Big Banks May Be Nixing the Pre-Approval Process
As lenders begin to work through the lending guideline changes from January 2010, some bigger banks have discussed eliminating pre-approvals. Instead, they are opting to wait until a potential borrower is under contract before the bank starts looking at and verifying your income, assets and credit score. Having a different loan process is not such a huge deal unless the bank you’re working with has decided to cut out the most important part of the process, the pre-approval.
Why Will Big Banks Eliminate Pre-Approvals Upfront?
The main reason big banks want to stop issuing pre-approvals is because of all the added paperwork and disclosures required. Some bigger banks don’t want to ‘clog up their system with pre-approvals that may not turn into real deals’…which means you as their customer are not important to them until you have entered into a legally binding contract with a seller to purchase a home. Only then are they willing to spend time pre-approving you for a loan. Biggest problem with waiting until you are under contract? You could lose a lot of money!
Why Waiting for a Pre-Approval is a Bad Idea!
The whole point of a pre-approval is to make sure you are a ready and capable borrower that can confidently move forward on a purchase contract to a seller. What some of the big banks are issuing are glorified pre-qualifications (or estimates) at best as to what you can afford.
You Could Lose a Lot of Money and the House You Want to Buy!
Typically you have 30 days from the time the seller accepts your offer to close your transaction. Why would anybody want to enter into a legally binding contract, put down up to 3% of the purchase price as a deposit, pay for inspections and appraisals (upwards of a $1000 or more), and to go through the emotional roller coaster of a purchase transaction only to find out at the end that you don’t qualify for financing?
If you would have received your pre-approval at the very beginning, you would you have taken out the unknown factor of “Will I be approved for this loan”? A genuine pre-approval will save you money, time and the anxiety of not knowing if you are credit worthy.
Smart Sellers and Listing Agents Won’t Accept Your Offer
The fact of the matter is smart sellers and listing agents will not even accept your offer without a genuine pre-approval letter. Listing agents who are representing their clients best interests will call the lender who issued the pre-approval and ask the Mortgage Advisor just how credit worthy is this buyer. They will also ask if the lender has verified the borrowers income, assets and credit score and has been fully approved for the loan. If the lender answers no, most listing agents are going to advise their clients not to accept the purchase contract and find another buyer who is genuinely pre-approved.
Your Pre-Approval Letter May Not Be Worth the Paper It’s Written On
If you’re reading this and are relieved because you’ve already received a pre-approval letter from a big bank, the first question you should ask yourself is, “did my lender ask for and review my documentation?”
If you did not supply documentation to a lender and they gave you a pre-approval letter, all they gave you have is a glorified pre-qualification letter. This means your approval is not worth the paper it’s written on. So remember….pre-approval letter means verification of income, assets and credit.
When Should I Get Pre-Approved?
You should be fully pre-approved, we call this a “genuine pre-appoval” by a reputable lender BEFORE you start to even look for a house. You need to know how much you can afford, if there are any mistakes in your credit report that need clearing up and if there is anything you need to work on to get pre-approved for financing before you start looking for a home.
Not Quite Ready to Get Pre-Approved but Want to Learn your Options?
If you’re not quite ready to go through the pre-approval process but want some information about what types of programs may fit your financial needs, we can schedule a time to sit down and talk about your options. Of course, there is no obligation or charge for this meeting. Call me at (650) 520-0915 or email me at info@SanMateoMortgageBlog.com to schedule a time to sit down and talk.
Received Something from a Bank and Want to Make Sure It’s a Genuine Pre-Approval?
If you are beginning the loan process or already in the process and want to make sure you have a genuine pre-approval letter, give me a call at (650) 520-0915 or send me an email at info@SanMateoMortgageBlog.com. I still fully pre-approve all my clients at the very beginning, well before they start looking for a home. It is the most important piece in the home buying process and will ensure a smoother and successful closing.
{ 0 comments }
