Gustan Cho The Mortgage Expert,
Publish On: January 11, 2024
This guide covers how solid is your pre-approval for a home purchase mortgage. A mortgage pre-approval letter means that a loan applicant has submitted an initial mortgage loan application, called 1003, and the loan originator has run credit and fully qualified borrowers: The pre-approval letter is issued after the loan originator has reviewed the following:
- mortgage application
- borrower’s credit report
- reviewed credit scores
- qualified income, debts, and assets of the borrower
- has checked whether or not the mortgage loan applicant has had a prior bankruptcy or foreclosure and has met the necessary waiting period
Once loan originator feels confident borrower has met all necessary mandatory lending requirements and guidelines as well as the lender’s own overlays, the loan originator will issue a pre-approval letter. In the following paragraphs, we will cover how solid is your pre-approval.
Are All Mortgage Lenders The Same
Pre-approved borrowers can go shopping for a home and enter into a real estate purchase contract. However, are all mortgage loan pre-approvals the same? How solid is your pre-approval? More solid pre-approvals are “pre-approvals,” where the lender verifies your income, employment, credit history, and other financial details. A pre-approval with verification is more reliable.
Why is it that there are so many cases where mortgage pre-approval letters get issued and there are last-minute mortgage loan denials?
How long does it take for a loan officer to issue a solid pre-approval letter? How do mortgage loan originators issue pre-approval letters? Can pre-approval letters be issued in minutes like many mortgage companies advertise? Why would one mortgage lender issue me a mortgage pre-approval letter and another mortgage lender will not?
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How Solid Is Your Pre-Approval: The Pre-Approval is The Most Important Stage of Mortgage Process
Some loan originators issue pre-approval letters like they are signing autographs. Many issue them within minutes without actually qualifying the applicant. This practice is a disaster waiting to happen.
The pre-approval letter and the pre-approval stage is the most important stage in the home buying and mortgage process. The borrower should be fully qualified before being issued a pre-approval.
Borrowers applying for a mortgage and if the loan originator issues a pre-approval letter in 30 minutes or less without interviewing thoroughly and asking for initial documents the chances are they were not properly qualified. The pre-approval letter should be issued after the file has been processed and should be issued by a mortgage underwriter.
The Importance of How Solid Is Your Pre-Approval
A pre-approval for a home purchase mortgage is a preliminary determination by a lender that you are qualified for a specific loan amount based on your financial information provided at the time of application. The solidity of your pre-approval can vary depending on several factors. Only pre-qualifications should be issued after the loan originator is 100% confident the loan will get full approval after reviewing the following:
- reviewed mortgage loan application
- bank statements
- tax returns
- credit scores
- credit report
- gotten a written verification of employment
- fully calculated income including tax returns for the past 2 years
- reviewed W-2s for two years
- reviewed most recent paycheck stubs
Borrowers can shop with a pre-qualification letter but should not enter into a real estate purchase contract without a TBD PROPERTY UNDERWRITE PRE-APPROVAL. The strength of how solid is your pre-approval depends on the accuracy and completeness of the financial information you provide to the lender. The pre-approval will likely be solid if you provide accurate and thorough documentation. Some pre-approvals are “pre-qualifications” based solely on the information you provide without any verification by the lender.
How Solid is Your Pre-Approval Depends on Changes in Financial Situation
If your financial situation changes between the time of your pre-approval and the actual mortgage application, it can impact the solidity of your pre-approval. For example, if you lose your job or your credit score drops, your pre-approval may no longer be valid. Pre-approvals are typically based on current interest rates. If interest rates rise significantly between your pre-approval and your actual mortgage application, it could affect your loan terms and the amount you can borrow.
The pre-approval does not consider the specific property you intend to purchase. The lender will appraise the property. It could impact your mortgage approval if it appraises for less than the agreed-upon purchase price.
The pre-approval is not a guarantee of final loan approval. The lender will conduct a more detailed underwriting process when you submit a formal mortgage application, which could uncover additional information that affects your loan eligibility. To determine how solid is your pre-approval, you should provide accurate and complete financial information, choose a lender that verifies thoroughly, and be aware of any changes in your financial situation or the real estate market.
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How To Know How Solid Is Your Pre-Approval
Borrowers will know how solid is the pre-approval if the mortgage loan originator who will ask these types of questions: Are you a 1099 wage earner, self-employed, or W-2 wage earner? If self-employed, loan originator should ask for two years tax returns. If W-2 wage earner, the loan originator should ask for two years tax returns, two years W-2s, and most recent paycheck stubs.
Lock in your interest rate if your lender offers that option to protect against rate increases during home-buying. Always consult with your lender to understand the terms and conditions of how solid is your pre-approval.
Learn the basic steps of the mortgage process and be aware of the steps you need to take to secure your mortgage.Do you have sufficient funds for the down payment or closing costs? If not, do you have a family member and/or relative that can give gift funds? HUD allows 100% of the down payment to be gifted. Conventional loans do allow part of the down payment to be gifted. Have you filed bankruptcy or had a foreclosure or short sale?
Waiting Period Guidelines After Bankruptcy and Foreclosure
There is a two year waiting period after bankruptcy discharged date per HUD 4000.1 FHA Handbook Guidelines: There is a 4-year waiting period to qualify for a conventional loan. There is a three year waiting period after a short sale to qualify for an FHA Loan. Four-year waiting period to qualify for a conventional loan. The waiting period starts from the date of the short sale which is reflected in the HUD Settlement Statement.
Waiting Period After Bankruptcy and Housing Event
Waiting period after foreclosure and deed-in-lieu of foreclosure: This is where mortgage denials can happen if the loan officer does not resolve this issue at the pre-approval stage. The waiting period after foreclosure or deed in lieu of foreclosure does not start until the deed of the property has been transferred out of the homeowners’ name into the name of the lender or the new home buyer. Just because the foreclosure is reported at a certain date on the borrower’s credit report does not matter.
Mortgage guidelines will go off the actual date of the sheriff’s sale or the actual date the deed of the property has been transferred out of the homeowners’ name
I get many borrowers who are going through the mortgage approval process and get a last-minute loan denial. This is because the loan officer did not due his or her due diligence on the recorded date of the foreclosure or deed-in-lieu of foreclosure. The homebuyer has not met the mandatory waiting period. There are more documents that will be required. However, those documents can come later after the pre-approval letter has been issued. After important items have not been reviewed thoroughly by the loan originator, then borrowers will get issued a solid pre-approval letter. This guide on how solid is your pre-approval was updated on January 11th, 2024.
