The power of the preapproval

by Kimberly Greene01 Oct 2018

Getting a preapproval letter is the first official step in the mortgage loan process.

For some originators, a preapproval is just a formality and is sometimes treated like a prequalification, which doesn’t always include a complete look at the borrower’s financial and credit history. The results of a prequalification are often just an approximation, but borrowers—as well as some lenders and originators—use the term interchangeably.

Rather than doing the bare minimum when it comes to preapproving a borrower, some of the most successful originators spend a good chunk of their time doing preapprovals in order to save themselves the hustle and the headaches down the line.

“I almost do an underwrite of the file before I issue a preapproval. Most loan officers, I think prequal more than preapprove, or the term is used very loosely, where they say they’re preapproved and they really haven’t delved deep into the file,” said Risha Kilaru, vice president of mortgage lending at Guaranteed Rate in California.

“No preapproval is issued without me looking at that file and making sure every guideline is met. Whether it’s calling four banks and running it by every one of them. I think that’s our biggest strength. We focus heavily on the approval up front so that when an offer is written or accepted, we’re not scrambling to say that there’s a problem . . .  We check every part of the deal, and then say here it is,” she said.

Oleg Tkach, branch manager and senior loan officer at the Tkach Lending Group at Guild Mortgage, said that one of the most important parts of his process is the role of the preapproval manger. He has three preapproval specialists on his 13-person team, and their job is to do preapprovals, all day, every day, day in, and day out.

“I feel like the biggest, most important part in a loan is, if you get the preapprovals done right in the beginning, you’re going to have way less problems as you go. By having a preapproval specialist, one, you get speed, two, you get accuracy, and then three, you have capacity, and by having speed, accuracy, and capacity in a preapproval standpoint, which most loan officers, they don’t, or they’re doing it on their own,” Tkach said.

The benefit of a true preapproval is twofold. First, it can give borrowers and realtor partners more confidence, peace of mind, and the ability to move quickly when searching for property. Borrowers know exactly how much they can afford and are qualified to spend on a property, and realtor referral partners know that they’re not wasting their time showing clients properties that they can’t afford or that their clients can’t get based on their credit history.

The second benefit of doing a thorough preapproval is that the stakes are much lower early in the process. As a file moves deeper and deeper into the process, any delays could put the loan and the property in jeopardy and cause a lot of angst for everyone involved.

For an originator, waiting to fully delve into a client’s history also tends to be a poor use of time. Instead of proactively managing the file and ironing out anything that could prove to be problematic, waiting to see what comes up puts everyone on the back foot. It can be a predicament for loan officers who are doing everything themselves.

“When you have a client that calls in and, who knows if they’re going to get under contract, [originators] spend the least amount of time on the preapproval and then they’re fighting fires the whole time because they’ve missed all these little things that they should’ve caught upfront and could’ve prepositioned the client about upfront,” Tkach said.

Spending more time on the preapproval is also more efficient when it comes to placing the loan and selecting the lender.  

“We do spend most of our time upfront, on reviewing, and then it just goes like clockwork because it’s been set in place. The investor is identified, the rates have been discussed, the guidelines, all of them, have been checked, and then that approval goes out,” Kilaru said. “A lot of people will get into contract and then start looking and say, where am I going to place the deal?” Kilaru said.

On the flip side, Kilaru said that a lot of her business comes from snafus by other originators.

“A lot of my business also comes from loans that have been declined that were preapproved or first written without contingencies only to find out that there’s a problem and somebody didn’t do all their checks and balances and I have to step in and save the deal,” Kilaru said.

Don’t be one of those other originators! Do a stellar preapproval and sail through the rest of the loan process smoothly.