You know you’ve seen one. A preapproval letter given to you by the buyer’s agent proving, or attempting to prove, that the buyer is qualified and has applied for a mortgage to buy your client’s Trump Tower condo. But you’re a little suspicious. Or should you be? What can you look for in a preapproval letter to let you and your sellers know they’ve got a real offer?
The onset of the Internet has made it easy for borrowers to apply for a mortgage from their mortgage company but sometimes they apply for a loan from a lender that’s just oh-so-low in rate they’re practically forced to apply; even if the borrower has never heard of the online lender.
And neither have you. The letter looks official and there’s the word “mortgage” in their name but not knowing who the lender is or where the money is coming from can be a bit discerning.
First, if you see the term “preapproval” in the letter but don’t see what the mortgage company reviewed, then you may in fact have cause for concern. A preapproval is nothing more than a general conversation between a loan officer and a potential customer without regard to any financial or credit factor taken into consideration.
When reviewing any letter, determine exactly what the potential buyer has done for the mortgage company and what the mortgage company did prior to issuing their “letter.”
The letter should clearly state that the buyers have made an application for a mortgage and their credit has been reviewed and their credit scores are acceptable. You don’t need to know what the scores are; you just need to know if they’re above the minimum. The letter should also show that income and assets have been verified and the loan application has received a preliminary approval from an automated underwriting system from Fannie Mae or Freddie Mac.
A solid preapproval letter from a buyer should identify the company and the loan officer, the documentation reviewed and received a preliminary approval from an AUS. That’s what we and all good lenders provide; anything less is suspect.
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