Profile picture for heisenator

Pre-Approval Letter Format/Quality

I was recently pre-approved through a broker for x amount, but my real estate agent feels that the pre-approval letter seems more like a pre-qualification lender, and fears that it could hurt the process of acquiring a home.

The agent stated that a DU approval run through their own lender was much more detailed and was more specific about the breakdown of credit and such.  As such, they felt that the pre-approval through this broker should be more thorough. 

Is this a valid/sufficient enough for pre-approval? If not, what should it be more like?  (Does it matter if the letter only states pre-approval through the broker and not through a specific lender, such as the case of this broker having multiple lenders to choose from for the best rate any given day?)

The letter is basically this:

Dear ______,

We are pleased to notify you that your application for a mortgage pre‐approval has been approved. This approval is based on a purchase price of $X and a loan amount $Y. This pre‐approval is issued based on your current credit history, income, assets and debt assuming that there are no changes in your financial situation. This pre‐approval should not be considered a
commitment to lend until the following conditions are met:

( ) A valid sales contract is ratified on a property;
( ) A satisfactory appraisal is accomplished on such property;
( ) You select a mortgage program, which causes your mortgage
payment to fall within the preapproved amount;
( ) A rate commitment is issued by our company under the above referenced mortgage program.

We wish you luck in the home buying process and we thank you for choosing Z Company for your mortgage transaction.

Sincerely,
Broker with CPA Title
Contact Information

Note: Disclaimers here about pre-approval only being valid if originated through Z-Company
  • July 29 2009 - Riverside
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Answers (14)

Profile picture for pconsoli1
Be careful about the details in a pre-approval/qualification. In order to be useful a pre-approval means that the lender has pulled your credit, verified assets and employment. There are a few lenders out there that DO NOT do this simple check prior to issuing a pre qualification. This is a internal policy issue and varies amoung lender.  This type of pre-qualification is interesting but not very useful. make sure you ask the right questions.
  • November 08 2011
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What's the difference between this and the 90% approval letter they ask for in Alaska
  • November 08 2011
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In your response you said: I am not sure if they would be so willing to try to take advantage of us.

Please don't confuse your close family friends standard office practice with taking advantage of you.

Your realtor may simply be trying to receive marketing help from his/her management for steering you to the inhouse lender. They may also receive other inhouse perks for the referral and as such it become standard (required) office practice to steer each referral to their Affiliated Business Arrangement lender.

Caveat Emptor.
  • July 30 2009
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Your broker would have to run his own credit report to get an Automated Underwriting approval.
Something that has gotten lost in this discussion is that the REO properties operate via "the golden rule". Them that has the gold makes the rules.
Because there are so many willing and able buyers out there, the REO Agents will just move on to another offer where their terms were met. You risk having your offer rejected if you don't comply. They can't make you use their lender, it's a RESPA violation, but it is within their discretion to not accept it and take one that is more "acceptable".
It's probably not ethical but it is the state of the market.
  • July 30 2009
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heisenator,
The answers you have gotten on the Pre-Approval letter are pretty correct.  I will add a few more things:
1.  Within the letter, the property address should be identified or it should say TBD, if you have not picked a property.
2.  The loan amount should be stated, loan program, term and current market rate.

The Lender should always run the perspective buyer through AU.  However, the AU findings never get sent to the Realtor.  The only thing the Realtor needs to know is that AU findings determined that the information was Approved/Eligible.  Anything else is a breach of privacy as the buyer generally doesn't authorize financial and credit information to be disclosed from Lender to Realtor.  One more huge thing that Realtors ask for: Approval Letter . . .

Truthfully, the only time a Lender should issue the Approval Letter/Committement Letter is when the borrower has been approved via underwriting.  Can't be done until there is a ratified sales contract, loan application signed and submitted with all financial information, appraisal and credit report and fully underwritten by an underwriter.  I am always amazed by Realtors with the above.

Below is an acceptable format for a Pre-Qualification Letter:

ABC Corporation issues this conditional letter for the purchase of the above referenced property. The following due diligence has been completed: -Full application has been taken with the above referenced borrower. -A credit report has been received and reviewed and is acceptable.-Income information has been received and reviewed and is acceptable.-Asset information has been received and reviewed and is acceptable
  ABC's loan approval (not withstanding any information received which would adversely affect applicant's ability to qualify) will be subject to the following items of information: 1) Acceptable property appraisal
2)    Final underwriting approval  

Again, at the top of the letter will state the borrower's name, property address, loan amount, term and interest rate, based on the date of the letter.

Hope this helps.
  • July 30 2009
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Profile picture for heisenator
Thank you again for more responses.

wetdawgs:  I can understand how you can see a possible monetary motive behind this, and that may be the case.  However, the agent is a close family friend of my wife's so I am not sure if they would be so willing to try to take advantage of us.  It just seems the agent is untrustworthy of anything done over the internet.

