What Exactly is a Formal Loan Approval?

LoveInTheHouseSeptember 9, 2011

Can someone tell me what exactly is a formal loan approval? Is it the same as a mortgage commitment?

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brickeyee

Ask the lender.

Even loan commitments often have enough weasel words the bank can back out.

    Bookmark   September 10, 2011 at 8:57AM
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ncrealestateguy

Never heard of one...

Pre approval
Pre qualified
Loan Application acceptance
Loan commitment letter

Even with a loan commitment letter, the underwriter can find things at the last minute that can snag a deal.

    Bookmark   September 10, 2011 at 4:57PM
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liriodendron

Dare we hope that your query is due to having another prospective buyer well-set on the hook? Keeping my fingers crossed for you. Good Luck!

L

    Bookmark   September 10, 2011 at 6:34PM
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LoveInTheHouse

Liriodendron, yes! I'm in contract. This is the buyer who was initially rejected by the bank due to his commute. The bank made him get a job transfer. That's done. I spoke to the buyer's loan officer and asked her to inform the underwriters immediately about what kind of place this is and what our zoning is, etc., before we go any further. She reported back that the underwriters approve of the property. The next step is the appraisal. I'm just so paranoid about going through this whole process again and then the deal falls apart. I know it can fall apart right at closing because that's already happened to me. But when can I start making plans to move? I guess a formal loan approval would be a loan commitment letter?

    Bookmark   September 10, 2011 at 11:17PM
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ncrealestateguy

LITH,
Congrats!
Ask the lender for a loan commitment letter as soon as they can give you one. This means the underwriter has approved the loan to move forward. This is when I would say the odds are in your favor of having the deal go to close. More than likely, the lender will ask for poroof of the transfer, so make sure the buyer is on the up and up about his transfer. Ask if his approval is based upon having to sell his existing home, if he has one.
Nice going, it was just a matter of time, since you were priced competitively.

    Bookmark   September 11, 2011 at 8:06AM
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LoveInTheHouse

NC, it's because of your help that I knew enough to make sure the loan officer got the okay from the actual underwriters. Thank you. Can I ask you something else? I'm a little concerned about the appraiser finding good comps. The loan officer asked if there were comparable properties in the area and I assured her there were, but there's really nothing in this actual "neighborhood." I'm in a rural place. When we were pricing this place, we had to go pretty far for exact comps, or really tweak them up and down to come to our price. There were houses that were nicer with no barns, there were large parcels of land with no houses, there were houses with barns but smaller acreage, etc. Nothing exactly like mine. That's what I'm worried about now. I'm worried they won't find anything close enough. Is this going to be trouble?

    Bookmark   September 11, 2011 at 10:32PM
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ncrealestateguy

Every appraisal has to use adjustments of some varying amount. Once the appraiser has to adjust above a certain amount though, the bank starts to get squeamish. I do not know what amount of adjustment this is... hopefully someone else who knows can chime in here.
Make sure you are home when the appraiser comes out, and tactfully let him know what the sales price is, and give him a copy of your last appraisal. Present it to him in a helpful manner, not in a know - it - all manner.
When your home finally closes, are you still going to enlighten us with your company?

    Bookmark   September 12, 2011 at 4:16PM
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LoveInTheHouse

Aw, that's sweet NC. I guess I'll have to come back now! Anyway, at the rate we move, I'm sure I'll be needing your help again! Well, maybe not. This sale has taken all the fun out of it and I think I'm cured, lol.

    Bookmark   September 12, 2011 at 10:19PM
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pamghatten

The appraiser should be supplied with a copy of the contract so they will already know the sale price.

nc - you keep telling her to get things from the borrowers lender? The seller of a property is not able to see those personal documents of the buyer unless the buyer has specifically given written instruction allowing that to happen. There are privacy laws to think of.

    Bookmark   September 13, 2011 at 12:27PM
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ncrealestateguy

Pam... I advised her to give her last buyer's appraisal to the new appraiser. In an earlier post, she had said that she had posesion of it. She probably just asked for a copy from the previous buyer.

    Bookmark   September 13, 2011 at 5:26PM
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LoveInTheHouse

Yes, that's right NC.

    Bookmark   September 13, 2011 at 9:23PM
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pamghatten

"Ask the lender for a loan commitment letter as soon as they can give you one."

This would be the borrowers commitment letter, which they can chose to share or not.

    Bookmark   September 14, 2011 at 5:13PM
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badgergrrl

If you (as the buyer) are not sharing your loan commitment letter, how are you able to prove that you are meeting your financing contigency to the satisfaction of the contract?

What, exactly, would be in this letter that would not have already been in other documents?

(I'm honestly curious, not trying to appear argumentative.)

    Bookmark   September 14, 2011 at 6:53PM
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ncrealestateguy

pam... our contracts state that the loan committment letter has to be presented if asked by the seller NLT an agreed upon date. If buyer can not produce one, seller can cancel contract or agree to an extension.

    Bookmark   September 14, 2011 at 7:34PM
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brickeyee

"how are you able to prove that you are meeting your financing contigency to the satisfaction of the contract? "

By waiving the contingency.

That puts the earnest money on the line.

    Bookmark   September 14, 2011 at 11:15PM
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