Is that pre-qual worth the paper it is written on?

I was inspired to write this post after reading Jesse Clinton's post "I'm sorry, what did you just say?"

The mortgage market is changing daily.  It used to be pretty easy to qualify a borrower and even when it took a while for them to find a home, we'd be confident in the letter we wrote.  Now, we ask the buyer's agent and the borrower to contact us PRIOR to writing an offer to we can double-check/double confirm the buyer's information, to make sure nothing has changed. It only takes a few minutes, but can mean the difference between closing and not closing.

When we work with a buyer, we always ask to see as much information as possible prior to writing a pre-qual letter.  We can always get updated income/asset information when there is a contract.  Loan officers can run the loan through DU (Desktop Underwriter) to determine an approve/eligible loan.  Some loan officers don't want to "waste" the $15 to run the buyer's information through DU.  I would rather spend that money and know where my borrower stands, then guess based on non-verified information.   Having many years in the mortgage industry, we also have a pretty darn good idea if we don't have a desktop approval, that we have the information necessary to get a manually underwritten loan to the closing table and will write the letter accordingly. 

Mortgage rates can change several times a day now.  Rate can truly make a difference in a qualified buyer and a non-qualified buyer.  We recently had a buyer that if the interest rate was 1/8 percent higher, he went from approve (objectively-through desktop underwriting) to refer (requiring an underwriter to subjectively determine this borrower's qualification). Knowing that allowed us to keep an eye on the borrower and the market.  He moves in this week!

Mortgage Programs are changing daily as well.  For example, if a buyer was qualified for 100% financing just a few months ago, those programs have all but gone away now. Stated income loans are fewer and farther between.  Sometimes the lender program (or even the lender) under which the loan was originally  approved has gone away. A few dollars less in a checking account or a new big-screen television can truly make a difference. (On a side note...Why do folks buy big-screens while shopping for a house?  Not only can that purchase negatively affect your credit, you have to MOVE that big-screen when you find the house!)

We have had realtors that send us a buyer for a pre-qual and then get upset when we tell them that it is probably not in their best interest to purchase yet, but if you do this, this and this, you will be ready in 6 months (or a week or a year!).  I don't want to help someone get a home and then have them not be able to afford it just months down the road! I believe that is part of why the country is in the mess we are in right now.  If everyone does the right thing by the borrower  everyone wins in the end!

Realtors may want to consider requesting the buyer (with their approval of course) be double qualified through your trusted loan officer/mortgage broker. If you have a listing offer with a weak or old mortgage letter (even a few weeks can be considered old in this market)  request that it be updated or verified.  Sometimes the buyer's loan officer will balk at having another loan officer involved. If so, have them re-verify the facts and give you a pre-APPROVAL letter with more meat!  It gives both the buyer and the seller peace of mind and you don't have to re-list when the financing falls through at the last minute.