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: 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
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?
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
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
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
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
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
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:
- 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.