debt-to-income, loan-to-value, etc), and write a pre-approval letter saying "Mr. Homebuyer is approved for $200,000
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