Can you Trust a Mortgage Pre-Approval?. . .

[MortgageQueen]

The answer to that is a resounding . . . NO

I bring this up as I just finished yet ANOTHER "quick approval" mortgage for someone that was "pre-approved".

This poor young couple went to the trouble of going to their (major) bank for a pre-approval before shopping for their new home. Not only that, but the young lady even called to CONFIRM that it was safe to put in a firm offer on the house they found. The mortgage officer told her, "Yes, your fine! Go ahead." 2 days later after submitting the remaining paperwork, they get the phone call. . . They are Not approved.

You can imagine the panic, stress, and shock. I thought this girl was going to have a nervous breakdown. No matter what I said, she was convinced the bank was right and she wouldn`t get an approval.

This happens every single day and I`m going to tell you why. Banks who pre-approve generally only ask a few basic questions. Based on your answers to those questions, they give you an approval or rejection.

What they DON`T tell you, is they have not in any way underwritten your application. In other words, they have not verified or delved deep enough into your qualifications to`truly`ascertain you qualify. SO what`s the point of Pre-Approval, you ask? For starters it should never be called a pre-approval. . . because at best, it`s a guideline and nothing more.

You cannot be truly approved until certain documents have been supplied and pre-approved by underwriters. The point is, DO NOT ever waive your financing condition until you have FOR SURE been approved. . . .in writing. . . with no escape clause.

Getting back to my clients that got blindsided. . . When they asked why they told them they were approved, when they obviously were not, the bank officer referred them to the fine print and said they could withdraw their approval at any time. This major bank did in fact hit a glitch with my clients application. It was a small and easy to fix problem. I had an approval for them in 8 business hours. Sadly they had to go through Hell to reach that point. Happy ending. . . Yes. But what if they had put all their faith in the bank. They could have been sued and been homeless to boot.

Buyer`s Beware.

[Ciel]

Your post shows how due diligence is essential: reading the fine print, getting things clarified if uncertain about clauses, etc. Since your clients obviously wanted that new home, what a letdown from their bank in delivering what they believed was approved financing for their situation. You made the save-hope your clients rave about how important your service is before anyone goes home shopping!

[CrazyQT]

TY MortgageQueen for all of your valuable posts! I find them very informative.

[freefreefree]

thank u

[MortgageQueen]

Your welcome. I just get so mad when Big Banks treat people like this. Those clients moved all the way from NB with a young child. You can imagine the stress they had over this.

I agree with Ciel that we should read the fine print, but there are many circumstances that doesn't always work. For instance, there are a lot of very fine people out there that just don't understand all the financial terms and procedures. This is why we have licenses and regulations. Banks, brokers, lawyers, Real estate agents, etc. are supposed to look out for client interest, at least at a basic level.

But I find they really get away with murder. That's what being a powerful corporation can get you I guess. Ugh!

[matty's mom]

When I was bidding on the house that I now live in, my mortgage broker had a mortgage in place for me and the house, so I knew how high I could bid, safely. It was a foreclosure and there were a lot of people interested. The good thing was, we were able to bid a bit higher because the amount work needed. It may have scared off many of the bidders from going higher, but with a Contractor hubby, we could do the work ourselves, including all the weeping tile. We bought still under the market value for the home. When I went to sign my mortgage with the new lower price, my broker had gone back and re negotiated a mortgage with a new company, with a lower interest rate. A good mortgage broker is a very good person to know!

[dizzyb]

We've had exactly that scenario happen to us: that we were pre-approved, but when we made an offer and went to do the financing, we were told "sorry"! I was LIVID. (We bailed on the home inspection anyway, worked out well in the end).
My hubby had moved many years beforehand (in his early 20s) and had forgotten about a credit card he had (and almost never used). It had gone to collections, so naturally his credit rating was awful. We took care of the outstanding debt immediately. But really? What DID you do for a pre-approval?

Thankfully, a guy who worked at that bank was a former colleague so he was able to work something out for us, especially as he knew we were financially stable. We eventually did find and purchase a home. Thanks for posting this so others can avoid getting trapped.

[dougboswell]

Most of the time consumers who are told or think they that they are preapproved have a rate hold. This will guarantee them a rate if rates are going up. In some cases it is a computer generated response. The held rate will depend upon the time until closing. Again the application still has to go through the lender's underwriters to get approved.

Matty's mom. In your case it would have not been a true approval without all the documentation having been submitted including a signed offer of purchase. It is possible that your agent ran it by a district manager of the lender to see if would be a go within a certain price range.

[matty's mom]

Mmmm... It is possible that because I had purchased my "second home" first that she had some sort of lending agreement for my principle residence? It was with the same mortgage company. I am confused now. I knew both the payment terms of the mortgage, as well as the interest rate. We (my real estate buyer and I) used this info to help with the bidding. The good news is that it all worked out in the end.. And no surprises!

I feel bad for Mortgage Queen's clients, unnecessary stress!

[bobbyreyes]

Yes, I trust on mortgage pre-approval, last year I had applied for mortgage and went through this process.

[MortgageQueen]

Yes, I trust on mortgage pre-approval, last year I had applied for mortgage and went through this process.

Bobbyreyes. Getting a Pre-approval "can" lead to an approval. The point was, you can't trust it because it's not properly evaluated/underwritten

[Angelica Francisco]

we have been to two places and we got this "pre approval." and its upsetting if they just kept your hopes up for nothing. tho we have good credit scores.

[MortgageQueen]

You likely will be ok Angelica. It's just not a sure thing. Be careful how much you shop around. It will show up on your credit bureau and possibly lower your score.

[Granger]

I agree Mortgage Queen. Our Mortgage Specialist (from a major bank) told us to make sure we still put in for financing on the purchase agreement as there is a "deeper" approval process. Sound advice (yet again).

We also have a friend with a smaller brokerage who was able to help us with rate and penalty information to be competitive, since we were already with a major bank and would be breaking a fixed rate mortgage term early. Our bank was very good to us, but I think that is because our Mortgage Specialist has a customer-first attitude and it always seems if you have the ammo the banks will approve you at the competitive rates to not lose you. Slight tangent.

[jasperandchar]

what is a normal penalty for breaking or renewing your mortgage early, is it still 3 months interest?