Below is an image of an actual "Loan Pak" received earlier this month. The package is always designed to appear very official with insignias and signatures (blue arrows) and usually mentions that this is a "pre-approval" valid only until date X and that you are pre-approved for an amount up to $Y (the red arrows).
Inside you'll find a couple pages filled with more official-looking language, tempting rates, and an offer that seems too good to refuse -- complete with accompanying stock photos of unknown smiling families and fawning testimonials.
There's a catch: you haven't been pre-approved for anything. The rate and loan amounts shown are irrelevant -- they're teasers. Your credit information was sold by one or more of the big three credit reporting agencies (TransUnion, Experian and Equifax) without your permission -- by law, initially they do not need your permission. The company that purchased the information mailed thousands of mock "pre-approvals" to home shoppers and owners hoping a profitable percentage of the recipients will contact them. The document you have received is, at best, a "pre-qualification", but even that is a stretch. Unlike pre-approvals, pre-qualifications are not based on documented, verified evidence and have virtually no value in the real world.
Until a lender pulls your credit, reviews your credit history, receives and reviews all of your supporting income and asset documentation, and understands precisely what type of property you wish to purchase/refinance and where it is (or will be) located, there can be no pre-approval. Only after a thorough review of your circumstances can a loan officer tell you precisely how much you would qualify to borrow as well as the programs and products available to you and at which rates and points specific to your creditworthiness and risk. The lender may provide you with a pre-approval if there are no outstanding issues that would prohibit them from offering one.
What do we do when we receive prescreened offers at home? We throw them out. Frankly, we prefer to deal with local professionals in support of local communities rather than some virtually unknown lender with an office in another State or halfway across the country. These days we receive very few such offers because I've "opted out" but my wife hasn't yet.
Should you choose to inquire about a pre-screened offer please proceed with caution. Keep in mind that the company must collect and review some very personal documents and you don't know anything at all about the individual or company assisting you on the other end of the line -- including his or her experience, expertise or track record. [NOTE: There are methods available to you to research the lender and loan officer, however I'll leave that topic for another time.] The rates, terms and loan amounts quoted over the phone will very likely not match the information that appeared in the junk mail offer -- always read the fine print.
If you're not already aware of it, you have the power to opt out of receiving pre-screened offers. In other words you have the power to tell the three credit reporting agencies that they do not have your permission to sell your information to third parties. With a single phone call or online form you can opt out for five years. By printing out and mailing a signed copy of the online form you can opt out permanently. Think of this as a supplement to the Do Not Call list.
www.optoutprescreen.com
Toll-free 1-888-5-OPT-OUT (1-888-567-8688)
And if you're serious about obtaining an actual pre-approval, we encourage you to work with a local loan officer. The company headquarters need not be local, but the loan officer should be. Financing a home is one of the largest, most complex and expensive transactions you will conduct in your lifetime -- is this really something you'd rather do over the phone with someone you've never met not vetted? Why not meet face to face even if only to initiate the conversation? The choice is yours.
I hope you found this helpful and I wish you all the very best.
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