Advice On How To Keep A Loan Pre-Approval Valid

One of the many questions home buyers often have is how to keep a loan pre-approval valid. The loan pre-approval stage is the most important process in the mortgage application and approval process. The loan pre-approval needs to be rock solid. A sloppy loan pre-approval letter is the reason why most mortgage loans get denied on the 11th hour. A mortgage loan originator who thoroughly reviews the borrower’s credit scores, credit report, credit payment history, public records, prior bad credit items, income, and two years tax returns and then issues a loan pre-approval letter after running the mortgage loan package through the Automated Underwriting System will most likely have a 100% closing ratio. We will discuss on how to keep a loan pre-approval valid on this article so home buyers are not pressured to have a home under contract.

What Is A Loan Pre-Approval Letter And How Is It Issued?

A loan pre-approval letter means that a mortgage loan originator has reviewed the mortgage loan applicant’s mortgage loan application, has pulled credit, and carefully reviewed the borrower’s credit, credit scores, credit report, credit payment history, income, tax returns, and liabilities. After the mortgage loan officer has carefully reviewed all the necessary documents, the mortgage loan officer then issues a loan pre-approval letter. A loan pre-approval letter is different than a pre-qualification letter. A pre-qualification letter is normally worthless for real estate agents and home sellers and do not carry much weight. A pre-qualification letter is when a mortgage loan officer questions or interviews the mortgage borrower as to how much they make, what their credit scores and payment history is like ( a credit report may or may not be pulled depending on the loan officer ),  go over public records such as prior bankruptcies and foreclosures, and go over liabilities. Many times, on pre-qualifications, no or very little documents are required. The mortgage loan officer will tell the mortgage loan applicant that as long as they can provide documentation of what they stated on the pre-qualification interview, that they will get pre-approved.

Does A Loan Pre-Approval Guarantee A Loan Commitment?

A loan pre-approval does not guarantee a conditional mortgage loan commitment, also called a conditional loan approval . A loan pre-approval means that at the time the mortgage loan originator has taken your mortgage loan application and reviewed your credit, assets, and liabilities that you have qualified and the loan officer feels confident that he or she can close on your home loan. However, a lot of things can happen during the pre-approval stage. A pre-approval can instantly become invalid and null and void if you lose your job, have recent late payments after the pre-approval has been issued, have overdrafts in your bank account after the pre-approval has been issued, or had a recent judgment and/or derogatory credit items appear on your credit report since the pre-approval letter has been issued. Not to alarm any mortgage loan borrowers, but the mortgage process can be very stressful and tedious and those who are issued a pre-approval letter and are starting their home buying process needs to avoid certain things in order for the pre-approval letter to be valid and to make sure that their home loan gets a clear to close and gets funded and closed. Below we will cover things to do to keep your pre-approval valid during your home buying process.

Make Your Monthly Payments

Making your monthly payments timely is crucial during the home buying process. One late payment can plummet your credit scores by more than 50 points. Mortgage lenders understand that mortgage loan borrowers can have had periods of bad credit in the past but they want to see that they have re-established themselves and want to see timely payment history in the past 12 months. There are mortgage lenders that will deny a mortgage loan borrower with even one 30 day late payment in the past 12 months. Many mortgage lenders want to see timely payment history for the past 24 months.

Do Not Quit Or Change Jobs

Income and employment is one of the most important factors when it comes to qualifying for a home loan. When your mortgage loan officer pre-approved your home loan, he or she looked and reviewed two years of your income tax returns, two years of W-2s, and your most recent paycheck stubs which reflects your year to date income. If you have are a W-2 income wage earner and change jobs as a 1099 wage earner, then you cannot qualify for a mortgage loan until you have a two year history as a 1099 wage earner. If you change jobs from a W-2 wage earner to another job as a W-2 wage earner, there will be a minimum 30 day delay before you can close on your home loan. 30 days of paycheck stubs and a written verification of employment is required from your new full time job for you to get a clear to close by the mortgage loan underwriter. Do not give notice to your current employer that you will be retiring or quitting your job because when the mortgage lender does a written verification of employment, one of the questions on the form will be whether the borrower’s employment will continue for the next three years. If the borrower’s current employer responds that the borrower gave notice to retire and/or quit, then the borrower can no longer qualify for a home loan.

