The pre-approval letter is the most important part of the mortgage application and mortgage approval process. A pre-approval letter is a letter from a mortgage loan originator stating that the mortgage loan originator has reviewed the mortgage loan applicant’s income, credit, assets, and liabilities and has determined that the mortgage loan applicant can get approved for a mortgage loan program as long as the mortgage loan applicant can provide all necessary documents and conditions. A mortgage loan originator that does not carefully review the mortgage loan applicant’s mortgage loan application, credit, income, liabilities, and assets and issues a pre-approval letter can run into major problems during the mortgage loan application and mortgage loan approval process. It is imperative that the mortgage loan officer carefully review the mortgage loan applicant’s credit and income profile before issuing a pre-approval letter.
Things Loan Officer Should Examine Before Issuing Pre-Approval Letter
There are several things a mortgage loan originator should carefully examine before issuing a pre-approval letter. Just looking at the gross income the mortgage loan applicant has stated on his or her mortgage loan application and reviewing the liabilities on the credit report and examining the credit scores is not sufficient and if this is how a pre-approval letter is issue, then disaster can be right around the corner. An experienced mortgage loan originator should request two years tax returns, two years W-2s, and the borrower’s most recent paycheck stubs to determine of any large unreimbursed expenses the mortgage loan applicant has claimed. Unreimbursed expenses on tax returns will offset the mortgage loan applicant’s monthly gross income and 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 and where the mortgage loan originator just went off the paycheck stubs and verification of employment and 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 the mortgage loan borrower qualifying with the minimum credit scores does not do the job. The mortgage loan originator should make sure there are no credit disputes on non-medical credit items that is greater than $1,000 in unpaid collection accounts. You do not have to pay off old collection accounts to qualify for a FHA Loan, however, you 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 loan approval process and the credit disputes needs to be retracted in order for the mortgage loan approval process to proceed. You can have charge off accounts and still qualify for FHA Loans, however, you cannot have credit disputes on charge off accounts. One major hurdle with retracting credit disputes is that it will lower your credit scores once your credit disputes are retracted. A mortgage loan applicant who qualifies with the credit scores they have may no longer qualify once they get their credit disputes retracted so 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 you can have credit disputes on medical collection accounts with balances. Zero balance credit disputes on non-medical credit items is alright and you do not have to have those retracted either.
If you are looking for a solid pre-approval letter, please contact me at 262-716-8151 or email me at email@example.com. We are available 7 days a week, evenings, weekends, and holidays included to answer any of your questions and issue pre-approval letters.