My client IS pre-approved. ………or NOT


This is a very important post to read if you are thinking of purchasing a home.  There is a big difference between a pre approval letter and a pre qualification letter.  The latter is useless.  The pre approval letter is the document that is needed.

Via Deborah “Dee Dee” Garvin New American Mortgage (New American Mortgage):

Most agents declare “My client IS pre-approved.”  ………or NOT, is my assessment.


Many agents are under the misguided notion that the consumer in their car looking for properties or putting in an offer on their listing is pre-approved and qualified for the financing needed for the purchase of a given property.  Sadly, even the prospective borrowers often operate under the illusion that they are completely qualified for the loan product or loan amount listed on the “pre-approval” letter given to them by their trusted mortgage consultant.


Most people in real estate sales and mortgage financing can deftly differentiate between a “pre-qualification” and a “pre-approval”.  A quick review of the comment threads on any of the online comment threads, will however, reveal the fallacy of the predominant thought process.


The common definition would explain a “pre-qualification” as a cursory evaluation of stated income, employment and credit (with the supporting documentation or verification) by a mortgage consultant or real estate agent.  As they say, a “pre-qualification” and $5.00 will get you a cup of coffee…it may, or not, get you mortgage financing.


Conversely, a “pre-approval” is, purportedly, based upon a thorough analysis of income and asset documentation, employment assessment and review and access to current credit reports.  The pre-approval may, or may not, include completing a mortgage application and submitting the loan package through AUS (automated underwriting systems), such as FannieMae’s Desktop Underwriter (DU) or Desktop Originator (DO), or FreddieMac’s Loan Prospector (LP).


The issue at hand is the above referenced “pre-approval” is really nothing more that a “glorified pre-qualification”.  The fact is, that no loan application is “pre-approved” until it has the stamp of approval by a underwriter of the company presenting the loan commitment, subject to further verification (verbal employment, for example) and/or appraisal of property and clear title.  


Prior to the “seal of approval” of the lender’s underwriter, the AUS findings are nothing more than an opinion of fact.  In short, the opinion of the mortgage consultant/processor manipulating the AUS systems.  


Most agents and consumers would be surprised at the ease of which automated underwriting can be manipulated to achieve the desired goal of approval.  If it doesn’t work at $3,500 of income, just make it $3,800….


But, seriously, most mortgage consultant’s have little interest, or desire, in falsifying income or assets on AUS findings.  The real challenge is that the mortgage consultant may not know what income is accepted and that which is not.  Will the lender/investor/underwriter accept a year to date average, or will a two year history be required?  Did the mortgage consultant property evaluate the tax returns and remove the “unreimbursed employee expenses” from the allowable income prior to running the AUS?


Evaluation of income is easily the most easily misunderstood aspect of mortgage lending.  Ironically, income figures can vary from underwriter to underwriter; so, seriously, how “spot on” can a mortgage consultant realty be?


The point of this post is to finally address one of the many Blue Elephant’s sitting in the room:  Do your client’s have a “pre-qualification” or a “pre-approval”?  If is the latter, ask to see the underwriter’s condition list and/or loan commitment.  AUS findings are only as good as the knowledge and experience of the person at the computer keyboard…and worth about the cost of the paper.  There is NO lender commitment is the running of an automated underwriting system.


FACT:  The vast majority of lenders will not involve their underwriting staff’s time and efforts in the evaluations of “to be determined” properties.  Sign a contract and they will fully underwrite the loan.   SO, that first time buyer in your car?  Chances are that piece of “pre-approval” paper and $5.00 will get you a cup of coffee.



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Deborah “Dee Dee” Garvin

NMLS #279125

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I am continuing to build my team of mortgage professionals.  Please contact me to discuss how New American Mortgage and I can help you thrive in the mortgage industry.  NMLS license and/or the ability to obtain one is necessary.


If you are looking for answers and creativity to accomplish your home buying goals and financial stability, contact me for a thorough analysis of your current and future home buying and refinance opportunities.  FHA, VA, renovation expert, HUD Certified First Time Homebuyer Certified Mortgage Banker.

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About susanmorrison

After living in Walpole, MA for many years, our family was transferred to the west coast when I was a senior in high school. In 1983, I graduated from Mission San Jose High School in Fremont, California. I am also a 1987 graduate of Providence College with a major in liberal arts and a minor in business administration. I bring to the table many years of sales experience beginning with thirteen years in Corporate Sales at Delta Air Lines. I'm the mother of three children and I'm very active within the Franklin, MA community. I am also a cancer survivor and support the American Cancer Society Charities.

My husband and I have built five homes and I've lived in a variety of other locations including Toronto Canada, Irving Texas and my current home in Franklin, MA. As a result of all my moving around, I came to the conclusion that I was an expert at moving...why not become an expert on the other side of the table? I earned my real estate license in 2004 and believe that I have found my true niche'. I can empathize with my clients on a variety of levels; whether they are buying or selling. And, like so many other good realtors out there, I believe that possessing good communication skills is one of the many keys to success.

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