My Gold Card is better than your Platinum Card > Pre-Qualification letters vs Pre-Approval Letters

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Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

Could one say that the sky is falling?

The sky is falling - do you just want to end it all? - ps. make  sure the water is drained from the pool.

 

There has been a major discussion whether or not Pre-Approval letters will be like dinosaurs, extinct. It was started with this post by Marilyn Boudreaux - Pre-Approvals Disappearing? -  It was then followed by Lenn Harley's post, Calling all loan officers on Active Rain?? What are the facts here?? No Pre-Approval letters??? - After reading every comment on both posts, it sounded like some realtors just wanted to walk the plank per se. Some mentioned that Pre-Approval letters aren't worth the piece of paper that they are written on. So I wanted to set the record straight and give some insight.

 

 

misleading news

 

In regards to both posts and the comments, I think some seem to be losing focus on what we should be paying attention to. When writing a blog post or comment that is of opinion, some people will read it as if it's factual or correct. This is sometimes why news is misleading or incorrect. And I read several comments by loan officers that were just wrong. Some of them are lender overlays and nothing more.

 

Some other comments to nibble on :

 

 

From a real estate agent - "I definitely require a pre approval letter - make darn sure the loan commitment is in 15 days and financing contingency in the contract is off - buyer's deposit is on the hook - sorry"

Me?  A loan commitment in 15 days? This is to include weekends? It's just not that easy anymore.   Gerry Suarez talked about these so-called 10 day closings.  I can close a loan in 10 days or less.  Also, some commitment dates be unreasonable.  What is a reasonable commitment date?

 

From a real estate agent - "I am at a loss. Sellers are still expecting "pre-approval" letters, and are not willing to go forward with a "pre-qual" which is considered useless."

Me? Here is a Call to Action to all realtors. Educate your sellers properly. Give them the facts about the real differences. Sure, there is more curb appeal when you say "Pre Approval". A good loan officer's pre qualification letter should be just as good. More later.

 

From a loan officer - "I think that defining the difference between pre-quals and pre-approvals is important.  I view a pre-qual as taking an application and getting an automated approval.  I view a pre-approval as the pre-qual plus validating income, assets and etc.  I then have another category for a pre-approval with an underwriting decision...(more was stated)"

Me? The first sentence is right on. But it sounds like this person has Pre-Approval A and B. A real pre-approval should be fully underwritten. Please read below.

 

 

 

Pre-Qualifying Letter vs Pre_approval Letter

What I want to focus on is the difference between a Pre-Qualification Letter and a Pre-Approval Letter.

 

Pre-Qualification Letter -  

The loan officer should be pulling a credit report and inquiring about income and assets. They should go a little further and ask some important basic questions such as time on the job, rental history, etc, etc.  Jeff Belonger's questions for a pre-qualification of a mortgage.

 

Pre-Approval Letter -

The same thing that was done with the pre-qual situation, but that you also take a full mortgage application and collect income and asset documentation. Not only should you be running this loan through AUS (automated underwriting system), but an underwriter should be approving this also subject to the appraisal and title. What happens is that many loan officers just run the loan through AUS and if they get an approval, they then hand out a Pre-Approval Letter. One can argue on opinion that you can stop at the AUS and not proceed with the underwriter. That if you have an underwrtier review and underwrite this, then this would be called a commitment to lend.

In my opinion, here is the major issue regarding the pre-approval with an AUS approval. What happens if the loan officer calculated income incorrectly?  Or that they missed a large deposit on the bank statements?  Or they missed child support on the pay stubs?

 

 

Summary :  A very good qualified loan officer should be able to just hand out a pre-qualification letter and the loan should still close. Here is an excellent comment by Robert Rauf on Lenn Harley's post. - Rob's comment - This is just myself, but if I am unsure of a particular borrower and I run AUS and it comes back refer, I will then go over it with my underwriter. I don't need to go through the whole approval process.

