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Consumer Watch: Preapproval for home loan does not guarantee final OK

May. 24, 2012 - 02:15PM   |   Last Updated: May. 24, 2012 - 02:15PM  |  
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James Powe hoped to move his family into their dream home by Christmas. Everything he had heard from his lender assured him they were on track with his VA-backed loan.

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James Powe hoped to move his family into their dream home by Christmas. Everything he had heard from his lender assured him they were on track with his VA-backed loan.

But the deal fell through, and a series of miscommunications has put the former Army specialist — rated 100 percent disabled by the Veterans Affairs Department because of torn ligaments in his leg — in limbo since February.

"Nobody could ever tell me why they didn't give me the loan," said Powe, who lives in Sachse, Texas.

He has filed a complaint against the lender, Veterans United, with the Texas Workforce Commission.

Veterans United officials said that although Powe was pre-approved for the loan, he never received final approval.

It's easy to understand Powe's frustration: His loan officer sent him an email Jan. 20 stating, "The loan has been approved." But in that same email, the loan officer said the company was still trying to tie up loose ends, and an approval letter was never sent.

It was a hard lesson in what can happen between preapproval and final approval. Late in the process, Veterans United found that part of the income Powe initially disclosed was Social Security income for his children.

"Since he was not the beneficiary, the underwriter couldn't use it as income for his approval," said Gardell Powell, Veterans United's chief production officer.

Powe was seeking a $282,000 loan. He would have qualified for a $260,000 mortgage without counting his children's Social Security income.

From the time Powe made an offer on the house in October, three months passed before the deal fell through. While there is no empirical study on the average loan close time, it's getting longer, said Mike Lyon, vice president of operations at Quicken Loans.

That's because low interest rates have led to more loans, and more properties for sale. But it's also because of the number of conditions that are put on loans.

"Qualifications to get a loan are very strict. It's the most strict I've seen since I've been in the business," Lyon said.

Lenders have tightened their standards, unlike a few years ago when some ignored certain criteria and some consumers wound up with loans they couldn't afford.

Powe was smart to get preapproved before he started shopping for a house, in order to have a firm idea of how much house he could afford. But that's all preapproval can tell you.

"The lender tells you, without making a firm commitment, that you're preapproved for a certain amount," said Barry Zigas, director of housing policy for the Consumer Federation of America. "But when you [apply], issues could come up."

Until you have final approval in hand, the deal can be affected by last-minute discoveries — as in Powe's case — and even by your own financial decisions.

Consumers should be careful, for example, not to take on any big debt obligations while seeking a home loan. "Don't move money around, and don't make unnecessary expenditures," Powell said. Those things could jeopardize the loan.

Get it in writing

In another miscommunication, Powe thought he had lost the $2,800 he had spent on deposits and expenses, such as an appraisal and home inspection. An oral agreement with the Texas Workforce Commission left him with the impression that the money could not be refunded, only put toward a loan on another house.

But Brock Cooper, general counsel for Veterans United, said the company offered, through the Texas Workforce Commission's investigator, to give Powe the full $2,800, with no conditions to buy another house through the company. In fact, Veterans United didn't know Powe believed there was an extra condition to receiving the money until informed of that by Military Times.

Powe asked for the agreement in writing — always a smart move — May 11, and the written offer makes it clear that the $2,800 is not contingent on him buying another house.

Powe has not decided whether he will accept it, however. He has a complaint of racial discrimination still pending with the Texas Workforce Commission and has asked for $300,000 in damages.

He contends the company lied to him to make him think he would get the loan; Veterans United officials said they explained the situation to him and tried to find alternatives to get him the loan.

Texas Workforce Commission spokeswoman Lisa Givens said she cannot comment on Powe's case because of confidentiality requirements. But, she said, it is not yet closed.

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