What is a valid letter before approving a home purchase

Importance Solid Pre-Approval Letter On Home Purchase

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This Article Is About Importance Solid Pre-Approval Letter On Home Purchase

The Importance Of A Solid Pre-Approval Letter By The Loan Officer:

The pre-approval phase of the mortgage process is the most important step. The number one reason for a last-minute mortgage loan denial or stress during the mortgage process is that the loan officer did not properly issue the pre-approval letter.  Borrowers and real estate agents should not rush a loan officer for a hasty pre-approval. The loan officer needs to take their time qualifying the borrower. The credit reports should be thoroughly reviewed and checked for outstanding credit disputes. Any pre-approval letter issued with outstanding credit disputes is null and void. All credit disputes should be removed prior to a pre-approval being issued. If a loan officer is not sure about a borrower’s credit profile and/or agency guidelines or the lender overlays, the loan officer should get a second and/or third opinion. Many times, experienced loan officers will run a file before a mortgage underwriter. In this article, we will discuss and cover the importance of pre-approval during the mortgage process.

The Pre-Approval Letter Should Not Be Rushed

Importance Solid Pre-Approval Letter: A pre-approval letter is a letter from a mortgage lender certifying a 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 Gustan Cho Associates are thorough. Loan officers will not issue a pre-approval without making sure they have covered all grounds including getting an approve/eligible per AUS. Due to realizing the Importance Solid Pre-Approval Letter, loan officers at Gustan Cho Associates only issue pre-approvals if they are 100% confident the home loan will not just close but will close on time. Gustan Cho Associates offers TBD SUBJECT PROPERTY UNDERWRITING APPROVAL. TBD  Subject Property Underwriting Approvals is recommended on tricky files and/or manual underwrites with late payments in the past 24 months.

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 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.

Importance Of Making Sure The Credit Report Has No Credit Disputes

Loan Officer 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 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 approve/eligible, then it will be optimistic that the borrower will get a loan commitment.

Initial Documents Required For Pre-Approval

What are the required preliminary documents 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 only if the loan officer has fully qualified the borrower
  • If the file is a tricky file, the loan officer should submit the loan application for a TBD Subject Property Approval which is underwritten by a mortgage underwriter

TBD Subject Mortgage Approvals are fully underwritten with a subject property.

Importance Solid Pre-Approval Letter: A Sloppy Pre-Approval Is The Main Reason For A Last Minute Mortgage Loan Denial

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 issued without the loan officer fully qualifying the borrowers. If the loan originator feels borrowers are fully qualified and got an approve/eligible per AUS, the loan officer can issue a pre-approval. If the loan officer is not sure about a particular guideline or other issues, the loan officer should not issue a pre-approval until the loan officer has gotten a second opinion from a mortgage underwriter. Remember that all the information listed on the mortgage application needs to be valid and verified. All docs need to gather, processed and prepared neatly with no missing pages or illegible documents for a mortgage underwriter to review and issue a conditional loan approval. The mortgage loan originator will review mortgage docs before submitting them 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.

Importance Solid Pre-Approval Letter: 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 loan program and thoroughly reviewed the 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 the underwriter should issue final approval. The final approval is called the clear to close.

Credit And Income Key To Solid Pre-Approval

What is the key of credit and income for solid pre-approval

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

A pre-approval should only be issued after the loan officer has thoroughly qualified the borrower. Loan Officers should only issue pre-approvals after they get an approve/eligible per automated underwriting system (AUS). The true definition of a pre-approval letter is when the borrowers’ file has been fully reviewed, processed, pre-underwritten, and gotten an automated approval per AUS. Pre-Approvals are often called TBD Property Underwrite Approvals if a mortgage underwriter has underwritten and signed off on it.

On TBD Property Underwrite Approvals, the file is fully underwritten by a mortgage underwriter and the only thing that was not underwritten is the property.

Importance Solid Pre-Approval Letter: 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 by the loan officer after the loan officer has thoroughly reviewed the application, credit report, mortgage documents, and has an automated approval per AUS.

Importance Solid Pre-Approval Letter To Avoid Delays On CTC

The pre-approval converts to a conditional loan approval after the mortgage processor has submitted all documents to a mortgage underwriter and the underwriter has signed off on the borrower. 

The following documents need to be thoroughly reviewed and satisfied by the mortgage underwriter before conditional loan approval is issued:

  • 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 mortgage underwriter who signed off on the pre-approval. Clear To Close (CTC) is when a lender is ready to fund the loan. Once the clear to clear is issued by the mortgage underwriter, the lender is ready to prepare mortgage closing docs and schedule the closing.