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Buyers!! Be Cautious with Online Pre-Approvals!

By
Real Estate Agent with Brown Realty, 210-789-4216, TREC #0492321

Buyers need to be careful and cautious when applying for those online Pre-Approvals, especially those which are out of the state when you are making your home purchase. Every state is different when it comes to real estate, and even financing options may vary.

 

Real Estate Agent Giving Advice to BuyersI normally recommend to all my buyer clients a mortgage broker, or loan officer, who is not only licensed in Texas, but is very knowledgeable about financing options as it applies to purchasing real estate in the state of Texas. Over the years, as agents you find preferred lenders, whom you feel confident in recommending to your buyers, since you have built a good relationship, and you know what that mortgage broker can do for your clients.

 

But from time to time, we all meet buyers, who have been Pre-Approved from another source, and as agents may agree to work with those other lenders. Recently, I had a buyer client, who had received one of those Pre-Approvals from an online source, and we proceeded to make an offer on a home that the buyers loved. Once under contract, the mortgage process began ordering the title commitment, an appraisal, and completing the loan applications with all the required income tax and bank statements for proof of funds. The loan officer assured us that everything looked good, and we only had to clear a few underwriting conditions. After the buyers completed that First Time Home Buyer’s Course, and received their Certificate of Completion, and all those underwriting conditions had been met, we were sure that we will would get that “Clear to Close”.

 

Then late Friday afternoon, I get a call from my client saying that his lender just called to tell him that his loan had been denied due to property taxes.  I knew that couldn’t be right since the very first thing loan offers do is to verify the buyer’s income and debts, after the credit report is pulled. I immediately called the loan officer, who had been working our file to get a better understanding of what caused the denial. It was all about the debt to income ratio, and my client was over the 43% for a VA Loan.

 

Apparently, the loan officer had used a lower property tax amount when originally qualifying my buyer. After recalculating the ratios with the correct property tax information, it gave my client a much higher mortgage payment, which caused the loan denial. It is well known that Texas has high property taxes, since there is no state income tax in the state. Our property taxes in Texas can raise your monthly mortgage payment by $200 or more, because the average property taxes without any exemptions is normally around $2400 for a $100,000 home.

 

This can be a costly lesson for any buyer, who has paid out earnest money, inspection money, and appraisal money, and get denied a loan a week prior to closing on his Dream Home. Therefore, Buyers Be Careful and Cautious whenever you use those online lenders that promise a fast Pre-Approval. Those lenders need to know and to understand how to calculate accurate property tax information for the state which they are providing  loans. Remember, your Buyer’s Agent will normally recommend a preferred lender that he or she have come to know and to trust their clients with.

Comments (64)

Jerry Newman
Brown Realty, 210-789-4216, - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

Yes, Michael. Local Agents and Local Lenders are definitely the preferred way to Go.

Thanks, Barbara. This was a tough lesson on the buyers, but we are working through all the Drama.

Oct 19, 2013 11:49 PM
Kat Palmiotti
eXp Commercial, Referral Divison - Kalispell, MT
Helping your Montana dreams take root

I had incorrect taxes also knock a buyer out of the approved pool, but that was with a "real" mortgage broker, not an online approval.  ugh.

Oct 19, 2013 11:56 PM
John McCormack, CRS
Albuquerque Homes Realty - Albuquerque, NM
Honesty, Integrity, Results, Experienced. HIRE Me!

Excellent Jerry.  Congrats on the golden star and great to see you again! 

Oct 20, 2013 12:10 AM
Bill and MaryAnn Wagner
Wagner Real Estate Group - Ocean City, NJ
Jersey Shore and South Jersey Real Estate
Jerry, You're so right about online lenders. They also have no knowledge of state and county grant monies the buyer may be eligible to receive.
Oct 20, 2013 12:18 AM
Suzanne Otto
Six Twenty Designs - Lansdale, PA
Your Montgomery County PA home stager

I don't think I would ever use an online lender. For this type of transaction I want face to face interaction!

Oct 20, 2013 12:22 AM
Maria Morton
Platinum Realty - Kansas City, MO
Kansas City Real Estate 816-560-3758

Jerry, like you, I recommend my clients work with a local lender who has a history of getting their work done in a timely fashion so my client can close on time. Recently, a buyer client came to me with a lender they had found online. I cautioned her at the time but agreed to work with her lender of choice. The week before closing was full of drama for my client. The lender did not have his work done and had not bothered to communicate with me during the process. He repeatedly ignored emails and phone calls from me the previous 3 weeks. My client ended up calling his supervisor 2 days before Closing. The supervisor got involved and completed the work not done by the loan officer. It was a stressful experience for my client who told me that next time she would go with the lender I'd recommended. Clients need to understand that I do not receive compensation for recommending a lender; I recommend lenders because of their history of closing on time smoothly. 

Oct 20, 2013 12:41 AM
Goran Utvic
Goran Utvic Real Estate Broker/Construction Consultant - Chicago, IL
Chicago 2 Flat Specialist

Great post Jerry...I too agree that it is best to use someone local.

Oct 20, 2013 12:43 AM
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

My client insisted we use his online lender and the lack of response, the indifference and the taking of their time once I was hooked into their systems is something I wont soon forget....good post

Oct 20, 2013 12:44 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Jerry, great words of wisdom for buyers to follow.  Good Job.

