Issues That Can Affect Pre-Approval Letter And Delay Mortgage Closing

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Issues That Can Affect Pre-Approval Letter And Delay Mortgage Closing

This BLOG On Issues That Can Affect Pre-Approval Letter And Delay Mortgage Closing Was UPDATED On July 30th, 2018

The pre-approval letter is the most important part of the mortgage application and approval process. The number one Issues That Can Affect Pre-Approval Letter and cause a last minute mortgage denial is because loan officers did not properly qualify borrowers:

  • A pre-approval letter is a letter from a loan originator stating they have reviewed the loan applicant’s following documents:
    • income
    • credit
    • credit payment history
    • credit reports
    • automated underwriting system findings
    • public records
    • assets
    • liabilities
    • and other applicable mortgage documents

Pre-Qualification Versus Pre-Approval

After reviewing the necessary docs, the loan officer can determine whether or not a borrower is pre-qualified.

  • The difference between pre-qualification and pre-approval is that pre-approvals are loan commitments issued by mortgage underwriters
  • Home buyers can shop with a pre-qualification letter
  • Buyers should not enter into a real estate purchase contract without a solid pre-approval letter that has been fully underwritten and signed of by a mortgage underwriter

A loan originator that does not carefully review the applicant’s loan application, credit, income, liabilities, and assets and issues a pre-approval letter can run into major problems during the loan application and approval process. It is imperative loan officers carefully review applicant’s credit and income profile before issuing a pre-approval letter.

Not Examining Docs Are Issues That Affect Pre-Approval

There are several things a mortgage loan originator should carefully examine before issuing a pre-approval letter.

  • Just looking at the gross income borrower stated on application and reviewing the liabilities on the credit report and examining the credit scores is not sufficient
  • If this is how a pre-approval letter is issued, there will be issues that affect pre-approval
  • Disaster can be right around the corner
  • An experienced loan originator should request the following:
    • two years tax returns
    • two years W-2s
    • borrower’s most recent paycheck stubs to determine of any large unreimbursed expenses borrowers claimed
    • Unreimbursed expenses on tax returns will offset monthly gross income
    • Can greatly affect the borrower’s debt to income ratios
    • There are cases where W2 wage earners has claimed more than 40% in unreimbursed expenses on their tax returns
    • Often times mortgage loan originator just went off the paycheck stubs and verification of employment
    • Loan officer may not has examined the tax returns and the deal turned out to be a denial due to high debt to income ratios

Reviewing Credit Report

A mortgage loan originator should carefully review the mortgage loan applicant’s credit report prior to issuing a pre-approval letter.

  • Just looking at the credit score and meeting minimum credit scores does not do the job
  • Borrowers should make sure there are no credit disputes on non-medical credit items that is greater than $1,000 in unpaid collection accounts
  • Borrowers do not have to pay off old collection accounts to qualify for government and/or conventional loans
  • However, cannot have credit disputes on non-medical items that has a total aggregate unpaid balance of $1.000 or greater
  • Any credit disputes with aggregate unpaid balances of $1,000 or greater will halt the mortgage approval process
  • Credit disputes needs to be retracted in order for the mortgage process to proceed
  • Borrowers can have charge off accounts and still qualify for government and conforming loans
  • However, cannot have credit disputes on charge off accounts
  • One major hurdle with retracting credit disputes is that it will lower consumer credit scores once credit disputes are retracted
  • Borrowers who qualifies with the credit scores they have may no longer qualify once they get their credit disputes retracted
  • This is a very important factor to review and correct it prior to the issuance of a pre-approval letter.

Medical collections are exempt and borrowers can have credit disputes on medical collection accounts with balances. Zero balance credit disputes on non-medical credit items is alright. Borrowers do not have to have those retracted either.

Home buyers looking for a solid pre-approval letter, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Borrowers can also email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays included to answer any of your questions and issue pre-approval letters.

This BLOG On Issues That Can Affect Pre-Approval Letter Was UPDATED On July 30th, 2018

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