I have read many blog posts recently regarding the subject of pre-approvals. It seems that many folks in our industry have a different idea of what a pre-approval is.
The problem is there are no uniform rules when it comes to pre-approvals. Not all pre-approvals are equal... it really comes down to who is providing it.
So as a Realtor... How do you know which pre-approval is the strongest? Many Realtors will say that if the pre-approval comes from a large bank, then the pre-approval must be stronger than the one that is provided by a mortgage broker. I battle this often when I go head-to-head with another offer that has a large bank pre-approval.
The truth is many times the big banks don't require the client's financial documents in order to pre-approve the borrower! They just pull the credit report and ask the client what their income is. Many Realtors will assume that the big bank logo holds some kind a merit... I have to disagree!
I know Realtors who insist they get a pre-approval from a correspondent lender which is a bank line. Although we are a mortgage brokerage, our company (as well as many other mortgage brokerages) have the ability to fund as a correspondent lender (act as a bank). The cold hard truth is there are no short cuts when I place a loan as a correspondent lender than if I placed it as a broker. I may save a day or two when I request the funding as a correspondent lender... BUT UNDERWRITING IS EXACTLY THE SAME!
On a side note... I know of mortgage "professionals" in my area who hand out their pre-approval template to their Realtors! It shocks me that either side (Realtors and mortgage "professionals") participate in this! This pre-approval template allows the Realtor to enter anything they want into the letter so they can print it and present it with their offer! It is amazing there are still people like this in our industry.
We happen to be on the complete polar opposite of these folks. Some might say our process is way too strict and it takes too much time upfront. We feel the more homework we do before the client is in contract the better... especially in this market!
Here are the steps we take for EVERY pre-approval we write.
1. The client must provide us with a complete loan file
What does this mean anyways? They must provide us with 2 years tax returns, 2 months bank statments for all accounts, the most recent quarterly/monthly statement for all retirement accounts, a copy of their ID's, divorce decree (if recently divorced) and any other client specific paperwork that is requested UPFRONT!
Many folks want to know why they can't just tell me their income numbers over the phone. What I think people don't understand is even though their pay stub reflects $6,000 a month... that may not be the income number that ends up on their loan application. Lenders are picking files apart right now, scouring through tax returns looking for write-offs and business expenses that could further reduce the borrower's income. This goes for rental income as well! Just because you deposited $1,000 in your bank every month... the underwriter 9 times out of 10 will insist you be qualified based on the rent you claimed on LAST YEARS tax return.
So if the mortgage professional does not ask for a complete package upfront... How can they truly analyze the borrowers ability to qualify for a loan without all of the information?
2. Once we have all of the information from the client TWO members of our team review the file before we ever enter any data into the automated loan approval system.
If you are a Realtor and a mortgage professional is telling you they have an automated approval... Remember this approval is only as solid as the information entering into the system.
If the mortgage professional is entering the $6,000 income I used as an example above and it really should be more like $4,000 according to the tax returns... then that automated approval does not mean jack!
We go the extra mile and have two sets of eyes look at every file we get a pre-approval for. This way any sticking points on a particular file is more likely to be caught upfront.
3. Once we decide on the most conservative numbers to use, we run an automated approval.
As long as there are no shift in assets, loss of income, or a new tax return is filed, or guidelines change... our pre-approvals are solid because we actually pre-underwrite the file.
You would be surprised how may listing agents call the mortgage professional who gave a pre-approval letter for one of their offers and the mortgage "professional" does not even now what an automated approval is! If this happens to you... file that offer directly to the trash!
As you can see, there is a big difference from the mortgage "professional" who hands out a pre-approval template to their Realtor compared to our 3 step process... YET THEY ARE BOTH CALLED PRE-APPROVAL LETTERS!
I think it comes down to who is providing the pre-approval letters! Don't be shy to call the mortgage professional and interview them! I welcome these calls! I find I can often times talk the listing agent into accepting our client's offer because they are not neccessarily looking at the highest offer... they just want to pick the one that is in the hands of someone who can close!
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