The importance of loan pre-approvals.

◊   April 25, 2017

I was listening to the radio recently and there was an infomercial from a national direct lender talking about mortgages.  They were talking about a scam where brokers allegedly make tons of money from giving loan pre-approvals to people who do not qualify for a loan.

The effect of giving a pre-approval letter to a client that doesn’t qualify for the loan is a serious issue and has a domino affect.  For example, Tom is selling his blue house to George.  Tom is also buying a yellow house from Martha and is relying on the proceeds from selling his blue house.  A broker gives George a loan pre-approval letter stating that he is qualified to buy Tom’s blue house when in fact, George’s finances cannot support the loan.  Tom is now relying on the fact that George is qualified to buy his blue house which is set to close in 40 days.  Tom believes everything is going to plan so he makes arrangements to close on Martha’s yellow house in 45 days.  George’s loan falls apart just before closing on the blue house.  Tom can’t close on the yellow house because he doesn’t have the proceeds from the blue house.  A disastrous chain reaction.

The infomercial stated to avoid this scam, trust Mr. Direct Lender to fully vet the loan before giving a loan pre-approval.  The infomercial had one thing right:  Loan pre-approvals should be fully vetted.  The rest of the 1/2 hour throwing brokers under the bus was so wrong and I’ll tell you why!

First – Brokers do not get paid if the loan doesn’t close.
Second – A good broker will speak with a client to get to know them and their situation, take a loan application, run numbers to make sure stated finances are sufficient in relation to the loan amount, and run a credit report to confirm information prior to giving a pre-approval letter.
Third – The negative effect on the many relationships involved in a loan is counterproductive.  The broker runs the risk of losing relationships with clients, real estate agents, title companies, and lenders when a loan does not close based on poor financial vetting.
The lesson to learn here is to make sure your broker is communicating and working for you, researching your questions and collecting information.  Email is so handy and is an effective way to communicate, however, make sure you have at least one phone conversation with your broker.  Get to know them and ask questions.  If the broker isn’t willing to satisfy you with an answer, even if the answer is to say “I don’t know, can I get back to you,” then you’re with the wrong broker.  Call Multiline Mortgage.  We’ll show you how it’s done right.
                              Throwing competition under the bus and lying makes you look like this guy.