{"id":13419,"date":"2018-05-04T17:19:50","date_gmt":"2018-05-04T17:19:50","guid":{"rendered":"http:\/\/www.anthonydidonato.net\/wordpress\/?p=13419"},"modified":"2018-05-04T17:19:51","modified_gmt":"2018-05-04T17:19:51","slug":"why-pre-approval-isnt-a-reliable-stop-gap","status":"publish","type":"post","link":"https:\/\/www.anthonydidonato.net\/wordpress\/why-pre-approval-isnt-a-reliable-stop-gap\/","title":{"rendered":"Why Pre-approval Isn\u2019t a Reliable Stop Gap"},"content":{"rendered":"

Why Pre-approval Isn\u2019t a Reliable Stop Gap<\/strong><\/h2>\n
\"Why<\/a>

Why Pre-approval Isn\u2019t a Reliable Stop Gap<\/p><\/div>\n

It\u2019s common advice for buyers to obtain a mortgage preapproval letter from a lender before going out with a real estate agent to look at homes. The rationale is that preapproval puts in writing the loan amount a buyer is qualified to receive, all but guaranteeing the price range the buyer can afford. Agents can then be reassured they are not wasting time on a client whose financing is likely to fall through.<\/p>\n

Well, that\u2019s flawed thinking.<\/p>\n

A preapproval letter is not a loan commitment, which most real estate professionals understand. But equally important is that preapproval does not identify potential issues or \u201cred flags\u201d that may prevent a loan from closing. At best, a preapproval letter indicates that the lender is interested in providing financing to your client. At worst, it provides a false sense of security; it\u2019s analogous to a purchase offer that contains a \u201cHubbard clause,\u201d a condition that a buyer\u2019s purchase is dependent upon their ability to sell another property. How many people would consider that type of scenario advantageous?<\/p>\n

Preapproval does not take into account potential changes to a buyer\u2019s financial situation, which could affect their loan offer. While a buyer may think their budget can easily support a down payment and monthly mortgage bills, a lender\u2019s guidelines may show otherwise. If certain income or assets are not stable and continuous, then they are not considered verifiable. And if they are not verifiable, the lender removes the income or assets from the loan application\u2014which frequently results in a loan denial.<\/p>\n

This doesn\u2019t mean there\u2019s no value in requesting that your buyers obtain preapproval letters from their lenders. But it\u2019s necessary to be aware of the red flags that lurk in the financial landscape of many buyers and to offer guidance on how to correct them. They may surface in credit reports, income documents, or asset account statements. And when they surface, they can be lethal to a real estate deal. The most common red flags include but are not limited to:<\/p>\n

Credit Reports<\/strong><\/p>\n