Guest Blog: Pre-Approved vs. Approved
Today's guest blog comes from Johnathan Barber, a loan officer with Trustcorp Mortgage, and is about the difference between being pre-approved and approved for a home loan.
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"Today, I feel obligated to describe the differences between APPROVED and PREAPPROVED. In today’s market, it is important that sellers and their agents INTERROGATE the loan officer who provide the preapproval letter. As a loan officer who has been in business for over six years, I have to say that—depending on the loan officer— a preapproval letter can have very little substance.
A few hours ago, a certain realtor/broker called me. “Johnathan, how fast can you get me a preapproval letter for my client.”
I was surprised to receive a call from the broker since I had NEVER done any business with him. “I will get the person PREAPPROVED for you right now. What’s the client’s number?”
“Well. . . first. . .. Do you have rehab investment loans?”
“No. Not many banks offer that product, but I might be able to refer you to someone.”
“No. Can you just write me the letter? I NEED TO TIE UP THE PROPERTY.”
“Give me the client’s phone number so that I can get him preapproved. . . or have him call me.” At this point, I knew the conversation was heading south. . . quickly.
“Johnathan, I just need a letter. Just a letter. The client is not in town, so you can’t talk to him.”
“Sorry. I need to talk to a client before I write a preapproval letter to another realtor. Besides, who is the other agent anyway?”
“I am the agent on both ends. Forget about it! I will just get someone else to write it.” Click. Dial tone.
A preapproval letter is a document that shows a seller that the potential buyer has taken the time to have a professional evaluate his/her credit, capacity, and collateral so that the buyer can purchase a property. The loan officer asks critical questions, enters the information into a bank’s underwriting system, and a firm automated underwriting result is provided. Of course, the loan officer has to meet with the buyer to obtain copies of pay stubs and supporting documentation that matches the information entered into the computer.
An approval is the “finish line”—the culmination of hours of processing, appraising, verifying, and measuring all of the information gathered during the loan process. A human underwriter signs his signature on the loan approval/underwriting result after everything is properly reviewed; he endorses the loan as if it were a promissory note.
Some loan officers write FALSE approval letters to “TIE UP” a buyer or property. When I was a first year loan officer, the president of the brokerage taught us to “JUST SAY YES.” By getting an applicant interested through a positive response, it would buy enough time for the loan officer to search for an actual approval. Because a broker usually has the ability to “shop” using thousands of programs, he can adopt the shotgun philosophy of providing a hollow approval to engage the client while searching for a bank that will approve the loan.
The JUST SAY YES approach gives a buyer a sense of exhilaration because he/she BELIEVES that he/she can buy a home. The CATASTROPHIC results are NOT as limited:
1. The seller believed that her home was going to be sold, but the buyer is not truly eligible to purchase her property. The seller misses opportunities to sell to legitimate buyers.
2. The buyer spends money on inspections, appraisals, lease terminations, and storage fees, but his loan never closes because his capacity, collateral, and credit were NEVER examined.
3. Domino effect of a dead loan. The seller can’t sell his home because the buyer couldn’t buy, so the seller can’t buy a new home. . . and that seller can’t sell. . . which means the seller can’t buy his new home because his buyer couldn’t buy, so the seller of that home can’t sell. Did you ever stop and wonder why so many homes are for sale? This is certainly one reason.
Anyway, use all interrogation techniques within your power in order to make sure that the loan officer spent more than two seconds looking at the buyer’s eligibility. To the realtor who was rude to me this morning. . . ? When I drive by and see you jogging in Springfield Township again, I will strongly encourage my young passengers to aim their Wendy’s milkshakes at you. Consider the gesture a toast to your professionalism-- on behalf of every buyer, realtor, seller, and all other parties hurt by greed.
In short, EVERY professional in this industry—realtors, title agents, and loan officers—should consider the results of unethical actions. Sometimes, potential profit blurs the ability to see clearly and provide honest, fair lending/real estate services; therefore, we must continue to forward important tips such as these to our friends, family members, and coworkers. Buyer beware. Spread the word! Call me at (513) 518-6318 if you have any questions."
