Buyer's Financial Disclosure Statement

Dear Pat,
We recently wrote an offer to buy a house, and our agent presented the offer along with a letter from our mortgage banker saying that we were pre-approved to buy a house at that asking price. But the listing agent said that the sellers would not consider our offer unless we also supplied a "buyer's financial statement." We've bought before, and we never heard of anything so unnecessary and invasive of our privacy. Our agent was as surprised as we were! We were in competition anyway, so we withdrew our offer. Since when is a pre-approval letter from the lender not good enough?
--Still Miffed

Dear Miffed,

Sounds as if you are among the first to run afoul of the latest form fluttering down to us from the Minnesota Association of Realtors. As it's likely to be used in transactions, the Buyer's Financial Disclosure Statement won't be so much invasive as it will be annoying, particularly for mortgage brokers. Your lender is required to fill out the form, answering questions designed to determine just exactly where you are in the loan process. Verification of funds, source of funds, credit worthiness (no specific scores) are a few of the dozen or so highly specific bits of information to be disclosed. It's obvious the form was designed to take the place of the often vaguely worded pre-approval letter, in an effort to provide sellers with more detailed information about the buyer's strength.

And why would sellers (and their agents) want more detailed information? For a dozen years the good old pre-approval letter has been a nearly infallible indicator of the buyer's ability to complete the transaction. Yet recent developments in the mortgage business are unsettling: in these days of internet lending it's hard to judge the validity or competence of the pre-approval. It's a largely unregulated industry, and anybody with a decent web site can jump in. Add to this the increasing number of real estate agents who broker loans themselves, and you have a lot of inexperienced lenders putting their blessing on transactions that may turn out to be fraught with problems. And some are.

So is this a good form, then? Well, yes--insofar as it shines a light on a murky industry, it helps protect both buyers and sellers--and no, in that it makes us all work harder, and it further slows an already cumbersome process. After all, when  listing agents knew virtually every mortgage company and worked with the same well-trained loan officers time and again, it was easy to rely on a simple pre-approval letter. It's important to point out that the form is not (yet) state-mandated, so many of us will simply continue to rely on our experience and instincts instead.

Here's how it affects you, Miffed: if you want to be the best, most-qualified buyer that a seller sees the next time you compete in multiple offers, then get your mortgage banker to bring your pre-approval as far along as possible without having an actual house to appraise. Bug her to give you the most completely filled-out Disclosure Statement before you shop for houses. If your lender is unknown to the listing agent, the Disclosure Statement will go a long way toward establishing your credibility. If you're competing with another buyer who can only provide a pre-approval letter, you'll have an edge. And that edge might get you roasting chestnuts by your new fire this holiday season. Good luck!