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Why Your Pre-Approval Isn't Real
The topic of a Borrower or Real Estate Agent requesting a Pre-Approval instead of a Pre-Qualification comes up quite frequently. The terms have been used so interchangeably for so many years now, so it is bound to lead to confusion. In today's market, you will most likely not be getting a true Pre-Approval letter though. Instead, a Pre-Qualification will be given to the Borrower.
Most lenders quit issuing true Pre-Approvals several years ago for a variety of reasons. One main reason for the change was to be in compliance with applicable Federal laws. RESPA laws that govern the GFE changed January 1, 2010 . When that change took effect, a GFE became more of a binding contract that it ever was. That gives a lot of concern in that there is very little and sometimes no room for changes in fees that are initially disclosed to the borrower even though the lender does not have factual data at that time to give out accurate fees.
This has the potential to be a significant financial risk to the lender when a property has not yet been specified. The new GFE only allows tolerances for certain fees to change. Not having the real specifics at the time of loan application has the potential for ... more
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