This BLOG On Issues That Can Affect Pre-Approval Letter And Delay Mortgage Closing Was UPDATED And PUBLISHED On June 23rd, 2020
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
In this article, we will discuss and cover Issues That Can Affect Pre-Approval Letter And Delay Mortgage Closing.
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
- Homebuyers 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 the 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 the 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.
Documents Required By Loan Officers
An experienced loan originator should request the following:
- two years tax returns
- two years W-2s
- borrower’s most recent paycheck stubs to determine if 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 have 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
The loan officer may not have examined the tax returns and the deal turned out to be a denial due to high debt to income ratios.
Issues That Can Affect Pre-Approval Letter: 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 have 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 During The Mortgage Process
Credit disputes need to be retracted in order for the mortgage process to proceed:
- Borrowers can have charged-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 qualify 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 are alright. Borrowers do not have to have those retracted either.
Homebuyers looking for a solid pre-approval letter, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Borrowers can also email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays included answering any of your questions and issue pre-approval letters.
This BLOG On Issues That Can Affect Pre-Approval Letter Was UPDATED On June 23rd, 2020
June 23, 2020 - 4 min read