What can a Buyer really offer a Seller as proof that they are qualified to purchase their home?

Lori - I like your requirement of the sellers or the listing agents preferred MLO/lender speak with the buyers chosen MLO/lender; I actually highly encourage this and even state so in my approval letters.  Professionally, I wish more listing agents actually did this but sadly many don't.  As Rodney #50 states, until Realtors/agents start insisting on better qualified clients, you will continue to see transactions falling apart during escrow. 

Furthermore, why should the seller or the listing agent be the ones questioning the pre-approval.  Every Realtor/agent should be verifying their own buyer clients pre-approval long before the buyer ever gets into escrow.  It's one thing to ask a prospective new client if they are pre-approved but what Realtors/agents should be doing is going one step farther and actually talking to their buyers MLO to find out what has been done to pre-approve the buyer.

Just the other day, I had some Realtor telling a prospect I was working with that they (the buyer) should just get pre-approved with their in-house lender because I was asking for way too much and refused to give the prospect a pre-approval letter until I got all the documentation I was asking for.

Anyway, as I pointed out earlier, you can demand that any buyer submitting an offer on one of your listings must double-app with your preferred MLO/lender but be prepared for some prospective buyers to pass up on your listing and it won't be because they aren't qualified; it will be because they don't want to share their personal info with parties who are working for the seller.  I speak from experience when I say that.

I have 3 houses on the market that have gone through 3 buyers each. That's a lot of work for no pay. Underwriting today is vicious!

Dear Lori,

It happens. I try to get my buyers underwriting pre-approved before going out there to write offers and still, occasionally there is something that pops up at the 11th hour that makes settlement impossible. It is frustrating to have it happen twice to the same client. I had a listing some years ago that went through four buyers before selling. It was gorgeous. At the same time, I had a dog that I thought would never sell, that settled quickly in three weeks. So long as your sellers know that it is not their or your fault and you can laugh about it later, you are doing your job. If RE were that easy, everyone would be doing it.

I've noticed that if my BS detector goes off, I'm usually right.  I call and try to see how quickly they respond.  I also google the lender if I'm not familiar with them to see if they have a "real" office and staff, etc...  I had one one time that was a CPA that was licensed to loan on the side.  Ironically, the deal closed and the transaction, although taking more of my time than normal was actually quite good...  You just never know.

All the best ~

I think Corrine (#8) has the right plan - insist on full doc approval. Don't trust B of A.

Meanwhile... as much as I'd rather blame the banks and their sloppiness for everything, it might have been the buyer's fault. They might have done something stupid at the last minute. We had buyers once who went out and bought a new car a week before closing - and of course the closing never happened. Their debt to income and their scores were both shot.

I personally have had no problem with BofA - but I get letters that have a loan commitment with them. Will have to be on the lookout for a mere pre-qual or pre-app letter.

Sharon

Echoing Marte above I don't know how many deals I have had fall through because the boyers went shopping for their new house and ran up their credit card balances at the last minute. You tell them and you tell themdo not use your credit cards at all until after closing. But often they don't listen.

As for double-apping it is simple. It hursts the buyers credit everytime a lender checks their credit. It is really that simple.

Two in a month, really! Wow some people have all the luck! On the other hand its got to get better right?

Make the buyers get pre-approved by a lender/mortgage pro who YOU rely on.  Or ask for more money down.  It's tough.

I've found that pre-approvals, when prepared by a loan officer, are worthless.  What we need is approvals from UNDERWRITERS.  I know that an underwriter's time is more valuable that a loan officer's time so that is why the loan officer is tasked with basic analysis of a buyer's financial fitness.  I think that we need a new model where a buyer can pay a small fee ($100 - 200, plus or minus) to obtain a full approval (subject to the property) from an underwriter.  This approval should fully underwrite a borrower for 30 days from the date of the letter.  

