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Pre-Qual, Pre-Approval, Approval, Loan Committment! What does it all mean???

By
Mortgage and Lending with Funky Quail Vintage

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?

Mortgage Terminology 101

Open House Suggestions

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!

Eric Reid
Renaissance Realty Group of Keller Williams Atlanta Partners - Lawrenceville, GA

WELL SAID .. I so wish ever buyer would read this and understand then BUYING POWER OF A LOAN COMMITMENT VS A PRE QUAL

Would it not be great to see buyers with LOAN COMMITTMENT Letters ..

Apr 21, 2009 05:02 AM
Pat Champion
John Roberts Realty - Eustis, FL
Call the "CHAMPION" for all your real estate needs

You are right-there is a difference in all of the points above. It will help our buyers to know the difference.

Apr 21, 2009 05:05 AM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Eric,

ABSOLUTLEY!!! I TOTALLY agree!  You know, a loan committment is issued when a FILE is actually submitted, and not some person's OPINION of if it WILL get approved!  That is why I SAID, that I WISH MORE loan committments were issued with STIPULATIONS!  AT LEAST all sides of the transaction would know EXACTLY where they stood!  :)

Thank you very much for your comments!!

Darin

Apr 21, 2009 05:05 AM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Pat, thanks for the comment!

YOu know, we have a very ACTIVE Coldwell Banker Office in the Madison area!  I love working with their Realtors...as they seem extremely willing to "accept change"!!  This is big today!  Pre-quals, pre-approvals, etc....ARE LOOKED AT differently everywhere you go, and no matter WHO you talk to!  However, the fact is that it is STILL based on the WHO you are talking to, and the relationship you have built together as a TEAM! 

Thank so much for stopping by!

Darin

Apr 21, 2009 05:08 AM
Ed Silva, 203-206-0754
Mapleridge Realty, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

With the nature of the business today, having a buyer come in with pre-approval from a qualified primary lender certainly makes the job easier. Well presented.

Apr 21, 2009 05:18 AM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Ed-  Thank you for commenting, and appreciate the compliment!  I didn't want to get TOO wordy...but within our mortgage origination software, there is actually a pre-done loan committment form.  What we do when we have our APPROVAL, is basically fill in the blanks, as well as any stipulations!  For the readers benefit of this blog, a stipulation could be:  a furnace inspection, removal of an item or person from title, additional income information based on a "different" type of situation, OR, when the 4506T is executed and income comes back DIFFERENT from what was submitted, maybe...home owners insurance...things like that!   Things that consumer, REALTORS, and lenders all consider to be normal, or part of the transaction!  It is the things that come up that should have come up in the beginning that frustrate Realtors and consumers alike!

Thanks again Ed!

Darin

Apr 21, 2009 05:25 AM
Jason Sardi
Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC
Your Agent for Life

Darin - In your comment to Ed you wrote, "I didn't want to get TOO wordy..."  Why go against your nature, bub?  Good breakdown, my man.  This is a must read for Consumers & Realtors alike.  Heck, might not be a bad idea for others in our industry to read it;)

Apr 21, 2009 06:11 AM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Jason,

THank you for the comments, and as always you are ASTUTE in noticing that I am a "TAD" long winded!  So sorry! It just beguiles me to think that I might run out of FACTS or things to say!  :)

LOL

Let's re-blog sometime...and hook up similar subjects, or a POINT counter POINT!

Thanks again!

Darin

Apr 21, 2009 09:01 AM
Sally K. & David L. Hanson
EXP Realty 414-525-0563 - Brookfield, WI
WI Real Estate Agents - Luxury - Divorce

Hey Bucky...you would be amazed...or maybe not (Can't tell how old you are with that big furry head) at how many reLators, Lenders, etc...use pre-approve and pre-qualify interchangably....soooo scary ! Blog on Buck !

Apr 23, 2009 12:11 AM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

D-man!

Sorry it took me so long to catch up with this post but it is a great one! So true it is that a few words can mean the difference between something real and something imaginary...

Ultimately though, even if we had a loan commitment, conditions will exist until the property is appraised and determined satisfactory (title, insurance, etc.). It's so important that people realize whatever kind of letter you get is only as good as the lender that gives it to you!

Gerry Suarez, Jr.

Your FHA Loan Pro!

Apr 23, 2009 05:45 AM
Darin Osenberg
Funky Quail Vintage - Nashville, TN

Sally & David -  THANK YOU So much for leaving comments!  I appreciate working with, whether it be even just TALKING with experienced people like yourself!  You know, many of us talk in our group about HOW important experience is today!  Even though bad realtors and bad lenders have been "weeded out" by this situation we are in....that doesnt mean it left ONLY GOOD & experienced people!  The old saying, the "blind leading the blind" still applies!>>>AND, applies to honesty and integrity too!  Oh, and I am 44!  Though I look 29!  LOL  Started lending 8-8-88...same day as the first CUBS night game!  Boy, was that an oxymoron??  :)   Any time you need a guest speaker to tell a large group of people the difference between prequal, preapp, approval etc..YOU LET ME KNOW!  Ill be there!  Thanks again!

Gerry -  I agree with your comments, but even though we all continue to blog about it, there are MANY MANY PEOPLE that still dont know what a "LOAN COMMITTMENT" actually mean!  ONE HUGE difference is that the underwriter has actually reviewed the file, VERSUS just a loan officer!!  Just today, I explained to a customer who works within the banking industry what TITLE INSURANCE is, and they have purchased 3 homes, and refi'd 4 x in their career!  Go figure!  My first one with them tho!!! :)

Thanks again!

Darin   aka:  Bucky

Apr 23, 2009 10:04 AM