Pre-approvals are such a misnomer these days. They aren’t worth the paper they’re written on, and yet people still crave them.
What is a pre-approval?
In theory, it tells a buyer that they can afford a house for $X dollars with $X dollars as a down payment. In reality, it holds a rate – sometimes. More on rate holds.
Why does SPIN hate on them?
We don’t, really. It’s just that they’re useless. Ultimately, whether or not you’re pre-approved comes down 100% to the competency of the broker or banker you’re working with. And there are a lot of great ones out there who will more than look after your needs.
The problem is that lenders don’t actually review the legitimacy of the info being provided in the deal. They simply approve it based on what the broker/banker provided – garbage in, garbage out. Inevitably, things go sideways when people actually try to buy a house and realize that they can’t get a mortgage. We received half a dozen calls this week alone from realtors asking if we could save deals for their clients. This is just not acceptable. It causes undue stress for the clients, the realtors and us; moreover, it’s a waste of everyone’s time.
Ok, then what does SPIN suggest?
Make sure you’re working with someone who knows what they’re doing! That’s it. If they do, then take their word, their email, their formal pre-approval letter, or whatever it is that they do to convey the message that you will actually qualify for a mortgage. The medium by which it’s communicated is totally irrelevant as long as they know what they’re doing.
And that’s why we should ban pre-approvals (or at least name them something different for the masses).