What Should a Preapproval Letter Contain?

April 21, 2010 by Leave a Comment

This isn’t the first time I’ve written about preapproval letters at The Mortgage Porter…however it has been a while and I would say that with all the changes in the mortgage industry, your preapproval letter is more important than ever.  Most Seattle area real estate agents will not accept an offer on a home that’s listed for sale without a bona fide preapproval letter.

Preapproval letters may vary in appearance and content from lender to lender.   Some mortgage companies may have different protocal for when a preapproval letter may be issued.   When I provide a preapproval letter, it means that I have a complete loan application, most likely with exception to the property address since the home buyer has not yet identified a home.   It also means that the home buyer (i.e. borrower) has provided me all the necessary documenation that supports or backs up the information that has been provided on the loan application, such as

  • income documenation (to make sure they qualify for the proposed montly mortgage payment)
  • assets (at minimum, enough to cover the down payment and closing costs)
  • credit report…everything seems to be based on your credit score from potential interest rates to what you qualify for.   This is something that we need to pull if you are interested in obtaining an actual preapproval.

A good preapproval letter should address all of these items so that the seller and the real estate agents know how qualified the home buyer is.  This is done in a manner in which not to violate the buyers privacy.  For example, a seller or real estate agents should not see the buyers income, assets and credit scores.  If a buyer wants to share that information with someone other than their mortgage professional, it is up to them!   Instead, the preapproval letter will address that these items have been reviewed and are acceptable. 

For example, I might include something like this in a preapproval letter:

This preapproval is due to your job stability and excellent credit.  Funds to close this transaction are from your personal savings and a seller contribution in the amount of $5,000.

You can see that I have addressed income, assets and credit in this paragraph. 

My preapproval letter also includes program type, the sales price and loan amount.  Every so often I’ll have a real estate agent want me to leave the sales price blank.  This is something that we can do IF the borrower has substantial cash reserves.  I’ve found that some home buyers would rather not have their preapproval letters written this way…and I’m happy to provide several preapproval letters with staggered sales prices (as long as the borrower has documented the funds for down payment and closing costs).

You may find a total mortgage payment on a preapproval letter.  This is because borrowers are qualified by their mortgage payment since loans have a certain allowed debt to income ratio.  If a borrower is a little pushed with their ratios and they find a home within the sales price and loan amount they are preapproved for, but the property taxes or home owners insurance are higher than estimated or mortgage rates climb higher than what they were approved at, you no longer have a preapproved buyer.   Whether or not your mortgage originator includes what payment you’re preapproved for, it’s important to ask.

Any conditions to the loan approval should be included on the preapproval letter.  Standard conditions on our preapproval letter may include:

  • satisfactory purchase and sales agreement
  • satisfactory title commitment 
  • subject to appraisal 
  • subject to changes to financial situation as disclosed on the loan application (i.e. changes in your employment, debts or assets may jeopardize your preapproval status).

Preapproval letters may also have an expiration date.  Before our current lending environment, preapproval letters would be valid for a longer period of time.  Now credit reports and other supporting documentation “expire” earlier.  Should your preapproval letter expire, they’re typically easy to update by just supplying your latest supporting documentation (paystub, bank statement, etc). 

The letter should have a date and be signed by whomever prepared the letter with their contact information. 

When I prepare a preapproval letter for someone who’s buying a home located in Washington, at the very least, they have gone through preliminary underwriting.  If a mortgage originator has not obtained your documentation or if you have not completed a loan application, you are probably just prequalified and not preapproved.

With HUD’s new Good Faith Estimate, unless you have a property address, you may not receive a good faith estimate with your preapproval letter.  This is a glitch with RESPA that I hope HUD finds a way to correct.  Even HUD admits that if a mortgage professional provides a good faith estimate without a property address, they’re doing so at great risk (due to the financial liabilities packed in the new Good Faith Estimate).   Your mortgage professional can provide you with a “work sheet” until you have a transaction (property address).

If you are shopping for a home anywhere in Washington state, I’m happy to help you become preapproved. 

Filed Under: Real Estate Agents, Residential Purchase Tagged With: , ,

I hope to see you at The Pacific NW Housing Summit & Seattle RE Barcamp

March 13, 2010 by Leave a Comment

The Pacific NW Housing Summit and RE Barcamp Seattle are taking place this week on Thursday, March 18 and Friday, March 19, 2010. If you are in any aspect of the real estate industry, I hope to see you at both events!

