I hope you have time for a quick (and amusing) story…
Just last week we were working with a customer to get them pre-approved. We completed our pre-approval process and issued our pre-approval. A few days later that customer came back and told us that another lender (to remain nameless) had pre-approved them for a higher amount. We were interested in how that was possible so we asked the customer to send us the information on their pre-approval from this lender. Here is what we got:
Congratulations on your preapproval! Attached you will find your preapproval letter.
Below are the documents that are necessary in order to validate your preapproval.
- Last 30 days Paystubs
- 2014 W2’s and Tax Return
- 2013 W2’s & Tax Return
- Last two months bank statements / 401K / IRA Statements
I don’t know about you but this scares me!! Why? Because this is the type of pre-approval being used to make offers on your listings…and the lender hasn’t even verified income or assets. I am probably preaching to the choir but there are so many potential issues that could arise from lower income than stated on the app to unreimbursed business expenses on the taxes to NSFs/overdrafts on the bank statement…I am breaking out in a cold sweat right now just thinking about it.
What should you do? Well, it depends on whether you are acting as a buyer’s agent or a listing agent:
Encourage, beg and plead with your customers to use someone you know and trust does thorough pre-approvals…like us . Ensure that the lender you refer them does a thorough pre-approval review to ensure that problems do not pop-up in the middle of a transaction jeopardizing your buyer’s earnest money and your commission! What does a thorough pre-approval look like? We created a 62 point checklist to help us in verifying we have a fully pre-approved customer and ensure nothing is skipped over. Curious what it looks like – take a peak at it here (we can’t share the entire sheet with you as that is our secret sauce to get you to closing on-time and with a smooth process).
Call the lender on your offers. Maybe you already do this, but I am betting you are unsure of exactly what to ask. Lenders can only share so much information based on the legal requirements of the Gramm-Leach-Bliley Act so asking certain questions may just lead to dead-ends (if the lender is doing their job right). So what should you ask? Just one simple question… “What have you done to qualify this buyer?” Then shut up! Let the lender do the talking. A good lender who has thoroughly qualified a customer will sell you on the merits of their buyer, the benefits of working with them as a lender and why you should select this buyer’s offer.
If you have made it this far in the post, thank you. I know this has been a little self-promoting but my hope is that you avoid “pre-approved” buyers that aren’t truly pre-approved leaving land mines throughout the transaction. It could go to closing just fine but on the other hand it might blow up!