So, We just completed a CE class entitled, “Avoiding Pitfalls and Ensuring Your Deals Get Done” . While we went into detail about mortgage underwriting guidelines, Credit issues and Appraisals, the big Question, was; “When a buyer comes to me with a Prequalification letter from a lender that I do not know, How can I be sure that the lender did their job to accurately prequalify my buyer?”
In my opinion, there are varying levels of Prequalification/PreApproval. Let’s define them:
- Basic Prequalification – This is where the Loan officer, Verbally completed a loan application with the borrower. They verbally received Income, credit information and Asset information. No Credit was pulled, and the Loan Officer depended on the Client’s Verbal information to calculate Debt to Income Ratios and Cash Reserves. NO CREDIT was pulled. NO Supporting Documentation was reviewed(Bank Statements, Paystubbs, W-2’s, Tax Returns). This is the most unreliable form of Prequalification.
- PreQualification with Credit Pull – This is where the Loan officer, Verbally completed a loan application with the borrower. They verbally received Income, and Asset information and PULLED CREDIT. NO Supporting Documentation was reviewed(Bank Statements, Paystubbs, W-2’s, Tax Returns) While this is much more reliable than a Basic Prequalification. But, without Supporting Documents, there can still be still be deal killing problems for the Borrower.
- PreQualification with Credit Pull and Supporting Documentation – This is where the Loan Officer Completes the Loan Application, Pulls Credit, and Gets Supporting Documentation. Basically, this is a Complete Application ready to Send to Underwriting. The only item missing is the Property and Underwriter review. In my opinion, this is the most solid Prequalification Short of underwriting the file without a property.
- PreApproval – This is where the Loan Officer has completed the Loan Application, Pulled Credit, Received Supporting Documents, and an Underwriter has reviewed the file excluding property. This is as solid as it gets. Due to Capacity issues, very few brokers/lenders/banks will actually do this. Taking into account manpower, the actual loans with a property will always take priority over loans with a property To Be Determined.
So, Dan, How can I know what level of Prequalification/PreApproval the Loan Officer did for my client? Whether your the Buyers’ Agent or the Listing Agent, CALL the lender on the Prequalification letter and as them:
1. Did you take a full Loan Application?
2. Did you pull Credit?
3. Did you Receive Supporting Income and Asset Documentation to review?
4. How sure are you of your prequalification?
If they did the above things, you should have a solid buyer….
Managing Partner, Options Mortgage Services