Recently there have been several posts here on AR with agents, loan officers and a couple of readers chiming in about pre-approvals, pre-qualifications and even Commitment Letters. In this very short post I am speaking only for myself and my companies and what he have, can and will do and the value of it. Specifically focus is on the commitment letter.
Pre-Qualification
If you get a pre-qualification letter from me you are getting a letter which says I have taken an application, examined the credit history and used an Automated Underwriting System to receive an approval level. No income statements have been verified, employment has not been verified and assets have not been verified. This letter means they have the credit history and have indicated they have the income, job history and assets to prove they are truly qualified. This letter can be had in as little as 15 minutes from the first phone call. My letter indicates only the credit has been examined and income, assets and employment have not been verified. Worthless? Not totally because credit tells a lot ... that's an entirely different blog.
Pre-Approval
If you get a pre-approval letter from me it means I have examined the income, assets, credit history, employment history, and have proven all the statement that we made on the application as well as satisfied any conditions of the AUS which apply to the borrower. I may or may not have seen an appraisal, title, home owner's insurance, and other factors related to the property. I also may not have finished the fraud screening in you (the agent) the seller, the appraiser, and the others involved in the transaction. If the deal busts after this it's because the buyer changed jobs, spent their assets, applied for new credit, or the seller or one of the agents has a fraud history or the appraisal, title or insurance has an issue. Valuable? You decide.
[UPDATED] - this can take as little as a day or as much as a few days depending on how co-operative the third parties are. Since it involves verifying rent and income those can be delays.
Commitment To Lend
You will not get a commitment to lend from me. Ever. Likewise from almost every bank and lender in the nation. Commitments to lend are of essentially no more value than the Pre-Approval from above. (Argue if you like, I said I'm writing from my experience and my viewpoint.) A commitment to lend can be issued at any time the bank or lender wishes. I used to work for a company that issued commitments to lend with about 2 pages of small print. Those two pages of small print turned that Commitment to Lend into a Pre-Approval in the first paragraph.
My experience with commitment letters
From the late 1900s through about 2008 my company and I were well known in Georgia among real estate investors. I was deeply involved, well sought by investors and even taught in the John Adams Real Estate Investment Institute at Emory University. What I saw from them about shady deals would pickle the toes of the average real estate agent or loan officer.
The very first Commitment To Lend I held was many years ago and it was a very official stamped and signed document from Barclay's Bank. The loan commitment was for $50,000,000. The "gentlemen" who were brought to my office by a couple of very well known former NFL stars - and I do mean stars - as they were attempting to raise $18,000,000 for a development on an island not too far from Florida.
The men brought at least 1000 pages of documentation to my office. It was all well bound, much of it notarized. It included tax returns, corporation papers, applications to the FTC, and a litany of other items. I listened, watch the eyes of these big football players sparkle and shine and watched them almost giggle as the men described the millions of dollars in profit that awaited them ...
Was it a scam?
Immediately following the meeting I shook hands with the men and the football players and I headed to Marietta Diner for some really good lunch. They asked me what I thought and I told them. They didn't like the answer. You see the Commitment To Lend was real enough. It was the 2000 or so words crammed into a run-on paragraph that made it pretty much more useless than a pre-qualification letter.
One of the conditions of the Commitment to Lend was that the men first raise $18,000,000 to be placed in escrow with the bank in London. Then there was a second approval process that needed to be completed. All Commitment Letters come with disclaimers and those disclaimers, in most cases, turn the Commitment To Lend into a pre-qualification with a more official sounding name.
Since then I have seen several "commitment letters", "letters of credit" and even some "German bearer bonds" not to mention a title to the rights of a dilithium mine.
If you think a commitment to lend is any better than a well performed pre-approval letter you've been the victim of some really bad pre-approval letters. This probably makes you ripe to be the victim of a really normal Commitment to Lend.
A Commitment Letter requires a lender to completely underwrite a file with no property. It still takes hours of work if done properly and most lenders are not going to commit their underwriters, processors, set-up team, and the others to even looking at a file until there is a real deal on the table.
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