Loan Contingency vs. Loan Approval Contingency a Follow-up
I think everyone may be missing the point of my last post. I’m not arguing loan contingency. Long before you get to loan contingency removal you should have the loan pre-approval contingency removed. Many, Many Realtors believe this to be one in the same when it’s not.
Loan Pre-Approval is a full review of the clients’ ability to qualify for a loan at a specific amount and payment. The only things than can change the pre-approval to non-approval is the property doesn’t appraise for the amount being sold, a cloud on title, or the Borrower went out and ran up their credit card debt or lost their ability to repay the loan.
Full Loan Approval occurs after the Borrower has submitted all required documentation and the lender has reviewed the appraisal, title report, ascertained that the borrower and property are insurable and pulled one last credit report on the Borrower.
Long before you get to full loan approval the loan officer or mortgage broker depending on who you’re working with should have already reviewed and submitted everything necessary to the lender to obtain a solid pre-approval and commitment from the lender. Whether you’re working with a loan officer or mortgage broker there is absolutely no way for them to issue a full loan approval without the appraisal and clear title.
Unfortunately there are many people on both sides of this industry who use the terms pre-qualified and pre-approval interchangeably. There are many other loan officers and mortgage brokers alike who will tell a Borrower or a Realtor that they are fully approved when in fact they haven’t sent the file to a lender for commitment.
Pre-Qualified: Simply means the Borrower answered specific questions from the loan officer/mortgage broker and the loan officer/mortgage broker qualified them as a viable candidate for a loan.
Pre-Approval: The loan officer/mortgage broker requested and received from the Borrower all preliminary necessary documents to approve the client for a specific loan amount and payment based on the clients credit score, debt to income ratio, documentation, and income. The loan officer/mortgage broker then submitted this package to a lender who committed to making a loan to the Borrower for a specific amount.
Full Approval: Occurs once the identified property has been appraised, the appraisal has been reviewed and a title report has been ordered and reviewed. Not to mention both the Borrower and the property must be insurable. In most instances the lender will pull one last credit report before issuing the final full approval.
Unfortunately there are many more people/things involved in the approval of a loan than just the loan officer/mortgage broker, escrow, lender, Realtor, and title folks.
As a Realtor I had a situation years ago where the Sellers failed to disclose the numerous insurance claims they had filed against their homeowners insurance (long before CLUE was regularly used) and the Buyers had filed a homeowners claim because of a stolen purse. When it came time to close the deal we discovered that neither the property nor the Borrowers were insurable. Both Realtors were up in arms because the deal was falling apart in the final minutes. If it weren’t for my long list of referral partners this deal would have crumbled because of the insurance issue. One phone call to an insurance industry referral partner revealed there was a company out there that specialized in high risk situations. Sure, the insurance premiums were through the roof but, the deal stayed together.
I can’t stress to everyone involved in this business including, inspectors, Realtors, loan officers, mortgage brokers, escrow officers, and title reps how important it is to maintain a solid list of referrals partners that you can turn to in a time of need. These relationships can mean the difference between closing a deal or watching it crumble away. When building a house you must start with a solid foundation and have the right tools to begin building.
Building your business and reputation starts much the same way, the foundation is your education, the tools your referral partners which should include insurance agents, attorneys (people divorce), lenders, mortgage brokers, loan officers, escrow officers, CPA’s, title officers, inspectors, appraisers and a host of other professionals, you’ll never know when you’ll need the services of someone you’ve overlooked.
My philosophy in life is to never throw away a business card because you’ll never know when you may be approached by someone in need of the services of someone you have met. Likewise if you keep in touch with those you’ve exchanged business cards with they just might need your services in the future or know someone who does. You should be looking at every business card as a business building opportunity.
Category: Real Estate
About the Author (Author Profile)
Ed Brophy is the Co-Owner/REALTOR® of Desert Realty and Newport Beach Realty. He's been in the real estate and mortgage industry over 10 years and has helped thousands of homeowners buy, sell, and refinance their homes both in Palm Springs and Newport Beach. Ed helps clients navigate today's complicated real estate process with his knowledge of the current real estate and mortgage markets. +Ed Brophy E-Mail: e...@g...l.comSubscribe
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