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Understanding Mortgage Approvals

It has always been important to know where you stand in a real estate transaction. This type of knowledge is now vital following the recent meltdown in the mortgage industry. I know there is a lot of confusion about what it means to be approved for a mortgage. Even realtors can be baffled. More than once I have been told by an agent that a buyer is already approved for financing only to discover later they have not even applied for a loan. How can this happen?

I prefer to believe that none of the realtors that have told me that were intentionally lying to me. Consumers want to hear that they are approved for a mortgage to buy the home of their dreams. It is complicated by the language of lenders. The lender says one thing and the buyer hears something entirely different.

Unfortunately, the buyers believe they are approved for a loan and are out shopping for a home. There are a few ways this can happen. The loan officer lied to the buyer is one answer. That may happen but I prefer to think it is rare. I prefer to believe it is a break down in communication.

The buyer calls a lender and gives some basic information over the phone. They provide enough to pull a credit report and perhaps run an automated underwriting decision. The loan officer tells the buyer that everything looks great. It is not unusual for the buyer to receive a letter saying they are pre-qualified. Neither of these are the same as a loan commitment. If this is the first time our buyer has bought a home, they have never seen a pre-qualified letter or a commitment letter.

Pre-qualified implies the lender may make a loan under a given set of circumstances. A commitment letter is a contract from the lender promising to make the loan; it may also contain some conditions. The loan may not close unless all of the conditions are cleared.

To a consumer as well as many realtors they mean the same thing. My industry slants towards the positive side, it is necessary to maintain some tiny bit of sanity. And very often everything works out in the end, not very smoothly, but still a closed transaction. It is not the same as the pilot that walks away from a crash landing, that incident is usually covered by insurance.

I am not aware of insurance that will cover time and money lost by a seller because the buyer’s loan falls apart. It can be a huge and costly error. The seller may have bought another home, arranged for movers and a dozen other things preparing to move. I have seen agents take a property off the market because everyone thought it was sold.

So how do you protect yourself if you are selling a home? It is very simple really. Have your realtor contact the buyers’ lender and get the facts in writing. I actually believe the lender should contact the sellers’ realtor and obtain a copy of the executed sales contract to compare to the one provided by the buyer or buyers’ agent. That is what I would do if I was a loan officer, but I have never had one contact me. Wonder if simple checks and balances like this would impact loan fraud?

Sorry, back to protecting yourself. The best protection is being well informed. After reading this you should understand the big difference between being pre-qualified and approved, one is a guess and the other is a contract.

The lender may not provide you with any of the buyers’ paperwork including but not limited to the loan application. Nor are they allowed to give you a copy of the loan commitment without permission from the buyers. I would not want a copy of the commitment if I were the seller, keeps my side of the street clean. However, they are allowed to tell you if the borrower has applied for a loan and the status of the application. There is nothing wrong with asking the lender to provide you with a written confirmation of these last two items. You may discover a lot with a simple phone call.

Article Source: http://www.articlemap.com

Debbie Rood is a Realtor in Louisville, Kentucky Derby City USA. She is a residential real estate specialist. She publishes many articles on real estate and mortgage financing on her web site www.debbierood.com/

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