When I first got in the business over 22 yrs ago pre-qualifing the buyer was our primary function before taking a buyer out to show property. We needed to know if they could afford the property before we showed it to them.

I hated doing it because in 1990 we had to disclose in writing who we represented and I mostly represented sellers so the buyers clammed up and didn't want to divulge to much information.

I was so glad when mortgage officers started pre-qualifing and pre approving buyers. It made my job so much easier.

My sellers also liked the idea too.

Thanks Jay 

Lorna, I never pre-qual my clients. Never. I only work with clients that have been pre-approved by a known, proven professional lender. Someone like Jeff Belonger, or Brian Brady, or Mark Flanders. Pre-qual is worthless in my book.

I'm with Rich.  There's too much I don't know since I don't specialize in it....I leave that part to experts who know what underwriters are going to ask!  I'll just be the house expert, thank you very much. =)

Unfortunately, some loan officers' pre-qualifications aren't worth a hill of beans, either.  I have run into numerous loan officers who don't even know the difference between a pre-qualification and a pre-approval.  Some have told me that a buyer didn't have a chance to qualify.  Wish I hadn't listened to them when the buyer ended up purchasing (and qualifying for financing) almost immediately.  Then there are those I was told wouldn't be a problem who turned out not to have a prayer.  I have learned the importance of working with lenders whom I trust.

I think that the problem is when a borrower / buyer gets the pre-approval based on expanded ratios.  There are loan programs that allow for a higher debt ratio with conditions.  When the time comes to process the loan and fulfill the conditions required by the underwriter and the borrower cannot provide the right conditions the loan will fall through.

Expanded ratios is a very dangerous spot for the borrower/buyer.  If that borrower uses their credit card to purchase one more thing on credit even if it's gas for their car they just screwed up their debt ratio.

Loan Officers should be required to include the debt ratio(s) and FICO scores on all Pre-Approval letters.

Lauren,

I may be the last one you'd except to disagree but I do. Certainly a REALTORS® pre-qualification is not as valuable as it use to be, but there are still a lot of reasons to do it.

We need to exam this from two points of view. The most common view is that of the REALTOR® guiding the client. With out your pre-qual how can you recommend or evaluate the lender? The reason I'm so opposed to one person acting as both the real estate salesman and lender is not because there are not well qualified people capable of doing both well, but because the client loses one professional. Part of providing great service is the relationship between the professions the clients simply get better service when everyone involved demonstrates an over lapping knowledge. As a lender I can't possibly know the local market the way the REALTOR® can, but I am familiar and I deal with a lot more O & A's than any one REALTOR®. You can't possibly know all loan the programs and their nuances but you can know enough to question any unusual recommendations. Both of us are able to question and even evaluate the appraisal, and we should also know title as well as the escrow company. Closings are the big test of overlapping knowledge and our fiduciary.

From a different much more personal point of view, you are being asked to invest your time and professional expertise and even your money on the expectation of a commission. When I left the bank to sell real estate the first thing I discovered was how little the buyers valued my time. I don't mind investing my time but I don't want someone wasting it. Without your own pre-quail you often get a lot of smoke blown up your... a direction.

There are no legal problems in evaluating the client's condition, you're not going to take a full 1003. Anyone who takes a client out to see real estate with out full identification and checking a credit report is insane! Yes I did say anyone. The women are in more danger of getting attacked but the men are in more danger of being killed. Besides once you start pre-quail'ing and pulling credit you must do it for all your potential clients to avoid discrimination.

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

William-  Thank you for you response.   I agree with you about being a Loan Officer and Real Estate Agent on the same transaction.  Too many things can go wrong and liability is a huge issue with me....I'm married to an Attorney and CPA who is the VP and General Legal Counsel for a major commercial real estate company in Dallas.  Consequently, I have free conultation whenever I have a question about the legalities of something.  Additionally, I feel that more can go wrong on the loan side of the transaction, so if something fell apart on the loan side I don't want to lose the entire transaction if I'm wearing both hats at the same time....

I actually never take a Buyer out to show them properties unless they have a pre-approval letter.  I also use the letter when I submit any offers.  I feel that if I'm going to research properties and spend a lot of my time with a Buyer then I expect them to at least get the pre-approval letter.  I think that pointing out that it's a form of security as well is a great point !!

My quick pre-qual is asking the Buyer a little info on their own perception of their credit history.  I ask them if they know what their FICO score is, do they have a few lines of credit and I will ask them if they feel that they have paid on their accounts on time.  From their answers I can tell what they might qualify for and I know different lenders and mortgage companies that have niche products and I will try and guide my Buyer towards a couple different alternatives and I also explain why I am sending them to those specific lenders or mortgage companies and I will set up some questions for the Buyer to ask the Loan Officers.  I know how loans are priced, so that is my guide as to what questions to ask. 

