Lender Pre-Approvals

I recently received a question on one of my past blogs regarding lender pre-approvals and commitments. This made me realize that I need to update our readers on this process and how it has been affected by today's turbulent market!

You can look back into our blog archives to read the full post, but here is a quick summary.

Pre-qualification -
After reviewing the nuts & bolts of the transaction and if a lender has a loan
program that can accommodate the applicant and their goals, they are
pre-qualified.

Pre-Approval -
After we verify all necessary information and everything checks out, we can
issue a pre-approval letter to the borrower and realtor. These letters are
contingent on certain details and it means they will have a loan if all are met.

Commitment -
Once we submit the file to the lender, we are issued a formal loan
commitment. This commitment will have a list of conditions that must be
met in order for them to offer a "clear to close". Once this "clear to close" is
issued we can close your loan.

Please keep in mind conforming programs and rates are stable and can be locked far in advance. These loans will not run into the issues I will list below. I will primarily focus on sub-prime loans because they are much trickier and are the cause for most of the headache closings or broken real estate contracts!

Now that I have refreshed your memory on the differences, lets talk about some things that can happen in today's turbulent market. As a broker we offer a pre-approval based on the programs that are available through the lenders we use and the current market rate. Notice I said "current". This is of course what is available the day we pre-approve you! With the market the way it is, programs and rates change daily! There have been times where a program is available one minute and gone the next. There are some scenarios where there is only 1 lender that can loan on a particular borrower. If this lender cuts the program, goes bankrupt, or ups the rate drastically due to increased risk in the market there is nothing we can do about it. If this occurs, the pre-approval can become worthless! We are unable to lock a sub-prime loan until it is actually "cleared to close" and this is something many people do not understand. Your sub-prime rate is floating until we can clear the file and lock. Unfortunately market conditions can change and it can negatively impact some people.

I bring all of this up because if any of these scenarios take place, the broker takes the blame. As brokers we must meet with each client and make all of this clear. Borrowers need to know the current market conditions and what can happen. Now I have only mentioned extreme cases, but these are the ones that make the news or get borrowers and realtors in a frenzy! Brokers are looked down upon and are thought of as giving "false" pre-approvals and that is just not the case. I cannot speak for all brokers and their practices, but more times than not it is out of our control. We take the application and provide a pre-approval based on the tools we are given on a given day. Then if things go bad and something can't be verified, a program changes, rates jump up, or a lender goes bankrupt the deal can be dead. All of these events can turn a one time commitment and soon to be done deal into nothing! From the outside it is easy to say that Broker X lied and said I was good to go and had a commitment. In reality they did have a commitment or pre-approval, but circumstances arose that had to be dealt with and this is what will bring the Quality brokers to the top! How one deals with adverse situations in this business is what sets them apart!
You can now see that brokering loans in today's market can be tricky and as always do your homework and go with a broker that has a track record of success. They will know how to deal with tough circumstances and get you the loan you deserve!

Brought to you by:
Professional Mortgage Group, Inc.
"Your Columbia, Missouri Mortgage Broker"