Pre-Approval vs Full Loan Review
When buying a home, many potential home buyers are familiar with the concept of obtaining a loan pre-approval – which is a preliminary review by a lender of their home buying power.
And while we love the idea of having a lender stamp you as “qualified” prior to your home search, our concern is with the industry’s use of the term “pre-approved.”
Too often, busy loan originators will issue a pre-approval letter to a buyer based on a very minimal review of their qualifications. In other words, the buyer received “pre-approved” status based on assumptions and without the lender’s review of their supporting documentation.
To an unsuspecting home buyer, this pre-approved status gives them the false impression that home financing is guaranteed. With pre-approval in hand, they then enter into a sales contract to buy a home, spend money on things like the home appraisal, inspections, title, legal fees, etc, only to find out at the last minute that the lender’s decision maker is unwilling to approve their formal loan application.
The decision maker for the lender is known as the underwriter. It’s during the underwriting process – a formal review of the loan application and supporting documentation – when the underwriter for the lender actually decides whether to approve or deny a loan request.
Yet the person that typically reviews your qualifications during the pre-approval process is known as the loan officer or loan originator – a sales agent for the lender. In short, the person providing the pre-approval has no authority to actually approve your loan. And while their intensions may be good, loan officers are not trained underwriters.
This disconnect is why in many cases pre-approvals turn out to be false approvals.
Take the pre-approval process to the next level and insist on a Full Loan Review. To do so, select a lending partner experienced enough to know the difference. He or she will then have your loan application and all supporting documentation reviewed by an actual underwriter prior to your home search. Once approved, you’ll have the comfort of knowing that your loan is virtually guaranteed. In the mind of a seller, this Full Approval status turns you into a “cash” buyer and will strengthen your offer against others.
You should know that most lenders require that you are under contract to buy a home prior to completing a Full Loan Review.
Doesn’t that seem a bit backwards?
It does to us, and why we encourage our clients to complete a Full Loan Review well in advance of their home purchase.