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"Today, I feel obligated to describe the differences between APPROVED and PREAPPROVED. In today’s market, it is important that sellers and their agents INTERROGATE the loan officer who provide the preapproval letter. As a loan officer who has been in business for over six years, I have to say that—depending on the loan officer— a preapproval letter can have very little substance.
A few hours ago, a certain realtor/broker called me. “Johnathan, how fast can you get me a preapproval letter for my client.”
I was surprised to receive a call from the broker since I had NEVER done any business with him. “I will get the person PREAPPROVED for you right now. What’s the client’s number?”
“Well. . . first. . .. Do you have rehab investment loans?”
“No. Not many banks offer that product, but I might be able to refer you to someone.”
“No. Can you just write me the letter? I NEED TO TIE UP THE PROPERTY.”
“Give me the client’s phone number so that I can get him preapproved. . . or have him call me.” At this point, I knew the conversation was heading south. . . quickly.
“Johnathan, I just need a letter. Just a letter. The client is not in town, so you can’t talk to him.”
“Sorry. I need to talk to a client before I write a preapproval letter to another realtor. Besides, who is the other agent anyway?”
“I am the agent on both ends. Forget about it! I will just get someone else to write it.” Click. Dial tone.
A preapproval letter is a document that shows a seller that the potential buyer has taken the time to have a professional evaluate his/her credit, capacity, and collateral so that the buyer can purchase a property. The loan officer asks critical questions, enters the information into a bank’s underwriting system, and a firm automated underwriting result is provided. Of course, the loan officer has to meet with the buyer to obtain copies of pay stubs and supporting documentation that matches the information entered into the computer.
An approval is the “finish line”—the culmination of hours of processing, appraising, verifying, and measuring all of the information gathered during the loan process. A human underwriter signs his signature on the loan approval/underwriting result after everything is properly reviewed; he endorses the loan as if it were a promissory note.
Some loan officers write FALSE approval letters to “TIE UP” a buyer or property. When I was a first year loan officer, the president of the brokerage taught us to “JUST SAY YES.” By getting an applicant interested through a positive response, it would buy enough time for the loan officer to search for an actual approval. Because a broker usually has the ability to “shop” using thousands of programs, he can adopt the shotgun philosophy of providing a hollow approval to engage the client while searching for a bank that will approve the loan.
The JUST SAY YES approach gives a buyer a sense of exhilaration because he/she BELIEVES that he/she can buy a home. The CATASTROPHIC results are NOT as limited:
1. The seller believed that her home was going to be sold, but the buyer is not truly eligible to purchase her property. The seller misses opportunities to sell to legitimate buyers.
2. The buyer spends money on inspections, appraisals, lease terminations, and storage fees, but his loan never closes because his capacity, collateral, and credit were NEVER examined.
3. Domino effect of a dead loan. The seller can’t sell his home because the buyer couldn’t buy, so the seller can’t buy a new home. . . and that seller can’t sell. . . which means the seller can’t buy his new home because his buyer couldn’t buy, so the seller of that home can’t sell. Did you ever stop and wonder why so many homes are for sale? This is certainly one reason.
Anyway, use all interrogation techniques within your power in order to make sure that the loan officer spent more than two seconds looking at the buyer’s eligibility. To the realtor who was rude to me this morning. . . ? When I drive by and see you jogging in Springfield Township again, I will strongly encourage my young passengers to aim their Wendy’s milkshakes at you. Consider the gesture a toast to your professionalism-- on behalf of every buyer, realtor, seller, and all other parties hurt by greed.
In short, EVERY professional in this industry—realtors, title agents, and loan officers—should consider the results of unethical actions. Sometimes, potential profit blurs the ability to see clearly and provide honest, fair lending/real estate services; therefore, we must continue to forward important tips such as these to our friends, family members, and coworkers. Buyer beware. Spread the word! Call me at (513) 518-6318 if you have any questions."
posted by Jamie Mandel | 2:17 PM
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3 comments
