The first step for home buyers is to meet with a lender. The purpose of meeting with a lender is to find out how much money can be borrowed to purchase a home, and to receive that all important pre-approval letter.
Most of us will not let our sellers entertain any offers that are not accompanied by a pre-approval letter. When I get a letter from a lender with an offer on one of my listings, I call the lender and ask some questions. If I have never heard of the mortgage company I send an email to my colleagues and ask if anyone has ever worked with the lender.
Pre-approval letters are always conditional with no guarantees. For example, if the borrowers credit rating or income should change, the pre-approval letter can be withdrawn. When a lender writes a pre-approval letter, he or she has checked the borrowers credit score and has reviewed income tax statements for the last two years.
A few weeks ago I got a pre-approval letter and an offer on one of my listings. It came from a large mortgage company that I have done business with before. I called the lender and he said the buyer could pay for the home. My sellers accepted the offer and went on to write an offer on another home. The sellers of that home found a home that they wanted to write an offer on.
Two weeks before the closing I called the lender who wrote the pre-approval letter to check up on the appraisal. Lenders always appraise homes before writing a loan. The lender told me that he was not sure if the buyer could actually buy the home. This was news to me. Having a lender say that he is not sure two weeks before a closing is not acceptable. The answer needs to be yes, or no. He did not alert me to any problem, neither did the agent who represented the buyer.
If I had not checked on it, as I always do, I am wondering when he would have let me know that there was a problem. The good lenders let us know if there is a problem. Good buyers' agents also follow up to make sure their buyer will get final approval on time. I called the other agent and we sent the buyer to one of the best lenders in Myrtle Beach. He always gives a yes or no answer and understands that there are no maybes in a situation like this. That lender told me that the buyer could not buy the home, not even close.
For those of us who work in real estate, getting a pre-approval letter from a large lender that is not any good is very disturbing. It is always possible for financing to fall through but to get a letter that says someone is qualified to buy a home, when they are not, is a serious problem.
The buyer got her earnest money back and will have to wait a year or so to purchase a home. The sellers had to cancel the offer on their dream home and put the home they own now back on the market.
It will be hard for me to look at pre-approval letters in the same way.