The 3 Failures of the Pre-Approval Process

The pre-approval process is a critical component of the homebuying experience. But the current process is failing homebuyers. Here's how.

1. One Lender, One Pre-Approval Letter
   1. A pre-approval letter from a single mortgage lender means that you’re pre-qualified for financing with that lender alone. Although basic underwriting guidelines are standardized, each lender is different, so by working with a single lender you’re limiting your options. This can affect how much home you can afford, or worse it can be the difference in getting approved for financing or being denied.
2. Excess Documentation + a Hard Credit Inquiry = An Age Old Sales Tactic
   1. A classic sales strategy of Mortgage Loan Originators (MLO) is to require a hard credit inquiry and to collect extensive documentation at the pre-approval stage even though it’s not necessary. Every lender has the ability to do a soft credit inquiry that gives them the exact same information as they receive from a hard credit inquiry, but they choose the hard credit inquiry because they know that too many hard credit inquiries can negatively impact your score. Their goal is to prevent you from working with other lenders. Moreover, the documentation they require at this stage is not share with the underwriter until you lock your loan with that lender. This is another tactic to create an unnecessary dependence on them to secure financing.
3. The Human Gatekeeper
   1. Once you’ve been pre-qualified and you have a pre-approval letter, a lender has determined how much financing you’ll be approved for. So why is it that whenever you need to update your pre-approval letter, do you need to call your MLO to change the numbers in a template and email you an updated PDF? Again, lenders main focus at this stage is to make you feel that your options are limited and scare you into believing that you need their salesperson to buy your home. In reality, this unnecessary friction in the process makes it hard to submit multiple offers or make an offer late at night, which is when many are submitted
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