Oct 20, 2013 12:55 AM
Andrew Mooers | 207.532.6573
MOOERS REALTY - Houlton, ME
Northern Maine Real Estate-Aroostook County Broker

Valuable heads up Jerry! Thanks!

Oct 20, 2013 12:56 AM
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

Great post Jerry. How true this is. I had a client tell me earlier in the week in the interim while they were waiting on me for figures they made the critical mistake of calling Quicken. He said in the time between our conversations they called him in excess of 12 times! Maybe not the mistake of an inexperienced person not looking at all factors but who knows to wear someone out that much in a 2 days period of time screams a problem

Oct 20, 2013 04:00 AM
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Jerry:  You prove two huge points.  Exactly why it's so important to make a decision and choice of Mortgage Lender based upon more than just Interest Rate ... and also why it's so important to do thorough homework regarding the choice of Lender to find a Lender that is hands-on, knowledgeable, experienced, and able to be found when you need them.  Definitely a huge thumbs up on this post!

Gene

Oct 20, 2013 04:23 AM
Jerry Newman
Brown Realty, 210-789-4216, - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

Hi Kat, I feel your pain on missing on your deal because of the errors on taxes. It's a Big concern in my area since taxes do vary depending on the counties in Texas.

Thanks, John. I understand you had a very productive Day showing homes in the Q. Have a Great Day!

Yes, Bill. State and Grant funds are often needed by those First Time Home Buyers. Online Lenders will certainly not have that advantage.

Yes, Suzanne, I hear you, but out clients do have the final decision on who they want to use for their loans.

Yes, Maria. Who needs all that Drama. If only our clients would follow our recommendations when it comes to choosing lenders. But, many of them show up with Letters in Hand.

Hi Goran, I just feel more comfortable working with lenders that I built a relationship with over the years.

Yes, Richie, We have to go with the Lender that the clients want to use. Sometimes it's with reluctance.

Thanks, Will. Giving our buyers Good Consultations and Advice is a Fiduciary Duty.

Thanks, Andy. How's the weather up in your area today?

David, The buyer made a Huge Mistake not waiting on you for the figures for their loan. I am sure you were a better choice than Quicken.

Thanks, Gene. I know if I was in the Chicago area, you would be my Preferred Lender, Hands Down.

 

 

Oct 20, 2013 06:15 AM
Jared Garfield
Rich Life Real Estate Team - Buford, GA
Invest With The Best For The Highest Returns!

Jerry, 

That is such an impoatant point, and often out of state lenders who may be licensed to sell in your area also may not be aware of which areas have too many renters/investor owned homes to be able to go FHA.  Not understanding the average tax rates would certainly also be a problem as you pointed out!  Great article thanks for blogging about this!

Oct 20, 2013 08:21 AM
Lisa Perry - NMLS # 276329
FHA, VA, Jumbo, Downpayment Assistance, Conv. - Fairfax, VA
Northern VA - VHDA, 100% Loans - Jumbo Loans
Jerry this is so true. I cannot tell you how many times I get a client who had been previously approved by some internet broker just to find out they are not approved. I recently had a builder friend ask me to speak with a client that had been previously approved for a $450,000. Needless to say they could not qualify for anything.
Oct 20, 2013 08:47 AM
Bill Reddington
Re/max By The Sea - Destin, FL
Destin Florida Real Estate

I require that all buyers get pre-qualed by a local source. Have had too may issues with online Mortgage people.

Oct 20, 2013 02:01 PM
Les & Sarah Oswald
Realty One Group - Eastvale, CA
Broker, Realtor and Investor

This is a prime example as to how important it is to have our clients qualified with a local mortgage expert. When my clients provide internet approval letter, I always ask that they also be qualified with my trusted agent. This is one way to avoid last minute surprises.

Oct 21, 2013 12:57 AM
David Popoff
DMK Real Estate - Darien, CT
Realtor®,SRS, Green ~ Fairfield County, Ct

So very true, my customer recently refi with an online mortgage company... it took 6 months. 

 

Oct 21, 2013 01:52 AM
Kent Neumann
Waterstone Mortgage- An Integrity based mortgage bank - Bend, OR
Mortgage Banker

I don't know Realtors accept pre-approval letters from lenders they don't know.

Oct 21, 2013 02:00 AM
Jerry Newman
Brown Realty, 210-789-4216, - San Antonio, TX
Texas REALTOR, San Antonio Military Relocation

Hi Jared. You have pointed out some additional concerns that lenders need to be aware besides the property taxes. Thanks for sharing!!!

Yes. LIsa. That's very disappointing when you get those kind of leads. I just wandered how they received a Pre-Qualification. 

Yes, Bill. Our local lenders are always the preferred source, but sometimes you have to agree to try who the buyers want to use. 

Hi Sarah and Lester. No one likes surprises. I even spoke with this online lender in the very beginning, and he was very polite and gave us all the information we needed. I am not sure where he got his tax numbers from, since I gave him the information from our MLS. It sounded like it was a simple mistake, but it was a huge mistake for my buyer. 

Six months??? David, I don't thing Short Sales take that long. 

Hi Kent, Yes, I have accepted letters from lenders that I didn't know personally, but I normally called them to ask more questions. Most of the times, I have never really had an issue of an outside lender.

 

 

 

 

Oct 21, 2013 06:38 AM