NO, IT'S NOT WORTH THE PAPER IT'S WRITTEN ON!
Everyone is familiar with the expression that "it's not worth the paper it's written on!" In the world of real estate, nowhere does that hit home more than with mortgage pre-qualification letters!
In the competitive climate of our current sellers' market, having a strong pre-approval letter by a respected local lender can mean the difference between getting your purchase offer accepted or rejected. Realtors appreciate the importance of a reliable evaluation of the purchaser's ability to fulfill the terms of the offer, and will recommend that sellers favor prospective buyers with credible letters.
Particularly at risk are private sellers (for sale by owners) who lack the experience to evaluate prequalification letters. A recent study conducted by Campbell Communications via a survey of 1,700 real estate industry sales and management personnel yielded alarming results, with 51% of the respondents citing unreliable pre-approval letters as a cause of major concern:
•Internet lenders were the worst offenders, with 39% of their pre-approval letters considered invalid
•Mortgage brokers were second, with 27% of their pre-approval letters considered invalid
•National lenders faired slightly better with 19% of their pre-approval letters considered invalid
•Mortgage companies affiliated with real estate brokerages were the most reliable, with only 9% of their pre-approval letters considered invalid
In order to avoid sellers getting tied up in a contract with a purchaser who does not qualify for financing, experienced Realtors generally follow up by calling the lender who issued the pre-approval letter. Some of the issues that merit confirmation are:
•insure that a 3 depository credit report has actually been reviewed
•confirm that there are no "hidden contingencies" (a house that must be sold or leased in order for the buyer to qualify)
•debt and income ratios are within acceptable guidelines
•sufficient funds are on hand for the down payment and closing costs
•no unusual conditions must be met, such as the settlement of a divorce or estate prior to closing
In order to reduce the number of last minute surprises, I recommend working with a reliable local lender who underwrites their own loans. Although internet lenders may appear to be offering a better deal, if it looks too good to be true, chances are that it is. Any advantage in a lower rate can quickly be offset by unexpected fees and charges at closing, or costly delays in settlement.
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