Why Your Pre-Approval Isn't Real

Reblogger Lynn B. Friedman
Real Estate Broker/Owner with Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ...

Dear Readers,

The explanation by Rodney Mason is VERY important. Every single day we try to explain to prospective Buyers why Mortgage information is so critical. Now, in a complete manner, the details are available in this post.

  Previously others have described the difference between PRE-QUALIFICATION and PRE-APPROVAL in various posts. The difference is important to remember.

Thanks Rodney for bringing up the subject again!
Have a happy day -
Lynn

 

Original content by Rodney Mason NMLS #151088

The topic of a Borrower or Real Estate Agent requesting a Pre-Approval instead of a Pre-Qualification comes up quite frequently.  The terms have been used so interchangeably for so many years now, so it is bound to lead to confusion.  In today's market, you will most likely not be getting a true Pre-Approval letter though.  Instead, a Pre-Qualification will be given to the Borrower. 

 

Most lenders quit issuing true Pre-Approvals several years ago for a variety of reasons.  One main reason for the change was to be in compliance with applicable Federal laws.  RESPA laws that govern the GFE changed January 1, 2010 .  When that change took effect, a GFE became more of a binding contract that it ever was.  That gives a lot of concern in that there is very little and sometimes no room for changes in fees that are initially disclosed to the borrower even though the lender does not have factual data at that time to give out accurate fees. 

 

This has the potential to be a significant financial risk to the lender when a property has not yet been specified.  The new GFE only allows tolerances for certain fees to change.  Not having the real specifics at the time of loan application has the potential for a regulatory issue for the lender. 

 

Also, the FDIC website (section 203.2) has a very specific definition of a Pre-Approval.  The FDIC states that a Pre-Approval cannot be subject to certain other additional approval conditions.  Basically, nothing other than property associated conditions (i.e. sales contract, appraisal, insurance, title, etc) and no material changes in a borrowers qualifications can apply to a Pre-Approval once it is given.  The CFPB is also very concerned with a Borrower not being misled by a Loan Officer on the difference between the two.

 

Essentially, this means that the file has to be fully reviewed and almost fully approved by an Underwriter, not a Loan Officer, prior to a Pre-Approval being issued.  If you have a Loan Officer issuing Pre-Approval simply based off of an Automated Underwriting System approval, then they are not following the FDIC definition of what constitutes a valid Pre-Approval.  Since the FDIC regulates all banks, everyone should be following this definition for them to remain in compliance.  

 

A Loan Officer who knows underwriting guidelines inside and out and what they are doing, can issue a Pre-Qualification letter that is as good as a Pre-Approval letter.  Nothing prohibits a Loan Officer from completing a thorough review of a Borrower's credit report, pay stubs, W-2's, Federal Income Tax Returns, and bank statements prior to issuing a Pre-Qualification.  I also wrote a more in depth article on Pre-Qualifications a few years ago.

 

 

I am sure that there are many Loan Officers still issuing Pre-Approval letters today that have not first been reviewed by an Underwriter.   Just because you may receive one, that does not mean that they are being compliant in doing so or giving anything other than what is essentially a Pre-Qualification.  Most of these will probably come from rather small mortgage companies or mortgage brokers.  This will likely be due to them not having a large and experienced Legal/Compliance Department to keep up with the ever changing legal environment that lenders must navigate through. 

 

A Borrower or Real Estate Agent should not expect anything other than a Pre-Qualification letter. 

 

 

It is always advisable to consult with a knowledgeable lending professional when navigating today's turbulent mortgage and real estate marketplace.  I am committed, qualified and equipped to help you evaluate your options!

 

Also check out:

Conventional Financing Mortgage Program Overview/Updates

FHA Financing Mortgage Program Overview/Updates

Georgia Dream Down Payment Assistance Program Overview/Updates

HomePath Financing Mortgage Program Overview/Updates

USDA Financing Mortgage Program Updates  

Programs Include:

  • Conventional (Fannie Mae & Freddie Mac)
  • HomePath - #1 Volume Retail Lender
  • HomePath Renovation
  • FHA
  • FHA 203K Renovation Loans (Streamline or Consultant)
  • Georgia Dream Down Payment Assistance
  • Jumbo
  • USDA
  • VA
  • Conventional Condo Project Approvals
  • FHA DELRAP / HRAP Condo Project Approvals

*************************************************************************************

Rodney Mason is a Sr Loan Officer located in Atlanta, GA.  He is also 203K Renovation Loan and HomePath REO Property Specialist.  He can be reached at (404) 591-2453.

