The Pre Approved Mortgage Myth

Once upon a time in a country far far away anyone who was planning on buying house went to great intuitions of commerce to discuss the possibility with a wise and sage guardian of funds. Armed with their pre-approval people went out a looked for a house and when they found the perfect home they returned to the sage guardian and were given the funds to close the transaction. There was a thing called loyalty and relationships and once established these bonds were tough to beat.
Then things got better, much better. As people have become more savvy about borrowing and are exploring more options the pre-approval is one of those services that has diminished over the years. Many years ago when I was working in the bank we would handle a pre-approval as if it were a true mortgage application. We would subject it to the same scrutiny as any other type of loan and collect all our documentation. Once a client bought a house all they had to do was have the realtor send us the completed offer and the MLS listing. The next thing the client had to do was pick the paint and show up at the lawyers.
Most lenders are not pre-pared to invest that amount of time in pre approvals anymore because so few of them actually close. Clients shop around and often take the pre-approval and negotiate something better. Basically today’s pre-approvals often don’t even include a credit check. They are a brief conversation and calculations are done without clarification of income or down payment. Clients are given ball-park numbers and their rate is help for up to 4 months. Even actual commitments mean little but I will save that for another article.
If you are seeking a pre-approved mortgage and planning on using as an absolute guide to purchase then heads up! You need to make sure you have in depth conversation with someone with complete knowledge of the industry. If you find yourself shopping around for a person who finally tells you what you want to hear then you may have a problem at closing. The rules for mortgages are very black and white and especially insured mortgages really level the playing field. Make sure the person you talk to takes a good look at your income documentation and your source of down-payment. It should be clear in your mind what you have to bring to the table in order to make the process as smooth as possible. If friends tell you stories about running around at the last minute to gather information to close their mortgages then you need to stay clear of those recommendations.
Even after a full investigative interview your pre-approval is no guarantee. The lender has still not nailed down the true cost of your transaction. For example if you are pre-approved to buy a house at $450,000 you come back with a condo for the same amount I can almost guarantee you the condo fees are not factored into your ability to borrow . If you got a pre-approval that holds the rate till after April 19th the new rules will apply to your application once you find the home you want. Experience is the key to success. There are lot of great mortgage products on the market that make homeownership attractive. It’s your job to make sure you are sitting in front of someone who really knows and understands the rules.