Here in Texas we do not receive a credit report with a pre-approval letter.  Mortgage companies and lenders typically don't supply their borrowers with a copy of the credit report.  If a person wants a credit report then they are advised to order one on their own.  Borrowers receive a document that shows their FICO scores. 

As a listing agent, one of the promises I make is that I won't show their property to someone until that prospective buyer has a pre-approval letter.  This keeps them from having to inconvenience themselves for looky-loos or get offers from people who can't follow through on them, as well as saving my time. 

As a buyer's agent, I ask if the buyers have a pre-approval letter and tell them their first step in looking for a home is getting one; it's a vital part of defining what they're looking for.  It's something that can be done relatively quickly that saves everybody a lot of time. 

Now, as for pre-qualification, to me that term has a different meaning than it once did.  The pre-approval letter is only part of it; I'm pre-qualifying the buyers from the perspective of, are they ready and willing to buy, or are they "just shopping"?  How much time and energy I'm willing to invest depends on how serious they are right this minute.  If they're "getting ready to buy", as opposed to "ready", I'll do my best to help them get ready on down the road, but I won't consider them hot prospects who should be shown a lot of properties because they're going to buy if I just show them the right one; they won't, they're not ready.  Finances is only a part of that pre-qualification, and a part that I leave to someone whose career is devoted to that aspect. 

i would be interested to see how realtors define 'prequalified' and 'preapproved'

even lenders do not agree exactly on what either are

Tom-  Thank you for you response !!    I believe that there is a gap between Loan Officers and Real Estate Agents. 

Loan Officers and Real Estate Agents are really on the same team... it's just that there is confusion between what is meant by a pre-qualification and a pre-approval.  I also believe that Real Estate Agents need to understand how the Buyer was approved and what the information was based on.

When I was a Loan Officer I felt like Real Estate Agents didn't like us.  Now that I'm a Licensed Real Estate Agent I can see why they feel like this.  It's because there seems to be a communication problem.

Somehow there needs to be some adjustments on how we work together as a team that would help the relationship between the two.

Lauren, I have lost count of the number of times that I have talked to a Borrower, and taken their income and price of the house that they want to buy, and everything looks great. Then I pull the credit report and there is a ton of other debt on it, and all the sudden the back Ratio is through the roof.  You have to at least look at Credit to even be in the ball park of what they can afford. But having said that I do not give Pre-Qualification Letters, I will only do Pre-Approval Letters, which means I will take a full 1003, pull credit and run it through Automated Underwriting. If I get an Approved/Eligible I will issue a Pre-Approval Letter if not then I work it until I either get an Approved/Eligible or tell them that I can't give them one.  If the Borrower is not willing to give me the time and information to do this, then they need to find someone else, because I am not going to put my name on a Pre-Approval Letter without going through this procedure.

George-  Thank you for your response !! 

When I was working for a mortgage company as a Loan Officer before I became a Licensed REal Estate Agent.... I would pre-approve a borrower and fit them into the best program that fit their needs. Many times I would then refer the borrower to an Agent that I was trying to get business from....There was one Agent that was out showing my borrower properties... that Agent talked them into other loan programs.  When they finally found a property to put an offer on that Agent called me up and informed me that my borrowers wanted an 80/20 loan program rather than the FHA program with a low rate.  The borrowers had bad credit and barely qualified for the FHA !!  I asked the Agent if they won the lottery or when did she pull the credit report ???  The borrowers ended up with their 80/20 with double closing costs and very high rates !!  They would have been better off in the FHA program.  The 80 portion of the loan was an adjustable so after two years the rate will adjust to a much higher rate, so now they will be forced to do a refi to lower their rate !!!   The problem was the fact that the Agent spent a lot more time with my borrowers, consequently she built up a "trusting" rapport so my borrowers trusted this Agent.  That Agent reviewed their new GFE and informed my borrowers that we were out of line to charge such high closing costs !!  I had to explain to my borrowers why the closing costs were so high...there were two loans with two different lenders.  I also informed them that they are now probably going to have to refinance their loan in two years because their rate is going to jump up a couple points which means a third set of closing costs !!!   The Agent wanted them to save on PMI !!!!   Unfortunately the damage was already done.  Once you lose the trust of a client it's almost impossible to get it back.

                       I never sent that Agent another borrower !!! 

There are Agents out there that have no clues how the mortgage side works.

Unfortunately Lauren, there are Realtors who give advice about Loan Programs without having the information or knowledge to do so. This also happens with Loan Officers who forget that they are not Realtors and give advice that they should not be giving.

If everyone just did there job, and let others do theirs, everything would work a whole lot better.

I never except pre quals, to me they are just usless and they never pan out to be correct.