Why do Realtors think preapproval letters are about as worthless as a wet cocktail napkin? Has it become so bad that Realtors believe a do-it-yourself prequalification is better than one from the mortgage office?
I believe the time has come for preapproval letters to gain some respect. We can accomplish this by offering a much more detailed picture of where the borrower is in the process of becoming approved.
In this post I will tell you the 8 questions that every preapproval letter should answer.
THE COMMENTS THAT SHOCKED ME
Jennifer "SOI" Allan asked Realtors this: Should listing agents restrict showings only to clients that are prequalified?
Some Realtors responded by telling us they have absolutely no faith in prequalifications, anyway by making the following comments:
1. "talk about money, prices, expectations early and often. This helps you help the client and the others involved far more than a prequalification letter"
(The "Teacher" approach. They don't need to be prequalified, they just need a lesson from their Realtor)
2. " its usually not too difficult to do some limited due diligence on them as a buyer's agent. Googling the client will usually bring up info on the client whether its a board they sit on, the position they have with a major company or a new piece on something they are involved in"
(The "Private Detective" approach. Google knows everything, including if the guy can get a mortgage)
3. " Now, I qualify my buyers and you should consider that your new role, too! What does it mean to bring a qualified buyer to a showing? They can afford it. Use your calculator and estimate the affordability for them. Need a FICO score? Ask them to pull the report and show you before your start hauling."
(The "Do-It-Yourself" approach. This approval thing is easy enough. I don't need a prequalification letter from a mortgage broker.)
IF AN APPROVAL IS NOT A YES OR NO QUESTION, WHAT IS IT?
It is only natural that Realtors see this document simply as a straight yes or no question. Can my buyer get a loan? Yes or no? Its all I need before I turn the key and start hauling these buyers around.
But those of us in the mortgage business see it differently: Qualification is a process, not a yes or no question. Until every step of the process is complete, there are no guarantees.
The problem for all of us in the mortgage industry then becomes this: At what point in the process do you issue this preapproval letter? Everyone seems to have a different idea, and therein lies the problem.
If only every Realtor would think about preapproval letters like this: the "pre" in the preapproval letter stands for this word: PREDICTION. That's right, a preapproval letter is a prediction of whether the client will be approved.
Now a prediction, as we all know, is only as strong as the FACTS suporting it. Rather than asking IF the buyer is approved, a better idea is to ask HOW far along in the process of approval is the buyer?
Let the Realtor determine if "ENOUGH" of the process has occurred to start the engine.
EIGHT QUESTIONS THAT WILL IRON CLAD ANY PREAPPROVAL
- Has the FICO score been determined by obtaining a credit report at the lender's office? (Those credit reports you pay for as a consumer are not the same as those from the mortgage company)
- Has the client completed and signed a credit application? (there are things OTHER than just income and assets that come into play for an approval)
- Has the buyer provided proof of income and proof of assets? Has he proved his funds to close are available to him?
- Has verbal or written verification of employment been completed? (he could have lost his job the night before)
- Has an automated approval(DU) been run on the buyers? (HUGE step forward on the predictability scale)
- Has the lender approved the loan? Are there conditions on the approval and have they been cleared? (A lender approval means nothing unless the conditions are cleared)
- How long ago was approval issued and does it have an expiration date? (Things change! An approval needs updating just like an appraisal does)
- What is the loan amount and maximum interest rate for the approval?
In every preapproval letter I write I address each one of these issues, and invite the Realtor reading it to call me with questions. By adding this much detail, I believe the Realtor is in a true position of strength when making decisions.
If you recieve one of those out of date, generic preapproval letters, call up the mortgage person and ask the eight questions.
But please, don't try to do it yourself.
Written by Janet Guilbault, Mortgage Lending Specialist Based Out of the San Francisco Bay Area
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Janet I always enjoy reading your blog as always very helpful tips. Thank you!