Something else that just took place more recently and why Pre-Approval Letters might not be as credible, even if an underwriter signed off on the file. Under Fannie Mae, a new credit report has to be pulled prior to closings. You don't have to do this on FHA loans.  But it has become a lender overlay with many lenders, to where they are doing this anyhow. Larry Bettag wrote about this - Don't use your credit after you apply for a loan.

 

 

Answer to Marilyn's original post - You can still offer Pre-Approval letters - Ken Cook wrote an excellent comment on Marilyn's post.  - Ken Cook's pre-approval comment -   

There was some discussion about RESPA and the new GFE rules and what Fannie Mae has said about pre approvals. First thing is that you don't need a Good Faith Estimate to give out a pre-approval letter. You can give a borrower a form that is called an 'Itemized Fee Worksheet', which is exactly the same as the old GFE, Good Faith Estimates. There are 7 trigger points that have to be met to tell a loan officer that a GFE has to be sent out by RESPA's rules. You could still give out a GFE prior to this, but the lender is held to that GFE. That is the issue surrounding GFE's.

Keep in mind - There are many lenders with their own lender overlays, which is why you are reading so many different answers from loan officers. Some loan officers think their answers are from HUD, when it's actually from their company, just trying to be extra careful.

 

 

PS.  - I received an approval from my underwriter to post on this topic - Monday dry Humor -

 

 

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Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Topic:
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Ambassador
525,289
Tom Branch
RE/MAX Dallas Suburbs - Plano, TX
Broker, CDPE, SFR, ACRE, Plano TX Ambassador

Nice summary of a number of blogs. 

These days you can't trust the findings from the AUS so I'm inclined to agree with you that having it looked at by an UW may be the best course of action prior to writing a Conditional Approval letter.

The real estate community has long confused the difference between the two levels and I'm sure many MLOs used the wrong terminology as well.

The good news--the sky is not falling...

Tom

Jul 19, 2010 12:06 PM #10
Ambassador
2,284,598
1 ~Judi & Don Barrett & Chassy Eastep - Integrity
Integrity Real Estate Services 118 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

Jeff,

Thank you.  I read through this and am going to read through it again.. 

You are a true gem and I depend upon you for good info.  You always come through.

Jul 19, 2010 12:21 PM #11
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

DEBORAH.... . no worries... so many companies are just so scared, that they come out with policies and sometimes it sounds like it's from the gov't or HUD... but we both agree that garbage in is garbage out... going back to what I stated, that if a loan officer puts the wrong info in, rut row.  I had a borrower in Miami, FL 2 yrs ago who almost went with a large lender, because they got them approved for $40,000 more...They even said, we watched him put it into the system and printed out the findings and showed them the findings, showing the approval.  I said that doesn't mean a thing.  The borrower had just changed jobs 8 months prior who was getting a salary plus overtime.. but he never received overtime at his previous job. Well, I finally convinced the borrower that their loan would fall apart if someone caught that mistake... they went with me.  In any case, thanks for your feedback, input, and for that polite compliment.

TOM.... .  you can never trust the findings of an AUS, because if the person uploading the info puts the wrong income in, or mis-calculates income, etc, etc... then it won't matter.  Many loan officers either don't realize this or just play into the hands of the realtor and borrower, without taking the time in explaining all of this.  And we wonder why there is so much mis-information and so many closings that don't happen.  Thanks and yes, the sky is not falling... at least not yet... lol

JUDI.... . my pleasure and thank you very much for the kind words and support.. Again, thanks..

 

Jul 19, 2010 12:38 PM #12
Rainer
187,215
Dana Wilkinson
Connect Realty, The Woodlands, TX - The Woodlands, TX
Broker-Your TX agent for The Woodlands-Spring-Conr

Thanks! Jeff, I will re-blog as well.  This is a valuable reference with great links! 

Jul 19, 2010 02:00 PM #13
Rainmaker
1,414,061
Bill Burchard
3B Realty: 951-347-3818, CA - Murrieta, CA
Broker, Realtor, Representing Buyers and Sellers

Excellent post, Jeff. Thanks for explaining this. (And I've bookmarked this for future reference.)

