Prequal letters are worthless UNLESS
they contain the following info and are backed up by evidence.
Loan Type and Amount
Credit Scores and Verified Source of Funds
DTI “Front and Back end”
With the CFPB’s RESPA enforcement actions against both Zillow and Prospect Mtg. listing agents can no longer require “written cross qual applications” as a condition of a buyer making an offer for their listings.
Or if they do; they run the risk that they and their preferred lender become the next target of a CFPB compliance audit!
Get the Lowest Interest Rate, Fees, and Fastest Service
YouTube – Straight Talk Lending – Daniel Dobbs
The only real guarantee a buyer can REALLY close escrow is to demand a DU” (automated loan approval) complete with lending case number AND details about a borrower which can be verified,
When examining the DU, focus on the status (click here for an example) and view the top line for the status of the approval.
Once a borrower’s information is “analyzed” thru a computerized underwriting program, the results come back as one of the following:
a) Accepted/Eligible
b) Refer Eligible
c) Approved Ineligible
d) Refer Ineligible (i.e. Declined)
“Accepted/Eligible” is obvious. “Pass Go” & collect a commission check.
The status: “Refer/Eligible” is a little more nuanced.
This is where the experience of your loan officer is critical.
“Refer” means 2 underwriters (U/Ws) are now required, based on their experience, and jointly concur for loan approval.
“Underwriters: Gatekeepers of Homeownership”
When dealing with U/W’s, the loan officer must be patient & thorough by addressing all of the borrower’s issues, in writing, BEFORE submitting the loan for approval.
The more issues left un-addressed (credit/debit / income) before the file is submitted, the more likely UWs will decline the loan.
Like being a parent, it’s always easier to say “no” than “yes”
Since the computer has “technically” declined the loan, why would a U/W stick their neck out for a marginal loan which could later end up in foreclosure (and hurting their career)!
Other Designations
1) Approved/ Ineligible:
Your borrower is marginal & does not fit into the program they were submitted. In any case, the deal MAY BE salvageable.
Commonly the borrower’s debt ratios are too high and the loan needs to be resubmitted to a lower adjustable rate.
Maybe the borrower needs to pay off debts or have a larger down payment.
2) Refer/Ineligible: The deal is dead.
In fact, the application should never have been originated. The loan agent has wasted your time, soured a client’s confidence in you & cost you referrals.
In Closing
Whether you are a listing agent or buyers broker, why accept a “pre-approval letter” & risk losing time, money & future referrals?
Just demand a FULL “DU” loan approval from a buyer BEFORE accepting or making an offer.