There has always been a lot of incompetence in the mortgage business, but when the money was flowing it really didn’t matter because if you had a heartbeat you could get financed, so inexperienced mortgage brokers could still be successful. But now that money has tightened up, you can’t risk your deals on a mortgage broker or an approval that is bogus.
This deal was kind of funny. When the buyer’s agent submitted the offer, they included a very weak pre-qualification letter. When I called the loan officer who’s name and number was at the bottom to ask for some clarification, they had disappeared! POOF! Gone. (Imagine that!)
I told the buyer’s agent and she said “Oh My!” So today I get a different preapproval letter from a different company and broker. This is what prompted our lesson for today. So first, go take a look at the letter HERE. (it is in .pdf format and you can print it or just look on the screen. I have blacked out the client’s and company name and cut off their logo header and their signature at the bottom. Nothing else has been changed)
Got it? Ok, here we go:
Right in the first paragraph is says: 1) he has been pre-approved then 2) this loan pre-qualification and 3) This is not a loan approval. So which is it? Is he approved or not? Then it goes on to say that “Loan approval is subject to completion of a mortgage application… WHAT!?!?! I read that to say he hasn’t even made loan application yet! I’m sure that’s not the case, but I’ve got to give this letter to the lender I’m trying to negotiate the short sale with…and that’s how THEY’RE going to interpret it!
Let me suggest what you SHOULD be seeing in a pre-approval letter. I look for things like:
“Mr. Smith has made loan application with our company and we have received a preliminary approval from automated underwriting. This approval is subject to verifications and full underwriter approval and is subject to change” or something loosely resembling that. It will also usually list things like: satisfactory appraisal, title, seller contribution of X%, etc.
Here’s the real scoop: A good loan officer can take a full 1003 loan application (pronounced “ten-oh-three”) in 5-10 minutes. It then takes all of about 5-10 minutes OR LESS to run it through automated underwriting system. So from first contact, a good loan officer can have a REAL approval letter to you in 10-20 minutes. There. Now you know the truth. This includes FHA and VA loans.
The other thing that I didn’t like in this letter was the 4th bullet point: “LTV 97% financing and buyer will need 3% in down payment assistance from seller”. Two things jump out at me.
1. As of 1/1/09, FHA loans are now 3.5% down, so the LTV would be 96.5%, UNLESS the case number was assigned prior to 12/31/08, which if it was already assigned, I would probably have received an APPROVAL not a pre-qual.
2. There has been no such thing as “down payment assistance from the seller” since October first of last year when programs such as Nehemiah and Ameridream were squashed by FHA guideline changes. Did they really mean to say 3% closing cost assistance? Don’t know, but again, I have to provide this letter to my negotiator, so it must be very clear that the buyers are qualified or my short sale will get de-railed.
These things SCREAM inexperience to me. I wrote a few months ago about the importance of having an experienced FHA lender doing your deals, and this is just further proof. A broker with 10 years experience costs your borrower about the same as someone with 10 hours experience, so please be careful who you’re referring your buyers to.
Hope you enjoyed today’s lesson!
Andy
P.S. I answered Tim’s mortgage line yesterday while he was out at an appointment and it was one of the agents that gets this newsletter every week calling to see if anyone would even answer the phone! It seems she had given out 3 mortgage broker names to clients over the weekend and 2 of them were out of business! Can you imagine if they went out of business mid-stream in one of your deals? Wow! So the answer is YES, Tim is still in business and (usually) answers his phone!
UPDATE:
There are several reasons why as a BUYER’s agent you want a strong pre-approval:
you know that you are dealing with a qualified buyer (not wasting time)
you know that you are showing them homes in the right price range
you will structure your deals properly for the financing approved for (ex: get an FHA/VA addendum, ask for closing costs or other contributions, etc.)
you’re not taking an absolute stranger into a vacant home and risking your life (car dealers ask for a drivers license before you can test drive a car but most agents will meet a stranger at a vacant house based on a 2 minute phone call! amazing!)
your offer will be taken more seriously
you’ll be able to put offers in quicker and even nights and weekends without having to get a mortgage person on the phone
As a LISTING agent, you won’t be pulling your seller’s house off the market for someone that can’t really buy it!
Happy Selling!
Andy
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