Is Pre-Approval "standard"?

Question

Hello Everyone,

I would like to get pre-approved for a loan so when I do have a good deal in front of me, my realtor would be ready to make an offer. My question here is Do I have to get a pre-approval from the lender from which I will eventually get/process the loan on the property? Or should I get it from one of banks (PNC/Suntrust Bank) and use that to show other lenders when needed? Does every lender/financial institution accept others' pre-approval?

Thank you in Advance. I am looking for pre-approval to invest in Baltimore County for Buy & Hold.

Michael Seeker · Answer

@Lakshay G. - you can get a pre-approval from any lending institution and you do not need to use that lender to finance the transaction, even if you provide that letter as part of your offer.

As for a pre-approval letter...it does not mean anything.  Sellers and their agents ask for it, and many buyers get one, but all it indicates is that the buyer has at least talked to a lender and they gave the right information for the lender to assume a loan was feasible.

Many loan originators are very free with handing out pre-approval letters because there is no commitment involved.  Just because you are pre-approved it does not mean you can actually get a loan.  Once you actually have a contract and apply for a loan, the banks underwriting department will review it and look at your assets/liabilities and debt/income.  If you didn't disclose something initially, you could be turned down for a loan even if the officer gave you a pre-approval.

So just go and get one and save it for when you're ready to make an offer...

Andrew Postell · Answer

@Lakshay G. to answer your original question you should absolutely use a preapproval/prequalification letter from the lender you are using for the loan.  Some lenders have different lending rules and you want to make sure you are qualified (or at least prequalified) with your lender of choice.  You should absolutely 100% shop.  We try on shoes, test drive cars, shop for jeans, etc.   A mortgage is WAY more expensive than any of those things but a lot of people don't shop.  Even a small difference can add up to tens of thousands of dollars.

Also, like a lot of people commented some places give your prequalification/preapproval letters differently.  There is an actual difference between being "prequalified" and "preapproved"...but many people, lenders included, use these terms interchangeably and they are not.  PreQualified means that you talked through your scenario with your lender.  They may have even entered your information into a system and hit "enter".  Congrats!  You are prequalified!  A PreApproval means you submitted everything in and not only did they do those steps as described but they also submitted in your information to the underwriter.  A PreApproval is a very different letter.  You will now be approved as long as the property is approved too...well, as long as nothing changes from what you submitted in.  I hope my description here is clear but feel free to ask more questions if needed.

Also, Conventional loans will not lend to LLC's.  This is not a bank specific rule but a rule directly from Fannie Mae and Freddie Mac.  Fannie/Freddie are the entities that govern conventional loans.  It is not up to the bank for this rule.  You will have to close in your personal name.  HOWEVER, you can absolutely change title to your LLC after closing.

You had very common questions here and feel free to tag my name if you have any additional follow up.  Thanks!

Russell Brazil · Answer

If you are purchasing in a competitive area, the lender you are using is paramount. When a listing agent receives your offer along with other offers, how good your lender is will add weight or take away from your offer. I won't let my clients for instance accept offers from a federal credit union or quicken loans since I know there is a higher chance of there being a problem on the lending side that could derail a transaction.

Stephanie Medellin · Answer

@Lakshay G.  The quality of the preapproval is what matters.  Some loan officers probably do hand out preapprovals based on a brief conversation and no documentation from you.  This is basically worthless.  If you're going to get a real pre-approval, gather your last 2 years tax returns, W2's, work history, recent bank statements and paystubs, and any other pertinent financial information for the loan officer to review.  Only then will your pre-approval be based on real numbers and be reliable.  You can even go as far as getting an underwritten pre-approval if your lender offers it.  This is the most solid type of pre-approval, and will greatly speed up the loan process.

Russell Brazil · Answer

Fannie Mae and Freddie Mac loans are not issued to LLCs. You need to choose whether it is more important to you to have preferable financing and own in your own name, or worse financing but the protection of an llc.  The same goes for your insurance too, it will be more expensive to an llc.

Andrew Postell · Answer

@Lakshay G. no problem with any questions here.  Chances are if you have a question, another person has that same question.  And all of your questions so far have been very common questions.  To transfer title is really easy.  It's one form that a title company will file for you....$100-$150 charge?  Somewhere in there.  And you do not have to wait for the title to be free and clear.  I think what you may have been referring to is what is commonly called the "Due-On-Sale" clause.  That clause states that if you transfer title the bank MAY call the note due.  And if they do they have to give AT LEAST 30 days for you to fix it.  And that's even if it's legal in your state (I'm summarizing here for time).  But plenty of people transfer title after closing.  As long as  you pay on time the bank will not be calling your note due.  They make a TON of money on the loan.  Just pay on time.  And you are right, conventional loans usually have the best terms to the loans.  Feel free to ask more questions if you need.  Thanks!

Jeff B. · Answer

I differ with @Michael Seeker

Remember WHO asks for the pre-approval letter - - it's the BUYER, not  the lender and that's to assure the buyer that the offer is genuine and  not from a lookie-loo.

The pre-approval letter will drive the lenders loan approval and underwriting process to produce a specific approval:

• we will grant a loan on xyz property not to exceed $yyk dollars with a COE on or before mm/yy
• with a GSI and NOI as represented by the displays from the existing owner.

Offers submitted with the PAL and POF for the downpayment certainly get the sellers attention and I never accept an offer without both.  There's no stalling on Loan Approvals and the only contingency hangups will be the inspects and walk thru's.

If you're serious on the offer (aka not loading the offer with waffle words seeking a price reduction), then the hit on the CR becomes meaningless.

Lakshay G. · Answer

I agree. Thanks everyone.

Dawn Brown · Answer

Loan Fraud is never a good idea.  PS, I'm a hard money broker AND a real estate investor.

Lakshay G. · Answer

@Andrew Postell @Dawn Brown

Thank You much both of you. I will be speaking to private/hard money lender for pre approval. I want to make a quick comment on Ms. Brown's post, I completely agree with your post BUT when going to refinance for a conventional loan, the bank won't approve a loan on LLC, they need an actual person's name. If I go with a portfolio lender refinance route who give loans to LLC, I will have a higher interest rate and they won't offer FIXED 30/25/20 years rate (they said they will adjust rate with the market along the way), I have already spoken to them.

That's why I've put hold on creating a LLC for first few properties. Now I am going to question my own thought, I spoke to a local REI who owns two rental townhomes and he mentioned that when he went to a bank to refinance a conventional loan and he mentioned those properties are for rental purposes, they gave hime 1-2% higher than an average residential loan.

I hope I am not confusing everyone but all the calculations (using bigger pockets calculators mainly) fail if I am not even close to a conventional loan interest rate.

I feel that if I don't have my funding together first, all the good deals out there aren't for me because I am unclear on how I will finance them. I have more than 20-25% for down payment, good credit score, almost no expenses (vehicles paid off, rental lease is on my wife's name). If it matters, I don't own any house on my name. Do I "lie" to a regular bank that I'll be living in the house that I am refinancing and I sneak a tenant in there after a couple of months?

Again, I am sorry for my lack of knowledge but only "real" real estate investors know how to answer these questions, not some banker or hard money lender or realtor. Phew...

Is Pre-Approval "standard"?

Most Popular Reply