The easiest and quickest approval anyone can get

Pre-approval letters rarely reflect the financial strain that a mortgage loan exerts on borrowers. (flickr photo by Joint Base Lewis McChord)

It is next to impossible to get an offer accepted to purchase residential property without a lender’s statement that the borrower is qualified to receive a mortgage.

(In the case of an all-cash offer that obviously doesn’t depend on a loan, other evidence is required to prove that the purchaser has enough funds to close.)

Although sellers and their brokers rely on them, at least initially, those mandatory pre-approval letters are worth no more than the cost of e-mailing them — in other words, nothing.

The first question to ask is the source of the pre-approval.

Was it printed out from an online site? Forget it.

Was it signed months or week previously by a loan officer who spent just a minute or two on the phone getting a few facts from the prospective borrower such as name, address, Social Security number and amount sought?  That letter is just about worthless, too.

Virtually all the loan officer has learned is the buyer’s creditworthiness.  She or he doesn’t have an employment history — a reflection of stability — or know anything else helpful about the applicant’s personal circumstances.

Nor would the loan officer have an inkling whether property to be sought somewhere and sometime in the future would be acceptable collateral.

Most important, the loan officer is not the underwriter.  And it is underwriters whose nitpicking can screw up a transaction until the hour that the parties gather around the closing table.

If you ever have seen a loan commitment letter, then you know how underwriters’ slavish attention to detail can drive borrowers insane with the need to dredge up old documents and acquire new ones that demonstrate their likelihood to make monthly payments faithfully.

Pre-approval letters that do contain a shred of reliability are those from loan officers who take their jobs seriously enough to verify assets, income, employment record and other factors.

Yet such letters are basically pointless, however integral they have become to the sale process.

Wise are the brokers and their clients who request a financial statement along with some persuasive supporting documents just as soon as an offer is accepted, if not before.

There is another option as well, though it is infrequently utilized: Ask buyers to permit their loan officers to disclose to the listing broker what they have learned as they conducted their due diligence.

As a transaction plods toward its conclusion, the last thing a seller needs to hear is that financing has not, in the end, been approved.

Tomorrow: Weekly Roundup

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Malcolm Carter
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022

M: 347-886-0248
F: 347-438-3201
Web site

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