Often people having the same meeting with the lender as you did leave feeling more confused. It isn’t always what the lender has to say as much as what the buyer heard and understood.

Given the letter in question came of B of A, it’s not likely it was a slick subprime salesperson. B of A has always been fairly professional, in my experience.

Not really. Lenders produced a letter that said “you are pre-approved for a sale price of $350,000″. Buyer says YAY!

I have met many buyers who had such a letter in their hand who had no idea that they were “subprime” which was for the most part an internal word. Even many agents didn’t know the word “subprime” when it all started. The lender just told the agent the buyer was qualified to buy.

Back when I started, subprime was a completely different lending institution than a “normal” loan, so it was obvious. But if Nordstroms starts selling dollar store items for $5, who would know they weren’t “Nortstrom’s Quality”.

That’s why Joe’s agent quickly qualified him at NON subprime, but he ended up with subprime. The lender never told the agent either and the pre-approval letter didn’t say it.

When pre-approvals moved from “you are qualified for a payment of $1,700″ to “you are qualified for a sale price of $350,000″, everyone was left in the dark as to rate and payment. Buyers may have felt the sale price was more “transparent” then a payment amount…but it wasn’t.

Everything went sideways with “risk based pricing” and Credit Scoring. Before that everyone knew what they were getting into. When processes became automated mills…even the lenders become order takers. Before that everything was done by hand and the professionals and consumers knew what was happening. When you streamline a process to automation…the personal understanding of all that is happening is lost.

If Joe had done stage 1, he would have found out early that the loan would be subprime, correct? I know they ran my credit when I did so (and probably lowered the score a bit by doing it).

I wrote a post eons ago about the three stages of “talking with a lender”.

1) before you look at houses
2) when you are making an offer
3) within a day or so of being in contract to select the type of loan and officially apply for that loan.

It is part of the agent’s job, in my opinion, to be involved in step 1 and 2, but not so much the last phase. The agent needs to help with the part that has to do with the offer and the contract. But once someone qualifies for a 30 year loan, the “options” of ARMS and interest only and the like are not part of what the agent does. The buyer can talk to a lender and ask the agent what they think. But generally it is not the agent’s job or area of expertise to advise a buyer to get an ARM vs. a 30 year fixed.

In Eastside Mom’s situation she did get help with step one and step two, as she had both of those covered and I think by two different lenders. It was step three that she didn’t have time to do, and that part is not part of the agent’s expertise or responsibility.

Rhonda,

Once it’s faxed it really doesn’t show. It’s technically incorrect, but some lenders will say the buyer qualifies up to $200,000 and you can modify the letter as needed up to that point. Often the lender was not available in the 15 minutes the price changed in multiple offers or even in counter offers and the buyer would lose the condo without an approval letter with the eventual contract price on it.

Personally i don’t have a problem with an offer of $175,000 and a pre-approval up to $250,000. I don’t like matching the offer to the loan approval, as it sometimes gives the seller the impression that they are barely qualified.

Over the weekend when the agent is saying you have to submit an offer NOW or lose the only decent house you will ever find doesn’t seem like the right time.

What seller would accept a preapproval letter with white out?

I am grateful for your comments as many people lurk and read and learn from them. Again I will be the first to scream from the mountaintop when something was done incorrectly. But I do not see that here.

The ONLY thing I see was the white out of the price on the pre-approval letter. But it is very possible that was correct. The lender may not have been available to up the number in writing and may have told the agent that you were OK up to that number by phone and authorized her to change it. It’s not the best of scenarios, but could have been the only way for you to get the condo.

Come to think of it, you already had a letter from B of A. So likely you did speak with lenders about loan options before yo made the offer. B of A was not likely the lender you ended up using from what I can see. Who is your lender? I’m sure it’s not the agent.