Evaluating a Home Loan Pre-Approval
January 2, 2009 | By Kelley Koehler | Filed Under Loans and Financing
Question from the audience:
Lender X is offering a 4 month pre-approval, free lock, and a onetime float-down after the lock. Obviously, I would like to lock into current rates. I’m trying to figure out when to get pre-approved and lock. I don’t want to lock in too soon by starting a 4 month period that I won’t be able to buy in, but I don’t want to wait too long and miss rock-bottom rates.
Let’s see if I’m understanding that correctly.
A 4 month pre-approval? Is no guarantee that the loan will still be around in 4 months, unless I misunderstand. If a loan program goes away, it goes away, no matter how long you were pre-approved for it. Most Sellers are going to want a pre-approval that is less than 30 days old anyway.
Free lock – I’d expect that for locks 30 days and less. You can sometimes get 45 day locks for free too. So unless they’re locking for a very long time…
One time float down… oh, during the lock interval? What kind of lock interval are we talking about anyway? Closings here are 30-45 days, you don’t need special long locks unless you’re building from scratch, usually.
Maybe we’re not talking about the same thing when you say "pre-approval." A pre-approval is just pulling credit, showing debts and assets. You can get one in 20 minutes from just about any lender. Go ahead and get one. When you make a final decision, at least you’ll know what kind of loan you can qualify for and they can refresh dates and recheck program qualifications quickly if they need to when you make offers. There should be no charges for a pre-approval, unless they take $35 for a credit report or something. And if they do, demand a copy of the credit report so that you can take it to the next guy if you want to shop loans.
Noticed you didn’t mention any kind of costs. What is the lender charging to originate the loan? What kind of rate do you get for those costs? You need to look at the entire package: what does this loan mean in terms of money now and money every month for the next 30 years?
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Kelley, you make good points here. This pre-approval is attainable…kind of.
1- A pre-approval is one where the lender takes a full application (with all disclosures), collects income and asset documentation, runs an automated underwriting program, attains that approval, and has a human underwriter sign off on the income and assets. Those approvals are good for 120 days.
2- Most rate locks are free for 60 days. Anything beyond that costs money to “hedge” so it’s a risky lender who offers such a long lock for free.
3- Float-downs are being offered but usually only once during the loan process.
Hope this helps a bit.
PS: Many listing agents in California are requiring the front page of the Automated Underwriting approval, the front page of the credit report, a verification of down payment, and their own lender to “interview” the submitting originator. I’ve both been interviewed by and interviewed originators; we’re just looking to see if the originator has a handle on the loan file
All of your statements are right on Kelley. Most of those “incentives” are marketing tactics that may or may not exist. Also, as Brian points out, these days you really have to check out the originator that is working on your clients file. As both an originator and RE agent I know a lot of those pre-whatever’s aren’t worth the paper they are written on when it comes down to getting a clear to close.