Providing financing for cities across Georgia including: Acworth, Albany, Alpharetta, Athens, Atlanta, Augusta, Austell, Avondale Estates, Blairsville, Bloomingdale, Blue Ridge, Bogart, Brunswick, Buckhead, Buford, Canton, Carrollton, Cartersville, Chatsworth, Clayton, College Park, Columbus, Commerce, Conyers, Covington, Cumming, Dahlonega,  Dacula, Dalton, Dawsonville, Decatur, Doraville, Douglasville, Duluth, Dunwoody, East Point, Fayetteville, Flowery Branch, Gainesville, Greensboro, Hampton,  Hapeville, Hinesville, Hiram, Jackson, Jefferson, Jonesboro, Kennesaw, Lagrange, Lawrenceville, Lilburn, Lithia Springs, Macon, Madison, Metter, Morganton, Morrow, Newnan, Norcross, Oakwood, Peachtree City, Pooler, Richmond Hill, Riverdale, Rome, Roswell, Sandy Springs, Savannah, Scottdale, Statesboro, Stockbridge, Stone Mountain, St Marys, Sugar Hill, Suwanee, Thomasville, Thunderbolt, Tucker, Tybee Island, Valdosta, Waleska, Warner Robins, Waycross, Wilmington Island, Winder, Woodstock, and many more.


Providing financing for cities across Alabama including: Alabama Port,
Anniston, Athens, Auburn, Bessemer, Birmingham, Boaz, Bridgeport, Cedar Bluff, Chickasaw, Clayton, Coden, Dauphin Island, Decatur, Dothan, Eufaula, Fairfield, Fairhope, Florence, Foley, Forestdale, Fort Morgan, Fort Payne,Gasden, Grand Bay, Gulf Shores, Heron Bay, Homewood, Hoover, Jasper, Josephine, Madison, Meadowbrook, Midfield, Mobile, Mon Louis, New Hope, Orange Beach, Oxford, Oyster Bay, Phenix City, Prichard, Rainbow City, Saraland, Satsuma, Scottsboro, Selma, Troy, Theodore, Tillmans Corner, Trussville, Tuscaloosa, Vestavia Hills, Warrior and many more.

 

               

NMLS #151088 - Licensed in AL & GA.  HomePath® is a registered trademark of Fannie Mae.

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Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Thanks for the re-blog, Lynn! I am dealing with an Internet buyer who is offended because I asked for the pre-approval!

Mar 11, 2014 01:57 PM #1
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Lynn B. Friedman
Atlanta Homes ODAT Realty Call/Text 404-939-2727 Buckhead - Midtown - Westside -- and more ... - Atlanta, GA
Concierge Service for Our Atlanta Sellers & Buyers

Praful,

Internet Buyers do get offended when asked to prove that they are serious but so do local Buyers. Somehow they don't understand that we only have 24 hours to use each day and would prefer to be productive during work hours!

That's the point for my re-blogging Mortgage related posts - EDUCATE BUYERS!

Thanks for stopping by -
Lynn

Mar 11, 2014 02:03 PM #2
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Troy Erickson AZ Realtor (602) 295-6807
Good Company Real Estate www.ChandlerRealEstate.weebly.com - Chandler, AZ
Your Chandler, Ahwatukee, and East Valley Realtor

Lynn, pre-qualification and pre-approval has always been an issue with home buyers - they rarely know or understand the difference. Pre-approvals are not easy to come by, and I wouldn't be surprised if pre-qualifications are still very prevalent in real estate.

Mar 12, 2014 12:42 PM #3
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Lynn B. Friedman

Concierge Service for Our Atlanta Sellers & Buyers
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