This BLOG On Importance Of Pre-Approval Versus Pre-Qualification When Buying Home Was PUBLISHED On September 14th, 2019
For most Americans, a home purchase is hands down the largest, biggest, and most important investment in their life.
- By far, a home is a person’s highest priced ticket item they will purchase
- For most hard working Americans, they would need a home mortgage when buying a home
- Average home prices in the United States is $238,432
- California is over double that and average California home prices is $568,900
- The home buying process can be both very exciting but yet stressful
- To add to stress, the mortgage process is often difficult and can get confusing
- There are many documents that lenders will require
- Home buyers will definitely dig up tax returns and other documents
- On this blog, we will cover on how to prepare for the mortgage process and ways of avoiding stress during mortgage process
In this article, we will cover the importance of a mortgage pre-approval and how to avoid stress during the mortgage process.
How To Avoid Stress During The Mortgage Process
The mortgage process does not have to be stressful:
- The number one reason for stress during mortgage process or last minute mortgage denial is due to the fact that loan officers did not properly qualify borrowers
- Under no circumstances should home buyers enter into a real estate purchase contract with a pre-approval that has not been underwritten and signed off by a mortgage underwriter
- Loan Officers, under no circumstances, should issue pre-approval letters
- Loan officers should only issue pre-qualification letters
- Importance of pre-approval versus pre-qualification should be noted and realized by home buyers
Home Buyers should realize how do they differ and the importance of pre-approval versus pre-qualification.
First Step In Home Buying Process
The first step in home buying process is to get qualified and pre-approved by a mortgage lender.
- Not all lenders are created equally
- Unfortunately most home buyers do not realize that every lender has different mortgage lending requirements on VA, FHA, USDA, Conventional Loans
Most lenders have overlays.
Agency Guidelines Versus Lender Overlays
Lender Overlays are additional lending guidelines on top of agency guidelines:
- For example, HUD, the parent of FHA, requires a minimum credit score of 580 for 3.5% down payment
- FHA purchase loans. However, most banks require 640 credit scores on FHA Loans
- How can that be when HUD requires 580 and banks are requiring 640?
- This is due to lender overlays
- All lenders needs to meet the minimum agency guidelines
- However, lenders can set higher lending standards above and beyond the agency lending requirements
- The additional requirements are called lender overlays
- Gustan Cho Associates Mortgage Group has no overlays on government and conventional loans
- Over 75% of our borrowers are folks who could not qualify at other lenders due to their overlays
Just because one lender says borrower does not qualify does not mean that another lenders will not qualify borrowers.
Choosing The Right Lender
Choosing a lender that fits borrowers credit/income profile is the very first step in home buying process.
- Borrowers with over 700 credit scores, no credit issues, stable employment with lower debt to income ratios and substantial down payments can get approved anywhere
- However, most home buyers may have credit/income issues
- Need to choose a lenders who is experienced and has no lender overlays
- Make sure the Importance Of Pre-Approval Versus Pre-Qualification
Never enter into a real estate purchase contract without a pre-approval that has been underwritten and signed off by mortgage underwriters.
How Long Does Pre-Approval Process Take
Once borrowers realize the Importance Of Pre-Approval Versus Pre-Qualification, they should understand why a pre-approval issued by a loan officer within an hour or two is normally worthless. When home buyers first consult with a loan officer, the loan officer will qualify borrowers.
Questions Asked By Loan Officers
They will ask questions with regards to the following:
- What are homes going for in the area they are looking
- What are property taxes in the areas buyers are looking to purchase
- What is a comfortable housing payment
- What are borrowers gross income
- What are monthly debts of borrowers
Importance Of Pre-Approval Versus Pre-Qualification is borrowers may qualify for a certain loan amount but key is how much can they afford.
Loan officer will then take mortgage loan application and run credit.
- After running credit, loan officer will run the application and credit report and submit it to automated underwriting system (AUS) for an automated approval
- Loan officer will then request mortgage docs such as tax returns, W2s, 60 days bank statements and other important documents
- After cross checking everything, loan officer will then issue a pre-qualification letter
- The difference and importance of pre-approval versus pre-qualification is that borrowers can shop with pre-qualification
Home buyers should never enter into a real estate purchase contract without a pre-approval letter.
Understanding The Importance Of Pre-Approval Versus Pre-Qualification And Its Process
Not all pre-approvals carry the same weight.
- Some lenders issue pre-qualifications and call it pre-approvals
- All pre-approvals at Gustan Cho Associates Mortgage Group are TBD Property Underwriting Approvals
- What this means is that every pre-approval has been underwritten and signed off by our mortgage underwriters
- This is why we close 100% of all of our pre-approvals at GCA Mortgage Group
- This process normally takes about 3 to 5 business days
- Yet other lenders will issue pre-approvals by loan officers in a matter of an hour
- Both buyers and sellers take pre-approval letters seriously
- Loan Officers issuing pre-approvals without a full underwrite run into issues of potential loan denials and/or stress for both buyers and sellers during the loan process
- A full underwriting pre-approval means a loan commitment to lend
The mortgage underwriter has thoroughly reviewed all of borrowers documents and has ran a third party national public records search.
Meeting The Closing Date
Borrowers can rest assured that their home loans will close and close on time once they enter into a purchase contract.
- Remember that just checking credit and meeting credit scores does not justify loan officers issuing pre-approvals
- Just because loan officers review most recent tax returns, pay stubs and bank account statements does not validate a pre-approval
The file needs to be fully underwritten and signed off by mortgage underwriters.
Is Pre-Qualification Letter Worthless?
Loan Officers normally issue pre-qualification letter after reviewing borrowers credit, income docs, tax returns, bank statements, and gets an approve/eligible per Automated Underwriting System Findings.
- With a pre-qualification letter, buyers can start shopping for a home
- Most experienced loan officers are diligent and will not issue a pre-qualification letter if they do not believe that a mortgage underwriter will pre-approve their clients
- Pre-qualification letters will give a rough estimate on how much home buyers will qualify for based on the information gathered by loan officers
- Pre-Qualifications is not a commitment to lend. It is the initial state of the pre-approval process
- All pre-approvals at Gustan Cho Associates Mortgage Group has been processed, underwritten, and signed off by our mortgage underwriters
- Pre-Qualifications highlights on how much borrowers realistically qualify for and that a pre-approval letter/commitment to lend is coming shortly
Getting preapproved can speed up the sale process and demonstrates to sellers that buyers are serious about buying.
How To Take Away Stress During Home Buying And Mortgage Process
All support and licensed personnel at Gustan Cho Associates Mortgage Group has been trained to instruct home buyers never to enter into a real estate purchase contract without a pre-approval letter that has been fully underwritten and signed off by our mortgage underwriters. There are so many lives affect by loan officers not properly qualifying borrowers. It is not just home buyers that get stressed during mortgage process due to loan officers being sloppy and issuing premature pre-approvals. Home buyers and sellers, their families, buyers and sellers realtors, and the whole mortgage support staff and everyone involved in the mortgage process gets stressed due to a sloppy loan officer issuing a pre-approval to borrowers who were not properly qualified.
Mortgage With Bad Credit And Low Credit Scores
Again, over 75% of our borrowers at GCA Mortgage Group are folks who are stressing out during their mortgage process or gotten a last minute mortgage denial. Feel free to reach out to us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. Or email us at email@example.com. We are national direct lenders with no overlays on government and conventional loans. All of our pre-approvals are full loan commitments to lend that has been through underwriting and signed off by our mortgage underwriters.