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Importance Solid Pre-Approval Letter On Home Purchase

Gustan Cho Associates
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Importance Solid Pre-Approval Letter On Home Purchase 

This BLOG On Importance Solid Pre-Approval Letter On Home Purchase Was UPDATED On July 2nd, 2019

Importance Solid Pre-Approval Letter
Gustan Cho Associates

Importance Solid Pre-Approval Letter: A pre-approval letter is a letter from a mortgage lender certifying home buyer has been pre-approved for a mortgage loan for a specific dollar amount at a certain interest rate.

  • Realtors and Sellers realize the Importance Solid Pre-Approval Letter so they require all home shoppers to be armed with one
  • Unfortunately, not all pre-approval letters are created equally
  • Many loan officers who issue a pre-approval within minutes do not realize the Importance Solid Pre-Approval Letter
  • A loan officer should not sign off on a pre-approval letter
  • All pre-approval letters at The Gustan Cho Team at Loan Cabin Inc. are fully underwritten and signed of by our mortgage underwriters
  • Due to realizing the Importance Solid Pre-Approval Letter, loan officers at The Gustan Cho Team at Loan Cabin Inc. are not allowed to sign off on pre-approval letters
  • Only mortgage underwriters can issue pre-approval letters after fully underwriting the file as a TBD SUBJECT PROPERTY UNDERWRITING APPROVAL.

What Are Pre-Approval Letter And Importance Solid Pre-Approval Letter

What Are Pre-Approval Letter And Importance Solid Pre-Approval Letter

The pre-approval letter will state whether the home buyer has been pre-approved for a conventional loan or other mortgage loan programs such as FHA, VA, USDA, or Jumbo Mortgage

  • Most home sellers real estate agents will not show a home if the potential home buyer cannot present a pre-approval letter
  • Some real estate agent wants to verify the pre-approval letter
  • They often contact the home buyer’s loan officer to confirm the pre-approval letter
  • They often question the loan officer on how the home buyer was pre-approved.

How Do Lenders Pre-Approve Home Buyers?

How Do Lenders Pre-Approve Home Buyers?

Every mortgage lender has different ways of pre-approving a home buyer.

  • Almost all lenders will require for the mortgage borrowers to complete a 1003 mortgage application
  • The mortgage application can be completed online or the mortgage loan originator can take the application over the phone
  • The initial application does not have to be signed
  • The loan originator will then ask borrowers questions pertaining to income, liability, and assets
  • Once the loan originator takes the application and is done questioning the potential home buyer, he or she will run credit
  • Loan Officer with thoroughly review both the credit report and the credit scores
  • If the credit scores and credit report come back clean, a loan officer will run the file through Automated Underwriting System
  • A pre-qualification can be issued at the discretion of the mortgage loan originator
  • If the credit report reflects marginal credit and low credit scores, the file should be submitted to the processing as a TBD UNDERWRITING PROPERTY for a conditional approval prior to issuance of a pre-qualification letter
  • Automated Underwriting System to see whether it comes back approve/eligible per DU FINDINGS and/or approve/eligible per LP FINDINGS is key
  • If the mortgage loan gets an approve/eligible, then it will be optimistic that borrower will get a loan commitment

Initial Documents Required For Pre-Approval

Initial Documents Required For Pre-Approval

Depending on the lender, the lender can ask borrowers for documents such as the following:

  • two years tax returns
  • two years W-2s
  • 2 months bank statements
  • most recent paycheck stubs
  • other documents required to process the mortgage loan prior to issuing a pre-qualification

Who Reviews Mortgage Documents During Mortgage Process

Who Reviews Mortgage Documents During Mortgage Process

This task of the mortgage loan originator reviewing mortgage documents is highly recommended before the issuance of the pre-qualification.

  • This is because everything stated on a mortgage application can be verified and the pre-qualification letter adds much more strength
  • A loan officer should not issue a pre-approval letter
  • All pre-approvals should be issued by a mortgage underwriter after the file has been fully underwritten

One of the main reasons for last-minute loan denials is due to the fact that borrowers were not properly qualified and the pre-approval letter was not issued by a mortgage underwriter.

  • If the mortgage loan originator feels borrowers are providing the right information, the loan officer can issue the pre-qualification letter and NOT a pre-approval
  • Remember that all the information listed on the mortgage application needs to be valid and verified
  • All docs need to gather, processed and fully underwritten before a mortgage underwriter signs off on a pre-approval  letter
  • The mortgage loan originator will review mortgage docs before submitting to processing and underwriting

Home Buyers should not enter into a real estate purchase contract without a solid pre-approval letter from the mortgage underwriter.

Pre-Approval Versus Approval

Pre-Approval Versus Approval

Most mortgage loan originators will not issue a pre-qualification letter unless they feel 100% confident that the mortgage loan applicant is qualified for a particular mortgage loan program and reviewed the mortgage loan application and credit profile.

  • For lenders who have no overlays, if they get an automated approval, they will go off the findings so an automated approval
  • AUS is either Fannie Mae or Freddie Mac Automated Underwriting System
  • As long as borrowers can clear conditions on AUS, then underwriter should issue final approval

Credit And Income Key To Solid Pre-Approval

Credit And Income Key To Solid Pre-Approval

A pre-approval letter is a letter from the mortgage lender is a loan commitment by the lender.

  • A pre-approval should not be issued by a loan officer
  • Loan Officers can issue pre-qualifications
  • The true definition of a pre-approval letter is when the borrowers’ file has been fully processed and underwritten and signed off by the mortgage underwriter
  • Pre-Approvals are often called TBD Property Underwrite Approvals.
  • This is because the only thing missing is the property

What Is A Solid Mortgage Pre-Approval

What Is A Solid Mortgage Pre-Approval

Here is what a solid pre-approval is:

  • Equivalent to an offer of intent to do the mortgage loan
  • The loan commitment is for a certain dollar amount at a certain rate
  • Borrowers need to provide proof that all of the information stated on the mortgage loan application
  • The information listed on the credit report needs to be verified
  • Need to provide conditions requested by the mortgage underwriter in order for the underwriter to sign off on a clear to close
  • A pre-approval letter is issued after a mortgage underwriter has completely reviewed the home buyer’s mortgage application and thoroughly reviewed their credit and underwritten the file
  • The pre-approval converts to a clear to close once all the conditions such as the following:
    • appraisal
    • verification of employment
    • verification of income from the IRS
    • other requested conditions have been met and satisfied

A clear to close is issued by the same underwriter who signed off on the pre-approval. Clear To Close (CTC) is when a lender is ready to fund the loan.

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