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

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

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

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 gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.