Know What a Mortgage Preapproval is, Your Agent & Loan Officer May Not!

Want to maximize the strength of your offer and minimize the time it will take to get it accepted? Make sure you have a mortgage preapproval, not a mortgage prequalification with your offer.

Years ago after one of my sellers got burned by a bad mortgage preapproval, I started having the loan consultant in my office, Michael Polera, verify preapprovals submitted with offers for my listings.

Last week an offer came in for a listing in Arlington Heights. The mortgage preapproval as written was very unclear as to whether the buyers’ income and assets had actually been verified.

Michael called the lender was and told that the “preapproval” was based on what the buyers verbally reported and a run of their credit report. Thus, it was a mortgage prequalification with a credit check. I called their agent the next day and explained that her buyers needed to submit income and assets documentation for verification to the lender. Two days later, I called the lender and was once again told that no income and assets documentation had been reviewed.

I called the buyers’ agent again explaining that the buyers needed to submit income and assets documentation. She called me back that evening saying she talked with the lender and that the buyers were preapproved. I called the lender on Friday and was not only told that such documentation hadn’t been reviewed, but that the lender didn’t need to in order to issue a mortgage preapproval!

The reasons I were given included: 1. They were a large, national lender and didn’t get caught up in the subprime mess. (I know for a fact that this isn’t true, because I know someone who works there!) 2. They ran a credit check and if the buyers couldn’t afford the house (priced at $625K), they wouldn’t be able to pay their bills on time. (I beg to differ. There are lots of people who can’t afford a home priced in the $600Ks, but pay their bills on time every month.)

Since there are buyer agents and loan officers out there that still don’t understand what a mortgage preapproval is, make sure that you do! If a lender issues you a mortgage preapproval without requesting your pay stubs, bank statements, etc. use another lender!