Greg Cook: I am not sure if you saw my earlier response, but I will reclarify the approval situation:


When initially applying for a loan, we went through our agent's lender since we were only working with the agent.  They performed credit checks/pay stubs/bank statements and issued DU approval for us, but their average rates ended up being too high so I shopped around Zillow for a better rate. 

I ended up finding a broker with a lower rate, so for his pre-approval I gave him the Merged Infile Credit Report that was performed by the prior agent's lender and he pre-approved us based on that report.  I am not sure if this is an acceptable basis for pre-approval or if I need him to pull my credit again and bank statements/ pay stubs.  Also, I don't know if he ran his own DU/DO, he just later issued me the pre-approval letter after reviewing that Merged Infile Credit Report.

As for the current market, it seems most of the houses we are looking at are extremely good bargains and get snatched up with multiple offers very quickly, so I am not sure if having a "strong" pre-approval letter from a direct lender will make a difference in their decision making process.

Once again, thank you all for the advice.
  • July 30 2009
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Profile picture for wetdawgs
I suspect your real estate agent is trying to funnel business to a specific lender and probably that pads the deal for the agent.   The letter you have should be sufficient.

If that is indeed the case, tell the agent that you will not participate in a relationship where you are forced to a specific lender and say that if that happens, it is bye bye.
  • July 30 2009
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You have to love seller's, with the audacity to be nitpicking approval letters, in this market.
I once showed a Realtor a DU finding, and they didn't even know what it was, nor how to interpret it. Unreasonableness is the new professionalism.
  • July 30 2009
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If your broker collected paystubs and bank statements and reviewed them in making his/her decision then you have a pre-approval. Most brokers have the ability to run DU/DO and usually do because the listing agents require cross qualification with a representative of the bank who owns the property.
Word of caution, many RE agents don't realize there are a number of investor overlays (everybody has them) that would supercede the DU approval anyway, so it doesn't matter if your lender is a broker or direct lender.
You're going to be paying on this loan for 30 years, so the most important thing is that you have confidence that your lender of choice is looking out for your best interest not the banks.
Greg
  • July 30 2009
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The pre-approval you received would satisfy most sellers and real estate professionals.

Your "agent" is unreasonable. You could be unreasonable too.

Ask your "agent" to only show you properties that the seller has recently received an appraisal on. Certainly, you don't want to waste your precious time on a property that lacks sufficient comps to establish current market price and be unable to acquire financing. .... Best wishes, Rudi Hofmann
  • July 30 2009
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Profile picture for Bretzke
This type of letter is pretty common.  I had a buyer produce a similar one from a very large national bank.

In a realy competitive market, I have found it much better to have  a financial  relationship with the banker who will be providing the loan. This way, the pre approval letter can be specifically written for each offer. 

In this market,  I think most sellers are wiling to look at all offers, and if the letter is not that specific, it will be ok, as the seller has probably had the property on the market for 90 days, and are ready to get any offer.
  • July 29 2009
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Profile picture for heisenator
Thank you for the replies so far.

I should also add that the real estate agent's main emphasis was that I should acquire a pre-approval from a direct lender, not just the broker.  This is because some listing agents require stricter forms, and a DU approval is not always sufficient.

The broker, however, says that that pre-approval letter should be sufficient enough.

I basically had my credit pulled and analyzed in a DU report by my agent's lender, and ended up giving the Merged Infile Credit Report to a broker to get pre-approval since the rates would be better through them. 
I did not directly supply pay stubs and bank statements since that was already screened through the agent's lender, so they basically went off of the Infile Credit Report.  
  • July 29 2009
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I provide a letter similar to the one you posted for a pre-approval. I don't provide the actual DU findings as a pre-approval letter and don't know of anyone who does. If your agent is expecting that then they are not dealing in reality. 

Agents get too hung up on pre-approvals and what format they are in. It's not exactly rocket science; you input accurate data, verify information and you get the findings. What the letter says is not as important as the process that was done prior to generating it. Ask your loan officer what they did to arrive at the pre-approved decision and go from there. Ask to see the DU findings as verification if you like, that should not be a problem. The letter is just a formality and it really does not matter what it says.
  • July 29 2009
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A DU approval is not lender specifice and is based on Fanniemae guidelines. More and more individual lenders are adding their own requirements over and above the DU approval in order to purchase the loan.  That is why the more Realtors and Sellers are requesting lender specific loan approvals.  Aks your current Broker to provide a lender specific approval with any additional lender overlays.  Example if your Broker delivers the loan to CIT Bank have their requiremnts checked against the DU approval.  Hope this helps.
  • July 29 2009
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