Technology Transactions

Does Preapproval Assure The Deal Will Close?

Are you sick of watching deals fall through? Listing broker Mark Boyland is. What he"s learned may not surprise you - that where most deals take a wrong turn is in getting the buyer preapproved for a loan. And that is where he plans to lobby agents and lenders to screen buyers more carefully. "Over 80 percent of my business is listing," says Boyland, "and when I sit down with the buyer"s agent and go over the buyer"s preapproval letter, I find I often know more about the buyer"s ability to get a loan than their agent does." That"s because agents rely too much on the buyer"s word or understanding of what it means to prequalify for a loan, says Boyland. "The agents haven"t done the screening process," he says. "Many lenders, mortgage brokers especially, in our area give out these very generic letters that say preapproval but contain very little information about the mortgage." Boyland needs more information to gauge the likelihood that the deal will close, he says. "If a borrower is qualified for a loan that is two points higher than normal interest rates, there may be a credit problem," says Boyland. "This is useful in letting the seller know which offer to take among similar offers." But many agents aren"t grateful for the help. "The agents are dumbfounded to learn about problems with their buyers that they didn"t even know about," says Boyland. "They"ve spent 15 hours with a person they should never have put in their cars." When he pushes the point, Boyland says he often doesn"t get a lot of cooperation sometimes from the agents or the lenders. "They feel the information I want is unnecessary and they don"t want to do the actual work to get the information I"m looking for," he says. "That"s why I will only acknowledge preapprovals from direct lenders or brokers who have in-house portfolio lenders or access to systems that do Fannie Mae/Freddie Mac approvals." There"s a reason why, based on buyer behavior, says mortgage broker and author Randy Johnson. "Mortgage brokers are not authorized by lenders to give prequalification letters because the broker isn"t lending the money," explains Johnson. "Only the underwriter can issue a full loan approval. Until then prequalifications and preapprovals are interchangeable, and neither can guarantee that a loan will close. "Everyone in the transaction has the right to know if the buyer will be able to get approval, but the question is how much should everyone know," says Johnson. "The borrower is a client and you have to proceed based on what information they are willing to let you share. Many times they aren"t far enough along in the loan process before they find the home they want, and that"s where the problems usually occur. If they apply for a loan, then the broker or lender can issue a preapproval from an underwriting system." But what if the borrower hasn"t applied for a loan? "If the borrower doesn"t know how much they want to spend, it wastes people"s time to go through a prequalification letter," says Johnson, "but if they want to make an offer, I can get a preapproval letter very quickly by running it through DU (Fannie Mae"s Desktop Underwriter or Freddie Mac"s Loan Originator.)" Listing brokers could encounter other hurdles getting information from lenders. "Everyone has a right to know the conditions, but then the listing broker will call you to see if you have solved all of the conditions and then you are in a dialog with someone who isn"t even your client," explains Johnson. "I want to do everything in my power to do two things - allow my buyer to proceed with confidence, and two, to make the other parties feel comfortable about my client being able to complete the transaction, and I think that is the end of the road. I don"t think there is an obligation to go beyond that." Boyland says this isn"t enough to reassure sellers" brokers that the deal will close. That"s why he"s devised his own set of negotiating questions to ask the buyer"s agent: * Is buyer aware of all included and excluded items? * Does buyer have to sell anything to buy? *What is the status of the buyers lease/contracts on current residence? a) When will contracts be unconditional? b) May we see a copy of those signed contracts? * What is the earliest and latest the buyer can close? * What does the buyer do for a living? * How many people will be making the move? * Are they going to actually use the lender that they are pre-approved with? * Are they waiting for any settlement money of any kind? (i.e. divorce, stock)? * Is the money for the down payment and closing costs currently liquid? * Do they have offers on any other properties? * How well do you know these buyers? (Friends, family, call-in, referral) * Did the buyer have any questions about the property that I can answer? * Is the buyer aware that this is a dual agency situation? * Will this deal be contingent on mortgage? * Are there any other contingencies other than mortgage and inspection? Boyland also insists that any preapproval letter contain the following information: *amount of loan *interest rate * address and contact information for the mortgage broker or lending officer *a date (Don"t count on a preapproval letter that is older than 30 days, says Boyland.) Not all questions get answered, admits Boyland, but the more that do, the better he feels about the deal. "The bottom line is this could make a difference in whether a buyer"s offer gets accepted or not," says Boyland. If listing brokers are nervous about buyers, Johnson suggests another route - that they write into the contracts that they have the right to see the approval from the underlying lenders. "All brokers want to calculate the risk, but the question is how much you can really do. Everybody wants to close escrow tomorrow, and that takes away uncertainties, but we all know that isn"t the way it works."

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