Profile picture for SoCal Engr

Are "Mortgage Pre-Approvals" a thing-of-the-past...

The question originates from this post.

A WSJ Market Watch article says pre-approvals are vanishing from the mortgage landscape.

A Forbes article says a pre-approval's value is little better than a pre-qualification.

- Pre-approvals are a loss-leader for mortgage lenders
- Pre 2008, pre-approvals were easier to do, and meant less
- Post 2008, pre-approvals require more effort by the lender
- Currently, many pre-approvals do not result in a loan, so it is wasted lender money/effort

From a big lender website...

A pre-approval is the most accurate option. It takes into account verbal information provided by you, in addition to looking into your credit report. This last part is key, since it allows your mortgage banker to assess your current debt-to-income ratio.

From a layman's perspective, this is a pre-qualification with a credit check. The website's fine print states you can still be denied. Yet, REAs want the pre-approval to support their client's offer. But, the REA has no skin-in-the-game when it comes to the cost/effort required to provide a pre-approval.

My understanding...

A pre-approval is a marketing loss/leader (for the lender). Since 2008, the effort a conscientous lender will expend on a pre-approval is almost as extensive as the actual underwriting...sans the property. And, this has to be done with little expectation of a payoff.

As a consumer, it sounds like a true pre-aprroval is going-going-gone.

What are the mortgage pros' perspectives?

  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 23 2013 - US
We think we've answered this question for you!
  • Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.
 
 

Answers (12)

Knowing that a pre-approval is not a guarantee of anything, I still think it has some value.  It demonstrates that a buyer is somewhat more than a lookie-loo and has, in fact, made contact with a lender.  In addition, a reputable lender will go through some basic steps to determine the price range for a buyer.  In San Antonio, when I receive pre-approval letters from certain lenders, it boosts the confidence I have in the financial solubility of the client.  On the other hand, when I receive it from other lender, red flags go up.  Either way, I share my experience with my sellers and it helps them make an educated choice about the offer.

When I'm representing a buyer, I recommend that they receive a pre-approval letter for several reasons:
1.  Establishes their seriousness
2.  Helps them understand what they can afford given, especially considering our high property tax rate.
3.  Gives more credibility to our offer when we are submitting one, especially when there is a lot of competition.

Camille Di Maio
[Spam and self-promoting content removed by Zillow moderator due to violation of Good Neighbor Policy]
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 25 2013
Profile picture for SoCal Engr
Thanks all for sharing. While it sounds like the "pre-approval" may not necessarily be a dying breed, it definitely is being diluted by an overloading of definitions.

As a seller, it definitely sounds like I should question the methodology behind the letter, irrespective of what moniker the lender puts on it.

As a buyer, it sounds like I should be concerned with not only the $$$ assigned, but making sure that the letter contains enough info to distinguish it from a pre-qual-with-credit-pull.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 25 2013
Answers from the pro's are showing you that it sure doesn't seem like they're going away... but the qualify of those and the professionalism of the person giving out the pre-approval is key.

Having a pre-approval where credit is pulled, income and assets are provided (along with being properly vetted) and AUS (automated underwriting system) findings are run is where you can separate the wheat from the chaff.  Good agents understand this.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 24 2013
Most pre-approvals are designed to say what issues were not reviewed, rather than which matters were reviewed. Good ones will point out which items will need re-reviewing, and when that will be necessary. The problem being that loan approval is like a snapshot of a cheetah running. It is hard to get the blurry out of it. And a pre-approval implies, the last snapshot looked ok, but we'll be taking several more, with different lenses.
 
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 24 2013
Profile picture for SoCal Engr
"If the pre-approval does not go before an underwriter .... it should not be called a pre-approval."

Is there any way to tell from the pre-approval letter what steps have been taken to arrive at the pre-approval? In other words, would the lender include a description of documents reviewed, etc.?

If not, couldn't this be an "easy fix". In other words, if the lender is already doing that much work to arrive at a pre-approval, why not take a few seconds to include this info in the pre-approval letter as a discriminator?

"Most are nothing more than a pre-qual with a credit report being pulled."

This would align with my assessment of the description of a "pre-approval" that I lifted from a "big lender website".
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 24 2013
Profile picture for SoCal Engr
"In my market, ever offer is required to have a preapproval, many times from a specific lender."

This sounds like a part of the problem. If the seller is demanding a "pre-approval" from a specific lender, but cannot force me to use the lender to actually fund my loan, then they are simply causing work-for-no-benefit for the lender.

I can understand a REA advising their client on the pros/cons of their experiences with different lenders, but requiring the pre-approval from a named lender?
 
"You might just call the lender to check in and ask if there are any issues that should be discussed upfont."

Based on the follow-on comments in the post, it sounds like this (and other comments) are directed at a REA. As a consumer, I would be very po'd at any lender that "discussed" my personal finances with a REA without my prior consent.

"If the preapproval is from a lender that you don't know, a follow up call is a must.  You need to learn about any potential issues, and also make sure the lender makes you feel confident in who you're going to be working with.  Your time and your income are on the line, so if you don't get the right feel, asking your client to get a "second opinion" will save you a lot of time and anxiety when your close date comes and goes."

Hmmm... So, a screening criteria for the REA is to first find out who their client is using for a lender?

