‘Pre-underwriting’ aims to curtail bidding wars

Buyers needing financing for their home purchase often struggle to compete with other buyers willing to pay all cash to close the sale.

All-cash buyers, especially investors, are providing intense competition for families and individuals who aim to be owner-occupants. The National Association of Realtors’ latest existing-home sales report shows that in February all-cash sales accounted for 35 percent of transactions.

Some lenders are helping buyers better compete. Known as “pre-underwriting,” they’re putting loan applications through a more thorough venting process before the buyer even enters into a contract for a home.

Unlike preapprovals for a specified loan amount, these lenders take the approval a step further by thoroughly reviewing all documentation that would be required for a formal approval.

One loan representative told the New York Times that he is verifying the same income and asset information upfront that he would typically do for a processed loan application. The aim is to put the borrower in the same position as a cash buyer.