Buying a home? Mortgage Preapproval Is Harder to Get

The New York Times’ Lynnley Browning writes about the mortgage preapproval process and changes to it.

“When properly done, preapproval can speed up the purchase process by providing a rigorous assessment of the maximum amount a buyer can afford to borrow, based on a formal credit check and verification of income and assets. “

“But prevetting has become more difficult and confusing these days, for borrowers as well as lenders, as a result of lending rules that took effect in January.”

“The rules from the Department of Housing and Urban Development require lenders to issue a binding good-faith estimate of total closing costs within three days of submission of a formal loan application. The formal application is usually made when a preapproval is written.”

So, what’s the rub?

“Many lenders are reluctant to be locked into closing costs amid declining property values, and therefore fewer of them, especially the big banks, are providing preapproval letters for a certain loan amount on a property that often has yet to be formally appraised. The problem is particularly acute for buyers who have not yet decided which property they want.”

When a problem arises, banks begin to move very, very cautiously.

“By not issuing preapprovals — and all the banks are not doing it — the banks are erring on the side of caution because there’s less risk for them,” said Lou-Ann Smith, a co-owner of Hamilton Ladd Home Loans, a broker in Ridgefield, Conn.”

Many sellers and real estate agents, meanwhile, still expect mortgage preapprovals. And,

“Agents embrace preapprovals because they allow them “to show they have a real buyer who’s already started the process,” Mr. Mollica said. And at the peak of the housing market, lenders were more than happy to provide preapproval letters.”

Another stumbling block to the revitalization of the housing market? Maybe. Read the full report.

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