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Where are the Lender Letters?

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Posted On: 05/19/2010

QUESTION

Is it true that mortgage lenders are no longer providing pre-approval letters to homebuyers?

ANSWER

The basic answer is that most lenders will be elated to provide pre-approval or pre-qualification letters for homebuyers. But some will not. Here’s why:

Some in the lending industry allege that new rules from HUD designed to protect borrowers prohibit lenders from collecting information needed for a pre-qualification letter – and that somehow lenders might be required to make a loan on the basis of a pre-approval letter.

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Real estate broker and instructor Michael Richman of Herndon Eagleton Real Estate in New York says he checked with several major lenders and “all say that there is no issue with getting the financial information they need to do pre-approval letters. Yes, the process has changed and may be slower. However, they all are issuing pre-approval letters and see no reason that they won’t continue to do so.”

Pre-qualification or pre-approval letters are called “hand-holding” letters for a reason. The idea is to assure home sellers that the buyer has met with a lender and has some financial capacity. However, the letters themselves cannot possibly guarantee financing because the lender has not verified the borrower’s information and without an appraisal does not know anything about the property or its value.

Even information collected at the time of application does not guarantee a mortgage. Lenders, as an example, often run a new credit check just before closing to assure that the borrower still qualifies for a loan and that there have been no material changes in the borrower’s financial standing. Of course, with so-called “NINA” mortgages (no income/no asset verification) lenders have been happy to provide loans without checking much of anything at any time.

You and your broker can resolve this matter by looking for lenders who provide appropriate letters – and there’s no shortage of lenders who want your business.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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