Mortgage Pre Approvals Are a Joke
Reviewing a GA real estate contract for some way to keep your seller clients from loosing a deal due to the buyer's loan falling through last minute is a joke! Realtors have always went through the motions of getting a buyer's pre-approval from the lender when the contract is written, but I'm finding more and more that a pre-approval is useless to me and my seller clients. Partner this with a ridiculously long financing contingency some buyer's agents are going after puts a seller at risk for a last minute problem. Image courtesy of Stuart Miles/ FreeDigitalPhotos.net
What is a mortgage pre-approval?
The buyer provides the lender with general information such as social security number, bank statements and tax returns. With a simple look and a debt to income formula a lender issues a pre-approval subject to satisfactory appraisal and lender under writing.
Sounds good, right? As a seller and a serious buyer you have to know this is not enough! As a Realtor with many closings to my name, I now know better. I've begun holding buyer's and their agents to the terms of a reasonable financing contingency to include providing a full loan commitment from the lender several days even weeks prior to closing. I know there are not safe guards for all issues with a loan, but I'm starting to be a bit tighter on the pre-approval/loan commitment requirements.
So what is a full loan commitment?
Loan commitment is just that, a commitment from the lender after reviewing all items the underwriter deems fit. This is the complete approval from the lender that they will issue the buyer's loan.
For everyone in the transaction the difference in a pre-approval and full loan commitment should be crystal clear. Buyers should work diligently to get the lender what they need to provide the loan commitment and lenders should notify the buyer and Realtors of any red flags that may come up. The day before or day of closing once seller have moved is not the time....grrrrrrr!
Can you tell I had a bad day at the closing table? I'm curious as to what safe guards you have found work in this situation.