Issuing a Pre-Approval letter involves correctly analyzing three different but critical components of the File:
Each of these areas is very complex. If questions arise when documents provided by Buyers are being reviewed, it’s in the best interests of the Buyer and the Agent representing them that we as a Lender get clear cut answers so we can make a sound decision.
Oftentimes when we are reviewing a file, we see something that we don’t know how to interpret. If we interpret it incorrectly one of two things could happen:
A. We pre-approve Buyers for LESS than what they could really have purchased
B. We pre-approve Buyers only to have the unaddressed issue come back to cancel the deal.
Here’s an example:
We see an Auto Loan on the credit report which has the notation “J” which means it’s a Joint account. It’s good business practice and smart Lending to ask the Buyer, “Did you cosign for someone else’s car loan and can that third party prove they’ve been making the payments for 12 months?” –
Imagine we counted a payment of $500/mo into the Buyer’s debt ratio only to find out we could have omitted it, and as a result the Buyer’s pre-approval was “shorted” or worse still, they decided not to buy because they couldn’t find a home in the (low) price range we gave them?
For this reason we must take the time to Clarify and confirm things.
A common problem with Documents Buyers provide is that they:
(1) Are illegible (e.g. they sent photos with their cellphone) or
(2) Have missing pages.
(3) Are alternative items, not what we asked for.
(4) Create More Questions.
Let’s explore (4) for example. Say the Buyers provided Bank statements, and they show a pattern of Overdraft and Insufficient Funds charges. This needs to be addressed and explained. Say we see a large, regular monthly payment being debited from the bank statements that is not shown on the credit report.. we need to make sure there’s no undisclosed debt.
This document could taken into 100 pages of examples which illustrate the fact that just because Buyers provided documents, it doesn’t mean we are ready for pre-approval.
I pride myself in ensuring our Pre-approval letters are accurate and founded in dependable facts that could be argued if an Underwriter opposed them. Buyers need to appreciate and understand the importance of providing all of the items asked for, and making sure they are ready to explain anything that’s questioned.