Pre-Qualification: No Salami Sandwich

Imagine a salami sandwich without the salami.

A pre-qualification letter is like a salami sandwich without the salami. In general, for a borrower to get a pre-qualification (a “pre-qual”), the loan officer may ask some general questions, take a look at credit, and write a letter that states Mr. and Mrs. Buyer can afford a $1.2M home. There’s no salami!

Now a true, legitimate pre-approval, that’s another thing. A legitimate pre-approval should consist of (at least) the following:

1. The borrowers meeting with the loan officer to spend time to discuss not only the loan options, interest rate, and payments but also their financial and life goals.
2. The loan officer must run and evaluate credit. Without a credit report, everything is a guess, and the loan officer is doing the borrowers a grave injustice to give any rates or programs without knowing credit history.  It is the most important risk factor for a loan officer to know and evaluate.
3. During the consultation, the loan officer must see and verify the borrowers’ documents that the underwriter will also see and review for underwriting the loan.
4. The loan officer and borrowers should review the application to make sure all information is accurate.
5. The loan officer and borrowers should review the Good Faith Estimate, the most important document that the borrowers will sign at application.

Now the loan officer can write a pre-approval letter that is worth something. In following these basic steps, the borrower will have a pre-underwritten loan and the real estate agent will have a document that brings a much stronger case when making an offer to buy a certain property.

The pre-approval letter has the meat (including pickles and chips).

4 April 2007 | First Time Homebuyers, Pre-Approval | Comments

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