Jul 19, 2010 02:02 PM #14
Ambassador
645,627
Marilyn Boudreaux
Marilyn Boudreaux, Century 21 Mike D. Bono & Co.'s - Lake Charles, LA
Lake Charles LA Century 21 Realtor

Jeff you have my approval on this post!

  I have not received "clarification" that I was looking for from the LO who led me to post in the first place--he must be hiding for cover or gone on vacation not returning my call!   Not my lender of choice either!  Thank you for commenting and educating everyone with your post.

Jul 19, 2010 02:15 PM #15
Rainer
332,782
Irene Kennedy Realtor® in Northwestern NJ
Weichert - Lopatcong, NJ

Jeff,

Was dashing earlier when I reblogged this. I really appreciate being able to turn to you for the "real skinny" on mortgage issues!

Jul 19, 2010 02:41 PM #16
Rainer
437,789
Terry Chenier
Homelife Glenayre Realty - Mission, BC

Jeff,

We are a little different here. Once my buyers are pre-approved they are locked in.

Jul 19, 2010 03:06 PM #17
Rainmaker
374,546
Gina Chirico
Lattimer Realty - Fairfield, NJ
Real Estate Agent - Essex County, New Jersey

Jeff, what a great explanation!  I've also bookmarked to go and read some of the other posts you linked to that I may not have read previously.  I must admit I'm always leary when I'm working with a buyer that doesn't get pre-approved through my in-house or anyone else I recommend.  I can honestly say that I've never had a deal fall through when they were approved by someone I recommended.  I don't care who they use to close the loan but if my guys give the green light, I know its closing.  Since we are both in New Jersey, I'd like to have that kind of future business relationship and trust with you, too. 

Jul 19, 2010 03:24 PM #18
Rainmaker
191,152
Christa Ross
RE/MAX Select Realty - REALTOR and Green Homes Specialist - Pittsburgh, PA
Helping you buy and sell Pittsburgh's Best Homes

Pre-qualification letters are ok IF the loan officer actually made an effort to look at their credit. I have had a few that I don't think they did anything other than sign the letterhead - those are worthless.

Jul 19, 2010 03:47 PM #19
Rainmaker
563,687
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Jeff -- The post shows why it's critical that a buyer use a highly qualified loan officer.

Jul 19, 2010 04:25 PM #21
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

DANA.... . my pleasure... thanks for the compliment and for reblogging this, for getting this out there.

BILL.... . thanks for stopping by and for those kind words...I hope it helps some.

 

MARILYN... . well, thank you... I guess you were the second, since someone else featured this.. lol  Seriously, your post started a great conversation and was eye opening to even how many loan officers actually thought they were correct in some ways with their comments, when some weren't. It goes back to lender overlays and what is and isn't law per se.

In regards to that loan officer... nothing worse when one hides and just doesn't admit, hey, I was misleading or not spot on, etc, etc. In any case, thanks for stopping by and for the polite comment.

 

IRENE... . my pleasure and I am glad that I can give some good information.  Looking forward to that day that we finally do a deal together.

TERRY... . I don't follow you 100%. Your borrowers are locked into a rate?  Or do you mean, once your borrowers are pre-approved, that they close no matter what?  thanks

GINA.... .  I am sure many realtors feel the same. What kind of kills me is when I get a borrower that e-mails me whose realtor said the same about their loan officer, yet they couldn't close the deal. I know people make mistakes, but I think some over promise and guarantee... and when you have a good closing ratio, that you keep taking that risk, yet one falls through. I have a really tough deal that I took after another New Jersey loan officer made promise after promise for 2 months, yet missed the closing date. I now have the loan and it's tough, but I told everyone, even the sellers, that we should be able to do it, but it is very very tight. But I talked to everyone about it.  And yes, I would love to have that opportunity to some day work with you and your clients. I will reach out soon.  thanks for the comment and for the compliment.