The general tone of these comments, coming from someone with a "Lender" tag, is a bit disconcerting. While I understand that the REA and lender share common goals in helping a consumer to purchase a property, I sincerely hope that lenders don't believe their role is collaborative, especially without the client's knowledge and consent.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 24 2013
I don't foresee preapprovals going away.  In my market, ever offer is required to have a preapproval, many times from a specific lender.  The real value is not the letter, but where it came from and what you do with it.  If it is from a lender that you know, trust, and have worked with in the past, it is rock-solid.  You might just call the lender to check in and ask if there are any issues that should be discussed upfont.

If the preapproval is from a lender that you don't know, a follow up call is a must.  You need to learn about any potential issues, and also make sure the lender makes you feel confident in who you're going to be working with.  Your time and your income are on the line, so if you don't get the right feel, asking your client to get a "second opinion" will save you a lot of time and anxiety when your close date comes and goes.  Do you want to by Christmas presents or after-Christmas presents?  If the buyer is working with "my cousin who is a lender," you could be in for a long transaction.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 24 2013
If the pre-approval does not go before an underwriter .... it should not be called a pre-approval.  However that is not the case.  Many real estate agents ask for pre-approvals but do little to anything to vet the quality of the pre-approval out?  Most are nothing more than a pre-qual with a credit report being pulled.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 24 2013
The issue is what is a pre approval? Some states like TX have a required Approval form that must be used by state licensed loan officers. It states the documentation that must be viewed in order to issue an Approval letter. That includes income (latest paystub/tax return), assets for down payment verification, credit report, and loan application review. Most of us go further and obtain a automated underwriting approval. The form has caveats such as appraisal, survey, no change in financial position, etc.
With no continuity among lenders or state mandates, the pre approval process is far from perfect. I still shudder when I see Agents and loan officers mention pre qualification as an option for prior approval. If a buyer, Agent, seller, and lender want to have a strong assurance of closing a transaction, they all need to make sure the borrower has been required by lender to submit all of the required documentation mentioned above. Agents should be sure lender is making approval process meaniful by using loan officers they know that have rigid requirements before they will issue any Approval letter.
By requiring all of the required documentation, I seldom have "tire kickers" try to waste my time.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 23 2013
This new thread is a prime example of the communication disconnects in the current housing market. The thread also bolsters the thesis of my post.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 23 2013
A pre-approval, by the Federal Gov't's definition, is only as good as the Loan Officer who performed and issued it. It is a professional prediction.

These articles point, dramatically, in my opinion, to the fact that Lenders (depository institutions), Mortgage Brokers, and Mortgage Bankers should be allowed to charge a fee for pre-approvals, that cover their expenses. That would eliminate the loss leader, bait and switch, cavalier salesmanship aspects entailed in the current pre-approval universe.

To receive a meaningful pre-approval, the information provided by the potential Buyer has to be underwritten, just like a full loan package does. I call this a "conditional borrower underwriting credit and capacity approval". This "product" has nothing to do with a property, or a contract to purchase a property.

This "product" entails about 55 to 66% of the work effort required to close a loan, in my opinion. It also leaves about 49% of the risk that a particular borrowers' intended goal, buying a house they like, for a price they agree with, and can afford, will not be achieved, in my opinion. It is what a well intentioned loan officer can spend 50 to 70% of their time doing, these days, without any compensation. That effort must be subsidized by the cost of the loans that do close. Currently, most major lending sources aren't willing to utilize their Underwriting resources for what may be classified as "mind deals".

A competitive market-based fee for this "product" would eliminate the need for successful borrowers closings to subsidize the unsuccessful pre-approvals. I would postulate that the ability to charge application fees, and/or pre-approval fees, could reduce the cost of successful mortgages 25 to 35%, nearly immediately. I know I could reduce the pricing of mine by that much. Of course, that pricing reduction would be correlated with the price the market would bear for the application fees.

All of this discussion is further complicated with Lender overlays on Agency guidelines, underwriter competency regarding guidelines and overlays and their subjective interpretative natures, loan officer competency across retail mortgage sources, and numerous other nuances of money lending.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 23 2013
A pre- approval is just a good guess that a person can get a loan. That's all they ever have been, a good guess. Until you find the house, make an accepted offer, get an appraisal, get a survey and make a formal loan application and it all goes to the underwriter to approve, it's not an approved loan and is in the per-approval stage.
  Flag content
Close
Report a Problem

Please enter a valid email address.

Close
Content flagged

We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

Close
We're Sorry
This service is temporarily unavailable. Please come back later and try again.
November 23 2013
 
Related Questions
Is it uncommon for first time home buyers to not put a down payment down?
Profile picture for Jordan Meyers
Latest answer by Jordan Meyers
16 minutes ago | 4 answers
Mortgage after chapter 13 in Oregon
Profile picture for Jared Thom
Latest answer by Jared Thom
2 hours ago | 2 answers
Where to start/how to strategically prep for first home loan
Profile picture for amberlina202
Latest answer by amberlina202
4 hours ago | 4 answers
im 24 with a score of 586 can i mortgage a house?
Profile picture for wetdawgs
Latest answer by wetdawgs
5 hours ago | 3 answers
Can I get a loan for a 3-plex w/ 20% down in So Cal?
Profile picture for Justin Sheftell
Latest answer by Justin Sheftell
7 hours ago | 4 answers
Mortgage Rates
 
Be A Good Neighbor

Zillow Advice depends on each member to keep it a safe, fun, and positive place. If you see abuse, flag it. More on our Good Neighbor Policy.