I wanted to take a minute and discuss the world of lenders today. It seems everyone is upset in one way or another with the mortgage business and economy. I am not going to touch on my views on the lending industry as a whole in this blog post but I do want to discuss the basics of obtaining a loan, especially if you are a first time home buyer.

Most of us know by now that to purchase a home you need to pay for one either by a full cash purchase or by obtaining financing. If you are obtaining financing, the first step to searching for a home is to obtain your preapproval letter, notprequalitification letter. In speaking with lenders and obtaining your preapproval letter, you will be able to act on a property when you find "the one" since you will be able to submit an offer with your preapproval letter. Most sellers won't look at an offer if you do not have the preapproval letter to submit with your offer. When you do find the right home, you want to be able to act on it that day by submitting an offer and not let another preapproved buyer come in with an offer while you are waiting to obtain your letter. Don't delay on this! I have seen too many buyers lose a home due to not having theirpreapproval letter, buying power, in hand.

Now let's talk about the difference between prequalification and preapproval. The term prequalified simply means that you have given information on an application to a lender that has not been verified by the lender. Preapproval means that you have submitted your application but the lender has also verified your pay-stubs, ran your credit, etc. Preapproval letters can have conditions on it such as "fully executed contract needed, subject to final underwriter approval, etc.". These conditions will be met later but the main thing is to be honest to your lender and provide all documentation requested. 

I have always expressed the importance of a preapproval letter over a prequalification letter to my buyer clients. You want to make sure that everything looks good to your lender in writing before putting down an earnest deposit on a home, paying for an inspection, etc.

My question, and what I have a hard time with this past month, is your lender needs to take the time to review all of your documentation you submit to them BEFORE issuing your preapproval letter. It is important you hire a lender to work for you that verifies your information BEFORE they issue you a preapproval letter. If they do not, you are not reallypreapproved, correct? Conditions of "buyer to present pay-stubs, etc" (anyting related to your financials) should NOT be listed as conditions on your preapproval letter.

I had four clients last month who used their lender of choice and not the ones I have on my preferred list. I am fine with this. But, guess what, those four clients did not close as scheduled last month due to their chosen lenders. We pushed the close dates to this month, thank goodness the seller agreed to extend the close date, but it looks like they might not close this month or this year for that matter due to their lenders issuing preapproval letters before checking out ALL of their documentation for the loan. Big fail on the lenders side of things. These buyers might not qualify for a loan due to their financials in one shape or another. A preapproval letter means preapproved! It shouldn't mean anything less. It is beyond frustrating for everyone involved, especially the buyer who doesn't have a place to live, for this to happen.

My word of advice, use a lender that can offer you financing when they say they can!!! Where do you find one? I have some I recommend or speak with your Accredited Buyers Representative. I realize it is hard opening up a phone book or browsing the web for the best rates and best lender. In the end, even if a lender offers you an 1/8 of a percent higher interest rate but the best customer service and one that can actually get you closed, it is worth it. Don't go cheap, go for the best. Afterall, interest rates are at an all time low. An 1/8 of a percent higher than another is still LOW!!!!