This guide covers how to keep loan pre-approval valid for home purchase. 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 loans get denied on the 11th hour. In this article, we will discuss and cover how to keep loan pre-approval valid for home purchase.
Properly Qualifying Borrowers Prior To Issuing Pre-Approval
A loan originator should do the following to avoid last-minute mortgage denials:
- thoroughly reviews the borrower’s credit scores
- credit report
- credit payment history
- public records
- prior bad credit items
- income
- two years tax returns
If the above procedures are followed and the loan officer then issues a loan pre-approval letter after running the mortgage loan package through the Automated Underwriting System, these borrowers most likely have a 100% closing ratio. We will discuss how to keep a loan pre-approval valid in this article so home buyers are not pressured to have a home under contract. Click here to get pre-approval for loan
What Is 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 application and has pulled credit. Carefully review the borrower’s credit by carefully analyzing the following:
- credit scores
- credit report
- credit payment history
- see if there are active credit disputes
- income
- tax returns
- verified funds
- liabilities
When Are Pre-Approval Letters Issued
After the loan officer has carefully reviewed all the necessary documents, they will issue 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. Pre-qualification letters do not carry much weight. A pre-qualification letter is when a loan officer questions or interviews the borrower as follows:
- as to how much they make
- what their credit scores and payment history are 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
- go over liabilities
Many times, on pre-qualifications, no or very few documents are required. The 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 conditional loan approval. A loan pre-approval means that at the time the loan originator has taken the loan application and reviewed the borrower’s credit, assets, and liabilities. After reviewing the borrower’s credit and income profile, the loan officer has determined borrowers are qualified. The loan officer feels confident that he or she can close on the home loan. However, a lot of things can happen during the pre-approval stage.
Can Pre-Approval Become Null And Void?
A pre-approval can instantly become invalid and null and void if borrowers have the following circumstances:
- lose their job
- have recent late payments after the pre-approval has been issued
- overdrafts in the bank account after the pre-approval has been issued
- or had a recent judgment and/or derogatory credit items appear on the credit report since the pre-approval letter has been issued
Not to alarm any borrowers, but the mortgage process can be very stressful and tedious. Those who are issued a pre-approval letter and are starting their home buying process need to avoid certain things in order for the pre-approval letter to be valid. They need to make sure that their home loan gets clear to close and gets funded and closed. Below we will cover things to do to keep your pre-approval valid during the home buying process.
Make Monthly Payments
Making timely monthly payments timely is crucial during the home buying process and another way on how to keep a loan pre-approval valid. One late payment can plummet credit scores by more than 50 points. Lenders understand that borrowers can have had periods of bad credit in the past. But they want to see that they have re-established themselves. Want to see timely payment history in the past 12 months. There are lenders that will deny borrowers even one 30-day late payment in the past 12 months. Many lenders want to see timely payment history for the past 24 months.
Talk to us about Qualify for a mortgage with Gustan Cho Associates
How To Keep Loan Pre-Approval Valid Is By Not Quitting or Changing Jobs
Another key way How To Keep Loan Pre-Approval Valid is by not changing or quitting a job prior to closing. Income and employment are one of the most important factors when it comes to qualifying for a home loan. When the loan officer pre-approved the home loan, he or she reviewed two years of income tax. returns, two years of W-2s, the down payment and closing costs, and most recent paycheck stubs which reflect year-to-date income.
Borrowers who are a W-2 income wage earner and change jobs as a 1099 wage earner, cannot qualify for a mortgage loan until they have a two-year history as a 1099 wage earner.
Do not give notice to the current employer that you will be retiring or quitting the job. This is because when lenders do 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 the notice to retire or quit, then the borrower can no longer qualify for a home loan.
Do Not Apply For New Credit During Loan Pre-Approval Process
Another way How To Keep Loan Pre-Approval Valid is by not applying for new credit during the mortgage 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. Each hard credit inquiry will drop a consumer’s credit score.
A hard pull dropping a borrower credit scores can be a deal killer for borrowers that barely meet the minimum credit scores to qualify for a home loan.
For example, the bare minimum credit score to qualify for a 3.5% down payment FHA home loan is 580 credit scores. If a home buyer got a loan pre-approval with a 580 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 credit scores, that home buyer’s loan pre-approval will no longer be valid. The borrower will no longer qualify due to their credit scores falling below the 580 minimum HUD credit score requirements.
Do Not Purchase High Ticket Items During Loan Pre-Approval Process
Another way How To Keep Loan Pre-Approval Valid is by not purchasing higher ticket items. It is human nature for homebuyers 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.
Another way how to keep loan pre-approval valid is by not incurring more monthly debt. Getting new credit or charging up credit card accounts can disqualify borrowers with higher debt to income ratios.
Buying high ticket items on credit can hurt the debt to income ratios of the borrower. Can be detrimental for borrowers with high debt to income ratios. Combination of hard inquiries and newly added debt, buying high ticket items are one of the main reasons why pre-approvals become null and void and halt the mortgage approval process.
How To Keep Loan Pre-Approval Valid Is By Not Co-Signing For Any Loans
If borrowers changed 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 they can close on their home loan.
30 days of paycheck stubs and written verification of employment are required from the new full-time job for borrowers to get a clear to close by the mortgage underwriter.
It is rather difficult to say no to a family member or very close friend in need who asks to co-sign for a loan. By co-signing for a loan, that monthly minimum debt will be counted against you and will affect debt to income ratios. Although you are not actually paying the debt, mortgage underwriters will count that debt towards calculating borrowers’ 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 approval process. There are loan originators who will issue pre-approvals in less than 5 minutes without running credit and just speaking with borrowers. 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. Click here to qualify for home loan with in 5 minute
Loan Officers Need To Fully Qualify Borrowers Prior To Issuing Pre-Approval Letters
Loan officers should not issue pre-approvals without thoroughly reviewing the borrower’s following information:
- credit profile
- income
- assets
- liabilities
A 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 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 are not on the credit report. If the borrower has bankruptcy and/or foreclosure, the loan officer needs to make sure that there are no late payments after the bankruptcy and/or foreclosure.
How To Keep Loan Pre-Approval Valid By Being Timely on All Payments For Past 12 Months
To insure on how to keep loan pre-approval valid is by not being late on any monthly payments for the past 12 months. Just looking at the credit scores is not sufficient. Most lenders require that the borrower does not have any late payments in the past 12 months. No late payments after a bankruptcy, foreclosure, deed in lieu of foreclosure, or short sale.
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 an FHA loan. It is the recorded date and not the date that the keys were turned in to the lender.
A loan officer should thoroughly check the public records of the borrower who had a prior foreclosure or a deed in lieu of foreclosure. Loan officers cannot just go off the date of the foreclosure 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. The best way How To Keep Loan Pre-Approval Valid is not to be late on any payments after being issued a pre-approval letter.
Mortgage Lender With No Overlays
Many homebuyers are told they do not qualify for a home loan by banks and other mortgage companies because of that particular overlays. For example, FHA requires a minimum credit score of 580 for a borrower to qualify for a 3.5% down payment home purchase FHA loan.
Most banks and mortgage companies will not accept any borrowers who do not have 640 credit scores. Even though the borrower qualifies under FHA lending guidelines, they do not meet that particular credit score guidelines.
Homebuyers looking for a mortgage lender with no overlays, contact 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.
