We take many calls and hear anecdotal stories from clients about how they were “pre-approved” by their bank (or another broker) for $265,000 but when the deal came together it all fell apart because the bank would only give them $150,000 (or some such story). My career is filled with client stories from their banks.
This doesn’t happen when a client uses me on their purchase or pre-approval.
This video blog outlines what a PRE-Approval really is, what you can rely on, and why my service level is very different (and superior) to most brokers, banks, and the competition at large.
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Transcription of the Video Blog:
Hey everybody, Rowan Smith from the Mortgage Centre.
It’s January 2nd right now, and I got a call today from a client who mystified because their pre approval that they were told was going to be there waiting for them at their bank, wasn’t. So, I wanted to clarify what exactly a pre approval is, as well as what “underwriting” is, in relation this concept.
So, backing it up, “underwriting” is the process whereby a bank actually looks at your application. They look at your documents: job letters, etc… and make sure that all of these details add up. That your paystubs are in line with what your job letter says; that your down payment is coming from own resources, and if isn’t, then they have to find out where IS coming from. Based on all of this process, they underwrite, and come up with an assessment of risk, and this is a time consuming process and is something that the banks spend a lot of money on staff to review paperwork, to review a deal, to work through the numbers and the nuts and bolts of a deal.
If you are trying to buy a property and you go to your bank and you get a pre-approval, you assume when they give you that piece of paper and it says “$265,000” on it, and you’re holding that up to your realtors saying, “I’ve been told that I’m pre-approved for a mortgage of $265,000!”
But, you go and write an offer and then all of a sudden your banker is telling you, “well, you know, actually your job letter didn’t say this that or another thing,” and you may have even provided that job letter up in advance and are wondering, “well then, what was the point of all this exercise?”
So, what is a pre-approval?
A pre approval is JUST the lender taking a cursory look at application, as it stands, and saying, “IF, the documents that you provide us later on, when we review them” (because they NEVER review them for a pre approval – that’s our job as brokers is to make sure your paperwork says what you’re telling us it says – very commonly a client will say they make $60,000 per year and they have been on the job for maybe 11 months, and truth be told, when we look at their paystubs they are on pace for about $60,000. When we get the job letter, it may show $35,000 base salary with bonuses or overtime or commissions or what not. Because you’ve got only 11 months of track record, you won’t be able to use that bonus money. You’re going to need to use a two year average. Now, if you weren’t making $60,000 beforehand, you can see how that average could be maybe misrepresentative of your real value or your real income but IT’S WHAT THE BANKS WILL USE WHEN QUALIFYING YOU.)
So, when you get a pre approval , what differs with me versus another broker or your bank is that I WILL UNDERWRITE the file. I will look at all of your documentation up front. I will insist that you provide me with job letter, paystub, statements of your bank account, down payment confirmation, gift letters if it is appropriate, statements from your various credit cards and loans and lines of credit. I know how the bank is going to look at it, and I can make sure that everything I provide you in my pre approval when it says “$250,000” or $265,000” so that when you actually write an offer, the bank honours that amount.
For the Mortgage Center, I’m Rowan Smith.