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r/Mortgages•
Face21

Preapproval without verification

I am a first-time home buyer and initially picked a local lender that my realtor recommended. I handed over my initial info (income, debt, let them pull my credit, etc.) and received an "itemize fee worksheet." The loan officer says the next step to get preapproval is to send over my W-2s, bank statements, basically all the paperwork necessary to verify my info.

I'm shopping a bit, so I checked in with another local lender. They gave me the preapproval letter after pulling my credit. The loan officer told me they won't need W-2s, bank statements, etc. until after I've found a house and we move on in the process.

Why is lender #1 asking for all these docs before preapproval vs. lender #2 who went ahead and issued the preapproval letter? Is this a red flag, or do lenders just have different policies?

Posted Feb 15, 2018, 7:23 PM UTC · edited

621
belegit2•

Lender 1 is saving you time by doing all the work upfront.

Lender 2 will do the same work when you submit the mortgage application.

8
Face21OP•

Lender 2 gave me a better deal for now. But I'd like to see what the numbers look like once I've actually found a house, which may be several months from now. Is it bad form to have Lender 1 sort through all that info when I may ultimately end up using the other lender?

1
aardy•

Lender 2 is either an internet lender with zero local credibility, or a local with a trashed reputation in the eyes of listing agents. For the obvious reason that they are writing preapproval letters that are worth toilet paper. We know the preapproval has zero credibility, who knows about the rates they quoted.

Lender 1 is the best odds of your offer getting accepted on a home you want.

If the offer isn't accepted, everything is academic / irrelevant.

5
guinea11•

We do the same thing. Ask for w-2, bank statements and such. To get pre-approved you only need credit pulled, but we do a Verified Pre-Approval where we verify income, assets and Credit. I will help when putting down an offer because it is stronger as it is verified true and accurate.

1
[deleted]•

[deleted]

1
TurdRocket8•

I’m biased as a local lender, but how long does it take to get basic preapproval documentation? Most people it’s going to be 2 W2s, 2 paystubs, 2 bank statements and a drivers license. And you can upload through a secure portal. Like 15 minutes from the comfort of your home to know you’re not going to have major issues.

Also anyone calling what lender 2 is doing a preapproval don’t know what a preapproval is, it’s a prequalification.

1
Face21OP•

Part of the reason I was confused is that the letters from both lenders said “preapproval.”

2
helper543•

Pre-approval does not mean much. As you see, many lenders offer these letters with no supporting documentation. I have gotten pre-approval letters from major banks without even running my credit.

This is why you have a financing contingency. Most mortgages that the underwriter rejects were pre-approved.

If you have concerns about qualifying, some banks will pre-underwrite you. This is a more involved process similar to the underwriting process when you get officially approved to finance the home. I did this years ago with Wells Fargo, as I had non standard income at the time.

2
aardy•

Terms like "preapproval," "prequal," and adjectives thereof (like adding the words "Fully" and "Verified" to it), are not federally or state regulated. Convention/tradition is it, and most FTHB do not know the conventions/traditions. That's why a good buyer's agent who doesn't know the lender will ask you what paperwork you had to provide to get this letter.

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MrsInspector•

It's a matter of terminology.

Lender 1 is giving you a pre-approval. They are you giving you the best deal they can based on your specific situation. What they tell you can be relied on more (imo) because they have verified your info up front and probably won't change.

Lender 2 gave you a pre-qualification. They are saying that you might be approved for those terms based on the info they have (which is basically nothing). Their terms could change drastically once they verify your info with your documents.

I personally don't do pre-qualifications if I can help it. Keep in mind that there are a lot of rules about applications and what we can do during the application process so it might just be Lender 2's policy to not ask for documents until after you have a property in order to avoid any issues there.

Just use the lender that you feel the most comfortable with. They need to able to explain everything to you.

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Face21OP•

Is this the case even though my letter from lender #2 explicitly says "this is a pre-approval"?

1
MrsInspector•

Yes. They can still use that terminology. Some places use the terms interchangeably. I assume the letter has contingencies under which the approval can be rescinded if your financial situation isn't what they thought it was going to be.

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Face21OP•

Yup, the letter has a contingencies clause. Thank you for the info.

1
daveasmc•

Lenders definitely have different policies. Sounds like lender number 1 is more thorough upfront.

2
okaybecause•

This is an industry standard. This is more common during times of high volume, especially at larger institutions. Most loan officers on that scale have anywhere between 60-100 other files with multiple people on them and multiple third parties to deal with for each of them. So in order to process all of that efficiently, it is streamlined. Lenders confirm your information verbally, assuming your documents will match once you send them in. Once you have the letter, you can go make offers and go under contract on a home. It is always more conservative to verify all paperwork up front and it most definitely is the way that I believe things should be done. However, this can delay your home buying process unnecessarily because there can be a ceaseless back and forth of tracking down documents to come to the same conclusion, but someone else put in an accepted offer for the home you were eyeing while we wait.

Both are acceptable practices and like others have said, it will boil down to who is offering you a better set of terms and who you feel most comfortable with.

1
Face21OP•

Thank you. This explanation was helpful.

1
[deleted]•

[deleted]

0
Yater79•

I’d be cautious of lender2, no Doc pre approvals are a thing of the past.

-2
Face21OP•

What's weird is that I would have said lender 2 is the more reputable of the two. Highly recommended by friends, my city's subreddit, and online reviews.

3
MortgageGuy86•

I work at a very reputable lender in my area. Heck when I"m at a party if you ask 10 people where they got their mortgage 7 will say my company in the area I"m at. That being said there are loan officers in my office that suck. It isn't always the lender itself. There are good and bad loan officers everywhere. Or a lot of the high producers are good sales guys and have a good team on the back ground but they don't to shit up front merely because they are too busy so when they talk to someone that it sounds like is an easily approved loan they don't request anything and spend the time verifying. Really bad practice in my opinion.

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Yater79•

Right but regardless of the reputation, he gave you a no Doc pre approval. Screams unprofessional and you know it because you posted this.

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Face21OP•

I was actually more concerned that lender 1 was jumping the gun asking me to turn over so much information. But now I see the upside in taking care of all that work ahead of time in that there is less risk (for me) that the financing won't go through later. Still, some responses have indicated that a no doc pre approval is a no-go, whereas others have said lenders just do it differently. I sense there are strong opinions on this.

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aardy•

Still, some responses have indicated that a no doc pre approval is a no-go, whereas others have said lenders just do it differently. I sense there are strong opinions on this.

Yup, there are.

The two schools are basically:

  • It's a waste of our and the borrowers time to get all this paperwork upfront. They should go spend months house-hunting, and figure out if they can actually get the mortgage or not after the fact.

versus

  • It's a waste of the borrowers time to spend months house hunting until we figure out if they can actually get the mortgage. Borrower needs to send in all the paperwork and have their ducks in a row, before house hunting.

Option A is more prevalent in flyover country and rural areas, Option B more common in hot markets and urban areas.

3