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
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:
- 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
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
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
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 800-900-8569 or email us at email@example.com. We are available 7 days a week, evenings, weekends, and holidays.
March 5, 2020 - 5 min read