Importance Of Pre-Approval For Home Buyers And Sellers

This BLOG On The Importance Of Pre-Approval For Home Buyers Was UPDATED On October 24th, 2018

Home Buyers and Home Sellers should realize the Importance Of Pre-Approval For Home Buyers and Home Sellers.

  • The number one reason why home loans get denied during the mortgage process is that the borrower was not properly qualified
  • Loan Officers should realize the Importance Of Pre-Approval For Home Buyers as well as home sellers
  • Home Buyers depend on loan officers that once they are pre-approved, that they can not just close on their loan but be able to close it on time
  • To this day, many loan officers do not realize the Importance Of Pre-Approval For Home Buyers and sellers and not thoroughly qualify a borrower before issuing pre-approval letters

In this article, we will discuss and cover the Importance Of Pre-Approval For Home Buyers And Sellers.

Why Loan Officers Should Know The Importance Of Pre-Approval For Home Buyers & Sellers

What does pre-approval mean for home buyers and sellers

A pre-approval letter is extremely important due to the fact that it is a great predictor that borrower will close on their residential mortgage loan

  • Whereas a pre-qualification is a mortgage loan originator’s prediction that the likelihood of getting mortgage approval is good and promising if everything checks out
  • Most real estate agents require that potential home buyers are armed with a pre-approval letter before they will show a property or let buyers make a written real estate purchase offer

What Is A Pre-Approval And How Do I Get A Pre-Approval Letter From A Mortgage Lender?

Pre-approvals are when lenders review the following when qualifying:

  • Assets
  • Debts
  • Credit report
  • Credit scores
  • Debt to income ratios
  • Qualified And Other income

Importance Of Pre-Approval For Home Buyers And Mortgage Process

After reviewing the basics, the loan officer may require more documents for further review:

  • The mortgage loan officer may require to review the borrower’s tax returns
  • Business tax returns and 1099’s if they are self-employed or own their own business
  • This is to make sure that the income they are declaring after write-offs will qualify them
  • For borrowers with challenged credit scores or credit history or borderline debt to income ratios, the loan originator will most likely run the borrower’s application through AUS
  • Fannie Mae’s Automated Underwriting System is to make sure they get an approve/eligible per DU FINDINGS prior to proceeding with the file 
  • How pre-approvals are issued depends on each individual mortgage company
  • Many loan originators  issue pre-approval letters in a matter of less than an hour which is not highly recommended

Once a home buyer is armed with a pre-approval letter, he or she can go and make an offer to purchase a home.

Pre-Approval Versus Pre-Qualification

What is the difference between pre-approval and pre-qualification

Gustan Cho Associates has a policy that all pre-approvals be fully underwritten and signed off by a mortgage underwriter.

  • All pre-approvals issued by Gustan Cho Associates Mortgage are full credit mortgage loan approvals also known as loan commitments
  • The only condition missing as a pre-approval by Gustan Cho Associates is the property
  • Once the borrowers go and shops for property and gets back to us with an executed purchase contract, the property gets underwritten
  • The appraisal is ordered and title work gets worked on

All final conditions get submitted back to the mortgage underwriter for a clear to close.

What Is The Difference Between Pre-Approvals And Pre-Qualification?

Again, all lenders have their own policy on how they issue pre-qualifications and pre-approvals.

  • The number one reason for a last-minute mortgage loan denial and/or stress during the mortgage process is because a loan officer did not properly qualify the borrower
  • There is no reason for a loan denial or stress during the mortgage process if the borrower was properly qualified

Importance Of Pre-Approval For Home Buyers Versus Pre-Qualification

A pre-qualification is less formal than a pre-approval where the loan officer will just pre-qualify you whether you qualify for a mortgage loan.

The loan officer will ask borrowers the following:

  • Gross monthly income
  • Credit scores
  • Whether the borrower has a  prior bankruptcy and/or foreclosure
  • Monthly debt
  • Assets

Most realtors do not give any weight on pre-qualification letters:

  • Most real estate agents want pre-approval before buyers can view homes and enter into a real estate purchase contract

How Long Does It Take To Get Pre-Approved

What does pre-approval mean and why do I need to obtain pre-approval instead of pre-qualification?

One thing is that not all pre-approval letters are created equally.

  • Some loan officers can whip out a pre-approval letter in a few minutes
  • Gustan Cho Associates goes through a full underwriting process before a mortgage underwriter signs off on a pre-approval

All of our pre-approvals from Gustan Cho Associates are TBD PROPERTY UNDERWRITING. We close on all of our pre-approved borrowers. The time it takes to pre-approve borrowers depends on borrower credit and income profile. It can take a few hours or a few days. It is best to make sure borrowers are properly qualified before getting a pre-approval issued.

Importance Of Pre-Approval And Why Do I Need To Get Pre-Approved Instead Of Pre-Qualified?

A pre-approval will determine how much of a home you can buy and what mortgage amount buyers will qualify for.

  • I will also determine how much down payment will need including closing costs
  • A pre-approval will also tell borrowers how much monthly mortgage payments will be
  • Almost all realtors will not show a home unless buyers have a valid pre-approval letter from a mortgage lender
  • Sellers will not entertain any offers that you might offer
  • A pre-approval will determine what the term and the rate of mortgage will be
  • For those who do not qualify for a pre-approval, the loan officer can help borrowers with credit
  • So they can qualify in the very near future

Qualifying For Mortgage With Direct Lender With No Overlays

Over 75% of our borrowers at Gustan Cho Associates are folks who either gotten a last-minute mortgage denial or could not qualify with their current lender.

  • This is again no fault of the borrower but because they were not properly qualified by their loan officer
  • A pre-approval letter should not have been issued by the loan officer PERIOD
  • Mortgage Underwriters should fully underwrite a borrower’s file before a pre-approval gets issued
  • A loan officer should not issue a pre-approval
  • All of our pre-approvals at Gustan Cho Associates is fully underwritten and issued and signed by our mortgage underwriters
  • Minimum credit scores for a 3.5% down payment FHA Loan is 580 
  • Outstanding collections and charge offs do not have to be paid to qualify with FHA Loans
  • Prior bad credit is acceptable as long as the borrower has been timely on his or her monthly credit obligations for the 12 months

Borrowers who need to qualify for a home loan with a national mortgage company with no lender overlays on government and conventional loans can contact us at Gustan Cho Associates at 262-716-8151 or email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.

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