Friday, I closed on a $322,000.00 short sale, Monday I close another for $340,000.00 and amazingly enough, both buyers, brought me "pre-approval letters" from the exact same lender.
Just so you are clear, these are 2 different homes, 2 different buyers but, both had the same exact lender. Now, the reason this is critical to understand is because, on both offers, I made sure to ask for a Pre-Approval Letter and, you would think that because both buyer's are using the same lender, the Pre-Approval Letters would be virtualy the same.....right?
WRONG!
Both were Pre-Approved but they had dramatically different letters. See below....
Letter # 1 (Pre-Approval)
Point # 1: Written by the Underwritter.
Point # 2: "Funding only contingent upon appraisal and home inspection"
Point # 3: Buyer has had credit verified and determined credit worthy
Point # 4: Assets have been verified.<br>
Letter # 2 (Pre-Approval)
Point # 1: Written by the Loan Officer
Point # 2: Funding is contingent upon verification of income, credit and employment
Point # 3: Buyer has been "PRE-DETERMINED" credit worthy (NOT VERIFIED)
Point # 4: Assets have been stated.
1 of these is a guaranteed buyer, the other isn't................can you tell the difference?
It's very important that agent's representing sellers in Short Sales educate their Seller that its important to read the "pre-approval letter" and be smart on which exact offer they take.
Comments
Last year when I started working with my "big-4" bank I presented them a proceedure's list for submitting offers and they rejected it without ging it any thought. That's partly why I'm still in the middle of the contract from hell I blogged about (yes, it's still not over yet). If I had that proceedure (which was taken from different topics here) in place, I could have prevented these issues from ever happening.
On this transaction, I called the lender (as I have learned to do) before submitting the offer. The first lender I had a letter from (that the agent told me was good) did not date the letter. When I finally got ahold of the lender, she says that this letter was written 4 months earlier and was no longer valid. She said to give her a couple of days to re-verify everything with the buyer and issue a new letter. Two weeks later I get a new letter of "Approval" from a new lender, called him and he verifies the letter. Later I find out that the lender gave the approval when the buyer was not capable of buying, she had a FICA of 613. The reason I bring this up is that sometimes you can do everything the proper way only later to find out someone else did not.
I always run DO/DU with all income and assets before i ever have a seller sign a contract.
I will say it again, approvals, DU, pre qualifications, DO all of it is as good as the person entering the data.
That is why we have a business built on financing REO and short sale properties, to help make assets move and keep our agents ratios up. It works.
Sooo....what does this mean when a pre-approval expires?? Well, in a nut shell it means "that deal aint there no more" like a coupon expiring at your local grocery store......now you have to see what’s on special this week. Sometimes this goes unnoticed and the property closes without a problem, however many deals have been lost because if the approval is accompanied with a rate lock….well that expires as well. Rate lock extensions cost money or rates will go higher, sometimes the new rate will raise the DTI (Debt to income) and turn an approval in to a denial. In any event the buyer has to resubmit updated info to get an updated approval.
Even the best agents will let this slip by; even if they checked the dates upon contract acceptance….what happens when an extension is needed? The last thing we all think about is updating the pre-approval as well as getting the extension. Who gets the money if the deal goes south? Who gets the blame for not insuring the dates are met? Who goes from hero to zero? Who loses the deal…and the buyer?
I think in general we all do a good job insuring all the necessary documents are in the file and keeping track of the timelines when it comes to inspection periods and general housekeeping but things like this will squirrel a deal just as fast, it’s good to have on your check list.
Good stuff Jesse, thanks for putting that out as a reminder.
Just so you know, we also schedule follow ups on the Approval Letter upon expiration.
Another note to add to Jessica's post...DO/DU approvals can be done without verifying any documents the same as a pre-qual, it just looks a little more formal.
It’s best to get a pre-approval from an underwriter simply because the file won’t even go to an underwriter until all documents have been collected (most cases). There are still some LO’s that throw files at an underwriter to complete, but the underwriter won’t approve until all docs are verified.
In the Short Sale Listing Agreement, I add an addendum that has the following......(because I am coping and pasting this into this blog, the document formatting will look strange but trust me, it looks good on paper) and, yes.....I don't list Short Sales without this document signed and agreed to in writting by the seller.....
1. All offers must be typed and legible. Handwritten offers or illegible offers will not be presented.
2. All offers must be on Tennessee Association of Realtors current forms. You can find these by visiting this link. Or, you can copy and paste this address into your web browser….., https://www2.transactiondesk.com/inet5_bin/hsrun.hse/INSTANETFORMS/.... Offers on any other form will not be presented.
3. All exhibits and addendums found in MLS Web Hyper Link must be included. Incomplete offers will not be presented. You can find the web hyperlink by going to the multi-media section of the MLS page and looking to the top where the hyperlinks are located.
4. All offers must include a PRE-APPROVAL LETTER. Offers missing a PRE-APPROVAL LETTER, will not be presented. PRE-APPROVAL LETTERS should include the following…..
a. PRE-APPROVAL LETTERS must be from a local lender.
i. If you don’t have a PRE-APPROVAL from a local lender, you will be required to get a PRE-APPROVAL LETTER from a local lender of the seller’s choice. Your buyer will still be free to work with whichever lender he chooses.
b. PRE-APPROVAL LETTERS must indicate the buyer’s file is complete and has been submitted to an underwriter who has approved the file.
c. PRE-APPROVAL LETTERS must indicate the borrower’s credit has been verified and approved.
d. PRE-APPROVAL LETTERS must indicate the borrower’s employment has been verified and approved.
e. PRE-APPROVAL LETTERS must indicate the borrower’s assets have been verified and substantiated.
f. PRE-APPROVAL LETTERS must indicate that the borrower’s debt to income ratio has been reviewed and approved by an underwriter.
g. PRE-APPROVAL LETTERS must indicate that the borrower’s are fully qualified to purchase the home, subject only to an appraisal and title work and any contingencies agreed to in the Purchase and Sale Offer.
5. All offers must indicate the closing agency for the Buyer is to be determined by the Seller’s bank.
6. All offers need to be submitted electronically. Any offers not submitted electronically will not be presented.
a. Send your Complete Purchase and Sale Offer to JGonzalez@RealTracs.com or,
b. You can e-fax to 615-391-4740
If the seller doesn't agree to sign this document then I don't list the home. It's that simple.
My more savy REO sellers are former banker lenders, LOs themselves and they know the difference in these Pre-Approval's and also how words can be used to make someone sound like a great buyer when the homework to verify the buyer's ability to close has not really been done. Some of my more savy AMs are now requesting a DU report before they sign any contract.
If you want to put your buyers best foot forward I would say be prepared to provide a copy of the DU or similar report showing all income / asset verifcation and credit has really been checked out and what the real DTI is.
There is an option #2 that most buyers and buyers agents truely dislike, that would be talking with the preferred lender of that seller to verify everything before the seller signs on the dotted line accepting the contract.
With the variety of flowery non specific creative loan letters going out, how else can we be sure without looking at a more industry standard report like the DU findings; or option #2 sellers preferred lender will talk with buyer and verify pull all credit etc?
Best!
Art Davis (R)
Florida Realty of Miami, Inc.