Pre-qualification letter: This is merely a letter that the lender provides to the realtor when asked, to send on with the OTP, that shows the SELLER that the customer has made application, had credit pulled, and in the "eyes" of that particular lender, should not be a problem to get financed. This letter is not much, but is MUCH better than someone who hasnt even applied yet! MANY LOOPHOLES though. Possibly, one addition here would be that the funder or lender has run DU, LP, DO, or something similar to obtain an electronic approval.
Pre-approval letter: These are available through the USDA rural housing loans, etc....but many underwriters are not looking at files unltess there is appraisal & title and they KNOW it is going to close! More importantly, AND THIS IS VERY IMPORTANT- Companies are monitoring most lenders closing ratios VERY VERY CLOSELY! These are also called TURN RATIOS! If we submit a file, we have to close it...otherwise it goes against our closing ratio and could drop our pricing, or get us cut off from using that specific lender! Correspondent lenders and Mortgage Bankers may provide a "pre-approval" letter based on the fact that they have an inhouse underwriter/and/or are responsible for the facts within the loan file should it get sold. Their risk is that they may have to "buy it back" should there be anything wrong with the file. In other words, not alot of people are going out on a limb for this type of letter anymore without contingencies, and/or stipulations! Sadly, these can also be used as "loopholes" should the need arise! The USDA does these though!~ Overall, opinions DIFFER greatly on this document!
Loan Committment: I personally would like to see MORE of these issued with CONDITIONS! That way, the loan is approved, subject to things like, satisfactory appraisal, title, and verbal verification of employment etc...Most Realtors want a "clean" one of these though, meaning no stipulations! Obviously, the program that the borrower is utilizing comes into play here, as well as the length of time the OTP states that this is necessary to get to the seller within! Once again, Realtors and Lenders have to adapt, and be willing to accept change in this arena. This is a committment to LEND! This is what EVERYONE wants to see! This is the "good news" document! :) Another varying opinion though is on the borrowers signature! Some Realtors need it and want it, others dont care!
Recently, a very active BLOGGER here on AR did a blog on this very subject. I partially disagreed with her blog, however...she did a WONDERFUL job of showing how this subject varies both in understanding as well as philosophy! Different areas of the country have different ideas or guidelines in this area as well....but just because "it's the way it has always been done", doesnt make it right, or the right way to do it!
My ideas and/or definitions here are merely driven towards 20 years experience and over 9000 loans closed! That however, does not make me smart, smarter, better, or more knowledgeable. It only makes me experienced! I love learning, and love teaching! I love constructive criticism, and suggestions!
Feel free to email me any questions to Darin@osmwi.com
OR, please please PLEASE leave comments! This is a GREAT OPEN forum we have on Active Rain, and the best way to learn is to participate! It is like a LOTTERY TICKET! You have to play to WIN!
Other applicable blogs you may enjoy are listed in the links below!
What does a customer need for loan approval?
Show me some LOVE! The Movie Wall-E
Be positive and stay focused!
Darin - Your "Lender for Life"
One Source Mortgage, LLC 608-592-2227
Proudly Serving the entire State of Wisconsin since 2003!
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