Do Not Apply For New Credit During Loan Pre-Approval Process

Applying for new credit accounts can create problems for mortgage loan applicants following the loan pre-approval. Every time a consumer applies for new credit, the creditor will run credit on the consumer which is called a hard credit inquiry . With each hard credit inquiry, it will drop a consumer’s credit scores. This can be a deal killer for mortgage loan borrower’s that barely meet the minimum credit scores to qualify for home loan . For example, the bare minimum credit scores to qualify for a 3.5% down payment FHA home loan is 580 FICO credit scores. If a home buyer got a loan pre-approval with a 580 FICO credit score and if the home buyer goes and applies for new credit and due to the hard credit inquiries the consumer’s credit scores dropped under 580 FICO credit scores, that home buyer’s loan pre-approval will no longer be valid due to their credit scores falling below the 580 minimum FHA credit score requirements.

Do Not Purchase High Ticket Items During Loan Pre-Approval Process

It is human nature for home buyers to get excited and purchase high ticket items such as new furniture, lawn equipment, appliances, and even new vehicles once they have decided to purchase a home. Buying high ticket items on credit can hurt the debt to income ratios of the mortgage loan borrower and can be detrimental for borrowers with high debt to income ratios. Combination of the hard inquiries and new added debt, buying high ticket items are one of the main reasons why pre-approvals become null and void and halts the mortgage loan approval process.

Do Not Co-Sign For Any Loans

It is rather difficult to say no to a family member or very close friend in need who asks you to co-sign for a loan. By co-signing for a loan, that monthly minimum debt will be counted against you and will affect your debt to income ratios. Although you are not actually paying the debt, mortgage underwriters will count that debt towards calculating your debt to income ratios.

Fast 5 Minute Loan Pre-Approvals

As mentioned earlier, the pre-approval state is the most important stage during the mortgage loan application and mortgage approval process. There are mortgage loan originators who will issue pre-approvals in less than 5 minutes without running credit and just speaking with a mortgage loan applicant. Stay away from loan officers who will issue pre-approval letters like Halloween candy. One of the main reasons for last minute loan denials is due to the loan officer not fully qualifying a borrower and issuing quick pre-approvals without thoroughly reviewing the borrower’s credit profile, income and liabilities. A mortgage loan officer should not just review the W-2s and most recent paycheck stubs but also thoroughly go over the tax returns of the borrower and deduct the unreimbursed expenses of the borrower. The mortgage loan originator should also make sure to see that there are no major monthly expenses like alimony payments, child support payments, or any other monthly payments that is not on the credit report. If the borrower has a bankruptcy and/or foreclosure, the mortgage loan officer needs to make sure that there are no late payments after the bankruptcy and/or foreclosure. Just looking at the credit scores is not sufficient. Most mortgage lenders require that the borrower does not have any late payments in the past 12 months and no late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale. A mortgage loan officer should thoroughly check the public records of the borrower who had a prior foreclosure or a deed in lieu of foreclosure. There is a three year waiting period from the recorded date of the foreclosure or deed in lieu of foreclosure or the date of the sheriff’s sale to qualify for a FHA Loan and not the date that the keys were turned in to the lender. Mortgage loan officers cannot just go off the date of the foreclosure and/or deed in lieu of foreclosure that is reported on the credit report but must go with the date that is recorded on public records.

Mortgage Lender With No Lender Overlays

Many home buyers are told they do not qualify for a home loan by banks and other mortgage companies because of that particular mortgage lender overlays. For example, FHA requires a minimum credit score of 580 FICO for a mortgage loan borrower to qualify for a 3.5% down payment home purchase FHA Loan. However, most banks and mortgage companies will not accept any FHA mortgage loan borrower who does not have a 640 FICO credit scores. Even though the borrower qualifies under FHA lending guidelines, they do not meet that particular credit score guidelines. If you are looking for a mortgage lender with no mortgage lender guidelines, contact Gustan Cho Associates at 1-800-900-8569 or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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