Worthless Preapproval Letters

The preapproval letter is suppose to represent a lender's assertion that the real estate buyer has been "checked out" and may purchase a property up to a certain value. The reality is that if a mortgage broker or lender has not checked the buyers income, assets and credit prior to issuing a preapproval letter, the letter is essentially meaningless and could result in a breakdown of a purchase and sale agreement.

Many of the problems arise in situations with buyers using low or no documentation (stated income) loans. These types of loan programs allow buyers to simply state their assets and income without verification. Preapproval letters issued under these circumstances may be worthless and could cause trouble for a real estate transaction. We also hear stories from other real estate agents around the water cooler about buyers running into problems when dealing with the increasing number of internet and fly-by-night lenders out there.

The most significant problem is that a buyer may not pass a lender's underwriting guidelines for the amount needed to fund the loan. If that happens, a deal may be delayed or not close at all.

When we represent sellers, we advise them not to consider offers from buyers with unverified preapproval letters, even if the offer is higher than any other.

As your buyer's representative, Lindee and I will help you make sure you are truly prequalified. If you don't have a solid lender, we will recommend a trusted and proven mortgage broker like Kathy Vaughn of Goldmark Financial.

We would be happy to talk with you about mortgages, preapproval letters and the process of the purchase and sale in Washington state. Feel free to give us a call and we would be happy to share some of our experiences with you.