As listing agents and sellers, we should demand to know whether what kind of approval level a buyer-prospect has before we approve appointments.  If I were a seller and someone asked to tour my home during the dinner hour, for example, I'd like to know whether this buyer is fully approved or not before I disrupt my schedule.  I would be more inclined to do that if I knew that a buyer had a "Underwriter's Approval Letter".  

Word of experience on a Bank of America PQ letter: definitely not worth the paper it's written on when calling in to the REO department for a mandatory PQ before offer or to the 800 number.  The details do not matter to them.

I prospective buyer called me to get PQd on a 160K sales price, as she was "separating from her husband".  After a 15 minute conversation, I realized that she was not "separating" as most of is know it --- "we're not dividing assets or liabilities, I'm just trying to give him a wake up call".  Now that's a game changer.  Based on that slight change in definition, I PQd her for a 55K sales price.  That caused a response of "So how did Bank of America PQ me for 160K and you say I can only borrow 55K?"  Devil's in the details and I have a reputation to keep.  I don't want a seller in contract with a buyer that cannot close.  Bank of America's inbound call center employees couldn't give a hoot if the borrower they PQ is PQd correctly or not.  They are hiring new originators at $12/hour.  What do you expect? 

The NMLS test isn't a test on how to PQ a client.  Kind of like the RE licensing test - neither has much to do with day-to-day activities.  Do you know the law and the penalties that go with a violation. 

I'm thankful the first manager I had as an originator had no clue how to ensure a borrower would be able to close - his notion was to slap it against the wall and some would eventually stick.  "Chasing shadows" was a great analogy I've heard used. 

I ask a boatload of questions because I have to ensure the loan will close when I put my name on a PQ letter.  I have to read an entire credit report, including the public record section.  I have to read an entire bank account statement, including the overdraft loan account details, looking for NSFs and unusual deposit history.  I have to read the entire paycheck stub, including withholdings for uniforms, child support, tax liens, 401K loans, and the like.  I have to read the tax returns and look at them as if I'm an underwriter.  Discrepancies matter.  All of the fine details matter.

I offer second and third opinions on financing for a reason --- I've only conceded a borrower to another lender's better financing option once in the last 12 months.  I have the reputation that if I cannot get a deal closed, it cannot be closed.  And I sure as H do not work for Bank of America.

Lori, I wrote a blog the other day about exactly the same problem. I had several closings bust in the last minute because the buyer was pre-approved but the underwriter did not approve the loan. Very disappointing and also time wasting. Donnes comment shines some light on it now. Thinking about it, all loans had pre-approvals from big banks.  So the suggestion to get prospects pre-approved by a lender you trust makes perfect sense.

Lori - I LOVE MELANIE'S COMMENT #68!!!  That girlfriend is how you pre-approve a borrower.  She sounds just like me.  When a prospect contacts me, I ask so many questions first, long before I ever ask for one single piece of documentation.  I have often been chastised by my Realtor partners for scaring the holy beejesus out of their clients that they refer to me with all the questions I ask and the boatload of documentation that I ask for.  Before I ever put my name and contact info on a pre-approval letter, I make sure that my borrowers are actually capable of closing a loan.

Lori - I would comment but everything has already been said.  I've had this happen to me once in my 5 years so I completely understand.  Now I'm on the Seller side of 2 pending to close right now and I'm praying this DOES NOT happen!!!! Good Luck :))

Wow, usually if I get an approval from a big name lender, I think I am ready to rock. However, I have also seen 2 Wells Fargo deals go south. Maybe the loan officers are just issuing letters without documentation? My B of A rep is so good, if she says the deal will fly, it will.

I have had this problem.  I think you really want to look at the lender and loan officer, maybe get some idea of what they mean by pre-qualified and how far they are into the proccess.  BTW I have had pre-quals from big banks that were useless, so it is not size it is integrity and competence.

Good grief, Lori!  I cannot even imagine how "irritated" you must feel.

Gerard, I love your idea of requiring an "underwriter's approval letter" for a small fee.