Filed Under: Events, Real Estate Agents

If You are in any aspect of the real estate industry, you don’t want to miss this…

January 29, 2010 by Leave a Comment

PNWHSREBCflyer

Both events are at the Seattle Center:

March 18, 2010 – Pacific Northwest Housing Summit  
March 19, 2010 – RE Barcamp Seattle

The panelist for the Summit continue to grow and we anticipate quite a turn out from across the country at both events.  Sponsorship opportunities are still available and start at $250.  

Of course there will be "tweet-ups" and social hours following both days.

Be there!  Follow both events on Twitter: @pnwhs #pnwhs and @REbarcampSEA #rebcsea

PS:  Space is limited to the first 700 registered attendees for the PNWHS…and there's a "sweet heart deal" for pre-registrations by Valentines Day.  

 

Filed Under: Appraisals, Events, Mortgage, Real Estate, Real Estate Agents, Seattle

An Announcement You Will Never See from a Traditional Broker

October 13, 2008 by 2 Comments

"Today Redfin laid off roughly 20% of our employees" writes Glenn Kelman, Redfin CEO on his corporate blog.   

You won’t hear these words from the traditional real estate brokerages where agents are not paid salaries.  They’re living (or trying to) from closing to closing.  Some are doing better than others and others are having to make hard choices about their careers and personal finances.

The traditional brokerages do not announce that 10 or 20% of their agents have not received a commission check in the past few months or are not able to pay their desk fees.  Agents move to less expensive offices or they just move on.

It is a very challenging market.  And while the many will focus on the struggles of Joe Six Pack, who opted for the wrong mortgage at the wrong time; very few will have sympathy for the struggling real estate agent who made their living from the Joes of this world. 

Glenn’s announcement is a sad one.  I don’t have established "relationships" with Redfin agents.  I do with home buyers who have utilized Redfin.  I admire Glenn’s honesty and wish everyone in the market well.  I have been very fortunate to work with Washington State buyers and home owners who read my blogs, my past clients who return for their mortgage needs and who refer their friends to me and real estate agents who are trying to stick out this market.  At this time and always, I THANK YOU ALL.

Hopefully with today’s gains in the market, we’ll have the confidence that our markets need to stabilize.

Filed Under: Current Affairs, Events, People, Real Estate Agents

My Interview with Seattle Sweet Digs

February 4, 2008 by 2 Comments

Earlier this week, Katrina Munsell of Redfin’s Blog, Seattle Sweet Digs interviewed me regarding whether or not it’s time to refinance your home.   Her questions are quite timely as we’re waiting for the Senate to vote on the stimulus package which includes raising the conforming loan limits and many folks are not totally certain of when refinancing makes sense.   You can read the interview by clicking here.

Filed Under: Real Estate Agents, Refinance, Seattle, Weblogs Tagged With: ,

Apology not acceptable

October 4, 2007 by 13 Comments

Last night I had someone (who I thought was a client) email me stating:

"I appreciate your time and help with this thus far, but we’ve decided to go with a different source for our mortgage needs. 

We feel going with someone more local to our area and whom already has a working relationship with our realtor is best for us.   I hope you understand and again, thank you"

Fact is…I don’t understand at all. 

I’ve met with this couple personally twice thus far and we have countless emails and phone calls back and forth at all hours of the day.  I have them preapproved for their mortgage which is a 10% down jumbo that I structured the financing to obtain the best rates for them by structuring a conforming first and second combo.   I have guided this couple and provided them with a strategy for buying their next home together. I have met every one of their mortgage needs.

They hooked up with a real estate agent who used my preapproval letter to secure their home and then did switch-a-roo to her preferred Loan Originator.  It’s a sneaky snakey pass off when everything has been done.  It’s steering the customer. 

How would their real estate agent feel if I would have steered the buyers to another agent that I work with after she has invested the same amount of time with her?  Whenever she called me, I responded immediately.  I never gave her a reason to have doubt in my abilities as a Mortgage Professional.   This is all about steering to her preferred lender.  I wonder if it’s one their company has an interest in?  I also wonder how the Listing Agent would feel if they knew that the lender who wrote the preapproval letter that was presented with the offer is not the lender being used for financing at this stage in the game?   Should a Loan Originator retract their preapproval letter in this situation?  Obviously, I’m not use to someone doing this to me and I’ll get over it.   It’s simply not how I treat people.   

