Pre-Approved? Really? Are you sure?

I have conversations with potential clients about getting pre-approved. In some cases they say that they are. So I say great how about a 2nd opinion. Sure they say so I ask to fill out a loan application and provide paystubs, bank statement, W2s, and tax returns.

In all cases where they said they were already pre-approved when asked for their income/other documentation they said: "the other person didn't ask me for all that stuff to get pre-approved why do you need it?"

I ask them to explain how the process went. I found out all that was done was loan application was taken, credit pulled, and run DU based on that information. I was shocked! This is NOT a pre-approval its a pre-qualification that is run through automated desk top underwriting giving a pre-approval. THIS MEANS NOTHING!

So now you have individuals entering into a purchase contract which than at that time the loan officer asks for all the documentation. Things that can happen at this point:

• Loan contingency can't be met as upfront work has not been done.
• Original program client pre-qualified under they don't qualify under the guidelines for various reasons.
• Client could be faced with a higher interest rate or have to come in with more money or worse THEY DON'T QUALIFY
• Instead of a 30 day close it's a 60 day close
• Loan officer discovers gaps in employment, living history, large deposits on bank statements that can't be explained, down payment coming from a gift, etc....
• and the list goes on....

Realtors make sure you ask the question when you are told they are pre-approved: "Has the loan officer looked at all your income, credit, assets, and employment documentation?" If not make them go back and do that. It is so important that you know what you are dealing with. When you put in an offer you want to know that all is solid with all aspects. Yes ask the question even if that letter says the loan officer has looked at the documentation.