CHRISTA.... .  funny that you would mention that, because that is a huge pet peeve of mine... those loan officers that just assume that if you have a good credit score, that they have a good deal. I just wrote about it here... : Good credit scores don't mean it's a good mortgage loan - thanks

CHRIS... . I would agree.. what is hard sometimes is knowing who is actually really qualified and who isn't.  thanks

 

Jul 19, 2010 05:13 PM #22
Rainmaker
1,078,873
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Jeff, this is the best explanation of the difference of pre-qual and pre-approval that I have ever read/heard. I actually understand it now. I'm not faulting the LOs I work with, but they may think Realtors know more than we do. They started using pre-qual for the letter's name over a year ago, but I have heard some of them slip back to pre-approval when in truth it's what you say, a pre-qual letter.

The quality of the LOs we use don't make mistakes like income, etc. If they say it will close, it will. If they are iffy, they go the extra steps like researching with the UW to see if the loan is possible.

Thanks!

Jul 19, 2010 05:32 PM #23
Rainmaker
4,792,146
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

Jeff, thanks for setting the record straight.  Lots of misinformation and lack of understanding out there.

Jul 20, 2010 12:35 AM #24
Ambassador
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

FRANK & SHARON... .  I do actually fault some loan officers, because some know better. yet they just give you what you want and not explain the difference.  The same difference that if you don't know, you don't know to ask. The worst sales tactic out there in my opinion.  But I do thank you for the kind words and for the comment. Not that I don't wish you both the best of luck, but it's a shame that you do seem to have some quality loan officers, because I would love to build a relationship with the both of you.  I can actually do loans in Florida. About 25% of my business is done there.  In any case, thanks for your feedback as always.

GABE.... . my pleasure... and yes, there is a lot of misinformation out there.  Especially on what so many actually call a pre-approval letter.  thanks

 

Jul 20, 2010 02:33 AM #25
Rainer
278,000
Kathryn Maguire
GreatNorfolkHomes.com (757) 560-0881 - Chesapeake, VA
Serving Chesapeake, Norfolk, VA Beach

Thanks for helping all of us to speak the same language when it comes to pre-approvals and pre-qual letters.  This was very clear.

Jul 20, 2010 03:38 AM #26
Rainer
37,648
John McGuire
Mortgage Banking Consultant and Investor - Overland Park, KS

Will the Fannie Mae Loan Quality Initiative make pre-qualifications/approvals less certain?

Effective for applications dated June 1, 2010 and later:

"Fannie Mae is updating the Selling Guide to require lenders to determine that all debts of the borrower incurred or closed up to and concurrent with the closing of the subject mortgage are disclosed on the final loan application and included in the qualification for the subject mortgage loan."

Lenders are implementing different policies to comply with this requirement including credit report re-pulls at closing.

Jul 20, 2010 04:04 AM #27
Rainmaker
722,892
Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

You are right that many of the comments made were probably investor overlays, or corporate policy that came out of being afraid of the RESPA Regs of 2010.

and as far as the name of the PreQ or PreA letter... it reminds me when everyone said "no doc" when there were SiSa Sifa Nina etc...  it is almost a catch all that no one really understands and there is not a true standard in the industry. 

It all still comes back to the Lending Partner that you trust.  If you dont trust them why would you use them? Great Donuts?

The best RE professionals build teams of trusted partners to make the machine move forward.

Jul 20, 2010 06:47 AM #28
Rainer
387,459
Doug Anderson
Tucker Associates Real Estate Services - Danville, CA
Bay Area Real Estate Views

Jeff - A very well articulated article regarding the differences.  A lot of the verbiage is nuance and as an agent in this market we all must understand what the mortgage world is going through and take a "get back to basics" approach.  When looking at the financing aspect of the other part of the transaction I look at many variables in lieu of a pre-approval or pre-qual letter and make my recommendations accordingly. ~ Doug

Jul 21, 2010 07:15 PM #29
Anonymous
Jalen
Dag nabbit good stuff you whippernsappers!
Aug 22, 2011 06:28 AM #30
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