A recent article in Forbes magazine entitled “Why Getting Pre-Approved For A Mortgage Is A Sham” was lamenting the uselessness of home buyers obtaining a pre-approval letter from a mortgage lender prior to shopping for a home.
Here is a short excerpt from the article that summaizs the author's concerns.
“The fact is that mortgage pre-approvals are not what everybody wants them to be. They are not ironclad, they are not processed and reviewed by underwriting people and they are not subject only to an appraisal, even though most of them say that. They are however part of almost every real estate deal and they have become essential in the bidding on a house process. Since mortgage pre-approval has grown to be so integral to the home buying process, it makes sense that lenders would rigorously address this void. Not so.”
The article aptly points out one of the problems facing home buyers in today’s market. Many of them think they have been pre-approved when in fact they have not, they have merely been pre-qualified. They may have a pre-approval letter from a licensed or registered Loan Originator, but their credit, income, assets and other loan documents have not been reviewed by an underwriter and that have not been officially approved.
There are a multitude of details that can derail the approval process for a prospective home buyer. The borrower may be depending on overtime or bonus income to meet the debt-to-income limits, and not have the required 2 years history of receiving this income which prevents those figures form being used which causes the borrower to no longer meet the loan requirements. Another issue that may not come up until the file is reviewed by an underwriter is items on the tax return that would again result in a lower calculated income which would also prevent the loan from being approved.
The underwriting process has become very rigorous since the problems begin a few years ago. Underwriters are trained to look under every rock, into every nook and cranny and ask questions about everything.
Furthermore recent banking laws that relate to money laundering now require lenders to document where the borrower obtains the funds that will be used for down payment and closing costs. If the borrower has funds that cannot be satisfactorily documented, the loan is subject to being denied.
The primary problem I have with the article, is that it paints with too large a brush. It states lenders do not offer full approval’s “And that is about as good as buyers and sellers and real estate people can expect it will ever be”
VanDyk Mortgage recognizes that buyers and sellers alike make plans that depend on the buyer being able to obtain the final approval and actually being able to close on the transaction. We offer a full TBD approval. The borrower can get approved even before signing a purchase contract on a specific property. This process involves the borrower providing all the documentation that will be needed for approval. Any documents that will be needed later, apart from property related documents such as the appraisal and title commitment, are obtained and submitted to the actual underwriter for review. The underwriter scrutinizes the file as though it was a full file with a purchase contract.
Only after the file has gone through the full process does the underwriter issues a loan approval that is conditional only upon the property appraisal and having clear title.
I understand the reasoning many lenders have for not committing the required resources needed to offer this level of service. It is frustrating to go through the entire process with a buyer, only to have them change their mind and not buy a home or buy in another market where the lender is not licensed.
However, I have found real estate agents, both buyers agents and even seller’s agents appreciate the security of knowing that something hidden will not be discovered late in the process to delay or even prevent a closing from taking place. Too many people make commitments and plans that are depending upon the closing taking place on schedule. Buyers have given notice, or have already moved out of their home, sellers often have the purchase of their new home depending on the funds from the sale. It can cause problems that impact many people if closings do not take place.
I am proud to be part of a team that understands and takes serious our role as mortgage lender in the home buying process. We take great pride in our dedication to ensure that our clients do not know the pain of delayed closing or a loan being denied at the 11th hour. We may ask more questions, and ask for a few more documents than other lenders, but it is a testament to our attention to detail that distinguishes us from the others that have not committed the resources to offer the “Solid Gold Pre-approval” to their clients.
Call me today at 866 435 6553 and I will be happy to begin the process of getting you a “Fast Forward Approval” so you can search for your new home with confidence