I’m not sure if my bigger beef is with the real estate agent or the buyers.

Why should I understand?  I don’t.   

Filed Under: Real Estate Agents, Residential Purchase

When an appraisal comes in low

June 20, 2007 by 5 Comments

Luckily this hasn’t happened often to me…last week we closed a transaction where the appraised value came in lower than the agreed sales price on the purchase and sale agreement.   Ugh!

The property is a nice home in south King County that was originally listed for $275,000. Shortly after going on the market, a bidding war commences and my client “wins” the home after it is bid up to $300,000 which includes building in $6,000 of closing costs to be paid from the seller.  My client is putting zero down into the transaction (100% loan to value).

[Read more…]

Filed Under: Appraisals, Real Estate Agents, Residential Purchase Tagged With: , ,

Is your agent in bed with a title company?

April 30, 2007 by 3 Comments

Mpj040977300001In the Sunday issue of Seattle Times, Ken Harney addresses the cozy set ups (affiliated business arrangements) that drive up the costs of title insurance.  Before I dig into this topic, I thought I’d give you a little bit of title insurance 411.

Title insurance is required by lenders when you purchase or refinance a home.   With a purchase, the seller pays for the buyers policy (owners policy) and the buyer pays for the lender’s policy.    With a refinance, a new title insurance policy is again issued to insurance a lender for the new mortgage.   Unlike other forms our insurance, such as life or auto, a consumer only pays for title insurance when they have a real estate transaction utilizing a mortgage.  Most title insurance policies are the same, regardless of which company they are issued from.   They are all ALTA policies (American Land Title Insurance Association), typically 1992 Standard or 1998 ALTA which provides additional coverage yet sets deductibles on certain coverages.  Expect to pay 10% more for this policy  (1998 ALTA) which is most commonly used and is the default on purchase and sale agreement.  There are also various amounts of coverage available (standard, extended, etc.).   Title insurance rates in Washington State must be approved and filed with the State Insurance Commissioner.

With a purchase, typically, the listing and selling agent negotiate on the purchase and sale agreement who the title insurance and escrow company will be.   Currently most title commitments are ordered when the property is listed.   Rarely does the consumer have the opportunity to select the title insurance.   Even when there is not an “arranged relationship”, real estate agents want to choose “their preferred” title company.    When real estate companies have an “affiliated business arrangement” (aba or joint venture), odds are, the consumer will have even less say in where their title insurance will be.

Locally, Coldwell Banker Bain, John L Scott and Windermere have aba’s with LandAmerica Title Insurance Company which operates under Commonwealth of the Pacific and Rainier Title.   These companies are required to disclose their interest in the title company by an addendum on the purchase and sale agreement.    Most office managers will lean heavily on the real estate agents to use their affiliate title company.   In addition, these managers will not allow competing title companies to present materials within their office to their agents even if it is promoting lower rates and fees to the consumer.   It is common knowledge within the industry that there is significant incentive for the managers to control this relationship.    Other real estate companies have also entered into various marketing agreements with other title companies.    Many real estate companies will also try to steer mortgage and escrow for the same reasons (business arrangements).

Ken Harney’s bottom line to consumers it to not “roll over when it comes to title and settlement services.   Be aware you can shop for lower-cost alternatives.”   One way to have the most significant savings (in Washington state) is to find a title company that offers a 10% discount off the owners policy (this saves the seller money) when  using their escrow in conjunction with their title insurance company.   The lenders policy (what the buyer pays for) typically varies 5% from company to company.    Although there the variance in cost is not huge, the level of service from title companies can vary significantly.    It’s been my experience that when the business is arranged (when there is no competition), the service from that title company suffers.

Many consumers want to rely on their real estate agent or mortgage professional to help guide them on selecting a title insurance company.   It is important to know exactly what the relationship is between the title company and your agent or lender.

The State Insurance Commissioner is expected to come out within a few weeks with findings of their most recent audit of local title companies along with possible fines…stay tuned!

Filed Under: Escrow and closing, Real Estate Agents, Refinance, Residential Purchase, Title Insurance Tagged With:
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