Setting up a pre-approved mortgage loan can be convenient when you are looking for your new home.
It is nice to have your financing locked down so you know you will be able to borrow money once you find the right property.
While a pre-approved mortgage is a nice idea, you probably should not get your hopes up for getting one.
Pre-approved mortgages seem to be disappearing.
Banks are clearly offering fewer pre-approved mortgages now compared to in the past.
In 2012, pre-approvals made up only 4 percent of the total mortgage loans made by the 25 biggest lenders in the U.S. In comparison, pre-approvals made up 9 percent of total loans in 2007.
Many of the large banks in the U.S. did not even offer a single pre-approved mortgage loan last year, as lenders seem to be moving away from this product for a couple reasons.
“Setting up pre-approved mortgages
costs banks time and money.”
There are too many missed deals.
This investment is worth it if it leads to a customer setting up a mortgage loan.
The housing crash disrupted this pattern, though. Home prices kept changing so often that many potential buyers would get cold feet during the buying process.
They would set up a pre-approved mortgage only to decide in the end not to buy a new house. Banks eventually got tired of wasting these resources and stopped offering this product.
Banks don’t need pre-approvals.
Banks used to use pre-approvals to get more business. Consumers had so many options for their financing that banks needed to do everything they could to attract new clients, like be willing to set up a pre-approved loan.
After the financial crisis, credit got a lot rarer. Many banks went out of business and customers now have fewer options for their mortgage loans.
As a result, the remaining banks do not have to fight as hard to draw in new clients, so they no longer need to offer costly promotions like pre-approved loans.
If you were counting on getting a pre-approved mortgage, you may need to reconsider your plan.
These loans are disappearing from the marketplace and unless the situation changes dramatically, it is unlikely pre-approved loans will be popular anytime soon.
Photo source: yellowbrickroad.com.