Realty Times: Can I Relax Now That My Loan Is Pre-Approved?

November 3, 1999

Can I Relax Now That My Loan Is Pre-Approved?
by Dena Kouremetis

When the question, "Is it safe?" is posed, somehow Dustin Hoffman in the movie Marathon Man comes to mind. If you recall, Olivier's ill gotten fortune was indeed not safe after all.

When new homebuyers begin feeling rather smug and complacent after their loan is pre-approved, they somehow think they can go on "autopilot" while their house is being built. The truth is, a solid loan pre-approval with no conditions is a fairly safe bet that everything will sail smoothly, but it certainly is no guarantee.

During the months a new home is being built, varying factors can enter into the "picture" the loan officer painted of the homebuyer and his ability to re-pay a mortgage loan to the lender in question. Most of these factors and responsibilities sit squarely on the shoulders of the homebuyer himself. Safeguards for buyers (borrowers) to observe after the loan pre-approval and before the home's completion may include the following:

Changing jobs: Buyers represent themselves as being employed in a particular line of work at a particular rate of pay, and may offer the lender promises of salary bonuses or future commissions during the escrow process. This may all look great to the lender, with verifications received from the homebuyer's employer of all of the above. The danger here is in making a change after the fact. Many lenders agree that borrowers must have at least two years' stable employment history with their employer, and if they must change jobs, they should stay in the same line of work, have no gaps in employment whatsoever, and leave only for a higher rate of pay. If bonuses and predicted overtime are forfeited (they were not guaranteed) due to a change of this kind in employment history, the lender must be notified that qualifying conditions may have been altered since the original pre-approval was issued.

For that reason, many lenders would advise buyers to fight the urge to make a change in employment until after close of escrow, just to be completely safe.

Credit worthiness: During the "feel good" stage, anticipating the completion of their new home, buyers oftentimes go crazy purchasing high ticket items and racking up major charges on credit cards during the escrow process. Buying furniture, deciding they want a newer car in the driveway, and arranging for thousands of dollars in new appliances have a way of adding up and kicking many homebuyers where they least expect it, suddenly affecting their credit scores and loan ratios. Some buyers even take lousy advice from well-meaning friends and real estate agents and skip or delay mortgage payments, thinking they are already "home-free" during escrow. The rule of thumb here is: make every payment due on mortgages, cars, etc. and try not to take on any more credit during the escrow period, or it may preclude you from qualifying when fresh credit reports are reviewed at the proposed close of escrow.

Communication: Homebuyers, after a pleasant meeting with their loan officer and a subsequent pre-approval is issued, tend to believe that no news is good news. In theory this may be true, but only from the lender's side of the desk. After all, your loan officer does not have the obligation of calling you weekly to see if any material changes have taken place in your employment status, your money reserves or your credit worthiness. He or she will also not check weekly or monthly with you to see if money has since been removed from some of the accounts already verified. It is therefore incumbent upon you, the buyer, to communicate any changes of this sort on a regular basis directly to the loan officer. Communication is definitely the key here, and the responsibility rests primarily with the borrower to maintain his approval status.

The scary thing for homebuilders is the risk they take in banking on the loan pre-approvals, using them as a green light to build and personalize homes based on the premise that nothing basically will change. The hard truth is, some pre-approvals can fall apart due to buyer neglect and mismanagement of their assets and credit-worthiness. In these cases, builders must try to re-market the homes that lose their original buyers to others who may not be willing to pay for items already ordered and installed, and the builder loses money.

Homebuyers may want to think of themselves as posing for a portrait at the time of pre-approval. Nothing should basically change within that portrait until after the escrow closes on their new home. No flinching, changing outfits, or background landscape alterations should take place, with the pre-approval photo "frozen in time." With that posture in mind, they may at last be able to breathe easier and look forward with confidence to moving day.

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