This is a pre-screened marketing letter. You’re not technically pre-approved, if by “pre-approved,” we mean there’s a check you can pick up in the morning.
Get out a microscope and read the letter’s fine print. Invariably, it will say that the actual rate and terms are subject to “changing market conditions.”
Without a credit check and appraisal satisfactory to the lender, you won’t get the headline rate. Despite the claims of pre-approval, you won’t get any loan if the lender decides you’re unqualified.
Under Wall Street reform, lenders are required to assure that every qualifying residential mortgage goes only to borrowers who have the ability to repay their loans. This means the lender must assemble a file that verifies the borrower’s income and employment.
I recently refinanced an investment property where there was a very low loan-to-value ratio, and no cash was to come from closing. This was a basic rate-and-term refinance, the kind of mortgage that should make lenders ecstatic. Even so, the lender required a sack of documents, and no one said I was pre-approved.
The new standards required under Wall Street reform are simply the old standards in use before the toxic loan era. Lenders are going to ask for paperwork, lots and lots of paperwork, and borrowers must provide documentation or they will not get financing.
The purpose of requesting documentation is not to create additional aggravation. Instead, it’s to make the lending system less risky by making sure that loans are properly underwritten and likely to be repaid.
That’s something everybody should want, especially when you consider such alternatives as short sales, foreclosures, less equity, fewer jobs and lower home values.