Over the last few weeks, we have had at least a half dozen borrowers come to us for the first time after they were in contract to buy a home – and armed with another lender’s pre-qualification.
And they could not come close to qualifying.
Seeing this in 2026 is like watching someone commute to work on a freeway in a horse-drawn buggy.
It doesn’t make sense not to get a sound pre-approval when technology makes it so easy (but it is also why mistakes happen).
Why Borrowers Don’t Qualify
Here are reasons why borrowers don’t qualify:
1. Reliance on automated underwriting software alone. Fannie and Freddie both have automated underwriting software that works great, but it is only as good as the data that borrowers feed into it – and that data is not always accurate or complete.
Who relies on automated software alone?
A. Inexperienced and/or undertrained loan officers. This is common nowadays because lending is so complex and difficult – with so much to know.
B. Online lenders/call centers. These models focus on low costs and high volume. They don’t spend money on pre-underwritten pre-approvals. Worse – these lenders often brag about their “instant pre-qualifications” (which are just automated underwriting approvals).
C. Understaffed teams. Slow markets have forced many loan officers to let go of assistants who used to do the formal pre-approvals.
Here are examples of things that these pre-qualifications miss: unseasoned bonus income, unseasoned self-employment income, large deposits that can’t be paper-trailed, and/or a lack of sufficient funds to close.
2. Claude is stupid. Many LOs now rely heavily on AI to review documents, and unfortunately, AI still makes a lot of mistakes. Smart humans still need to review everything.
NOTE: I have Claude review my blogs for errors after I type them, and Claude did not like this item😊. Claude said to say this instead: “AI is not an underwriter (yet).” Not bad, but I still prefer “Claude is stupid.”
3. Pre-approved when rates were lower. Rates were 1% lower only a few months ago. Many borrowers who were pre-approved in that environment no longer qualify for the same price range.
Beware of Buyers Without A Pre-Underwritten Pre-Approval
The message to agents is the same one we’ve been repeating since the horse-drawn buggy era:
Don’t accept offers from buyers or work with buyers – UNLESS they have a pre-underwritten pre-approval from a reputable lender with a large number of authentic reviews. (I happen to know one too)
Agents might also make sure the lender constantly updates borrowers on rate changes and changing pre-approval amounts (I happen to know one of those lenders too).
