Are Pre-Approvals On Their Way Out?

An intriguing article was recently published online posing the above question.

If you understand how a mortgage pre-approval works, its probably a safe assumption that you understand that the benefit is very much in the favor of the mortgage client rather then the mortgage Lender. After all, in order for a Lender to provide an authentic pre-approval, they have to run through the same administrative process they would for a new mortgage client with a firm commitment. However, with a pre-approval the client always has the option of opting out and walking away from the deal considering there is no penalty or loss to do so.

Recently, one large bank has officially removed themself from the pre-approval market based on the internal costs incurred as a result of providing this service. In reality, less then one third of pre-approvals actually close and in the case of the major lender mentioned above, it is rumored that they had been losing $20 million in business each year before they decided to pull that service from their product shelf.

Your Take-Away: To me it seems clear that a pre-approval is really an attempt by the Lenders of the world to get their feet in the door with potential mortgage clients by offering a service that actually may or may not prove to be of any value to them from a business perspective. If that is in fact true, that implies that you as a potential client hold all the cards.

Many people feel as though they are locked in when they put a pre-approval in place or that it can somehow prove to be detrimental to their search for a mortgage. There are no penalties, nothing locking you in to any one lender, and no drawbacks to getting pre-approved. After all, if there were then the Lenders would be making money, not losing it.

My suggestion, if you are even thinking about moving or refinancing, put a pre-approval in place as soon as possible and lock in the best rate possible for the next 120 days.

Until next time, have a Terrific Tuesday.

Chris