A Realtor recently asked why I will not issue a pre-approval letter before I have received all the supporting documentation. She was curious as she works with a few different lenders and some require this and some do not.
I explained to the Realtor that most of the time you are probably fine only pulling a tri-merged credit report and taking a really good loan application over the phone or in person. However, there’s always a chance that a borrower’s pay stubs do not line up with their account of their income or their bank statements reveal the money for their down payment is not able to be sourced, and, therefore, not eligible to be used in the mortgage transaction.
Both of these scenarios, in addition to countless others I haven’t mentioned, have the ability to kill a real estate deal. With so many stakeholders involved in a real estate transaction, I prefer to err on the side of caution and make sure I can get a borrower to the closing table before issuing a pre-approval letter.
Giving My Borrowers the Upper Hand in the Offer Process
In addition to wanting to make sure the underwriter will approve my borrower’s financing and keeping my reputation as a good loan officer safe, it can also be beneficial in the offer stages of a real estate transaction for your lender to have reviewed your income and assets.
Let’s say you are putting in an offer on a house and there are others bidding on the same property. If your offer is comparable to another offer, the listing agent may call the loan officers who issued the pre-approval letters on both offers to see which financing is more solid. When a listing agent calls me to check on the strength of your financing, I can answer with confidence explaining that I have pulled a tri-merged credit report; verified income and employment history via paystubs, W-2s, and tax returns; verified the funds for the down payment with bank statements; and received an Approve/Eligible in our automated underwriting system.
If the listing agent then calls another loan officer to inquire on the financing strength of a competing offer and that loan officer cannot answer with confidence that the information from the loan application has been verified, what do you think the listing agent will advise his or her sellers to do? The listing agent will most likely advise his sellers to go with the offer with stronger financing.
Keep in mind I do not give out confidential information about my borrowers. I merely reassure the listing agent that I obtained the documentation required to support the information received in the loan application.
If your loan officer has requested a mound of documentation and you are frustrated and anxious to start your home search, remember the loan officer is only acting in your best interest. Not only will having a pre-approval that is supported by documentation make your purchase offer much more competitive, it will make the entire loan process go much more smoothly. There would be nothing worse than to go under contract on your dream home, announce it to the world, and then be told your loan cannot close because of something revealed in the required documentation.
If you are a Realtor or home buyer and have questions about the pre-approval process and your home offer, feel free to contact me.