In 2010 Fannie Mae And FHA began underwriting and approving loans for mixed use residential (condos) and commercial development. The problem was cities were having none of it. Now,
Why A Pre Approval Letter Is Worthless
Pre qual letters are seldom worth the paper they are printed on UNLESS they contain the following information and are backed up by evidence - which very few are!
Loan Type and amount
Mid Credit Score(s) (front page of credit report)
Verified Source of Funds (by bank statements)
DTI “front and back end” ( verified by paystubs)
With the CFPB’s 2018 RESPA enforcement actions against both Zillow and Prospect Mtg. listing agents can no longer can require “written cross qual applications” as a condition of a buyer making an offer for their listings. if they do; they run the risk that they and their preferred lender become the next target of a CFPB compliance audit.
The only real guarantee a buyer can truly close escrow is to demand an "AU or DU" (automated loan approval) complete with lending case number AND details about a borrower which can be verified, (see above 2nd paragraph). When examining the AU/ 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” through a computerized underwriting program, the results come back as one of the following:
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. When dealing with U/W’s, the loan officer must be patient and thorough by addressing all of the borrowers issues, in writing, BEFORE submitting the loan for approval. The more issues left un-addressed (credit / debt / income) before the file is submitted, the more likely U/Ws 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)?
1) Approved/ Ineligible: Your borrower is marginal and does not fit into the program they were submitted into. 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.
If you're going to be buying a home, you want to make sure you interview several lenders and find a lender you trust that will take the time to thoroughly vet you and stage you as the best possible buyer. A good buyers' agent has trusted lending partners they can refer you.
Need a lending referral or looking for the right buyer's agent to help you in the purchase of your next home? We average our buyer's savings upwards of $50,000 on the value of their home by staging them as the best possible buyer in conjunction with our trusted lending partners! Call our 24/7 toll free recorded line to learn more - 877-957-6677
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