Mortgage Pre-Approval Process Leading To Fast Clear To Close
This Article Is About The Mortgage Pre-Approval Process
The mortgage pre-approval process is the most important phase of the mortgage process.
- The number one reason why borrowers go through stress during the mortgage process and the reason for last-minute loan denials are due to not being pre-approved correctly
- The second reason is that the loan officer issued a hasty pre-approval without properly doing his or her due diligence
Request For Fast Pre-Approval Letter During Mortgage Pre-Approval Process
There are many borrowers who want a pre-approval within minutes of getting pre-qualified. However, if home buyers want the loan process to go smoothly and not stress during the mortgage process, they need to cooperate with their loan officer and make sure that the loan officer has all grounds covered.
Mortgage Process During Qualification Stage
Here is how the mortgage pre-approval process should proceed:
- Once he or she has all your information and documents, the loan officer is able to run it through Fannie Mae’s Automated Underwriting System called Desktop Underwriter (DU), and/or Freddie Mac’s Loan Prospector (LP)
- An automated approval does not guarantee that your loan will close
- Borrowers need to understand that DU or LP will only go by the information that is listed on the mortgage loan application and the items reporting on the credit report
- Credit reports may contain errors
- There is no reason why a pre-approved borrower should go through stress during the mortgage process or why the loan should not close if the loan officer has pre-approved by borrower properly
- Some loan officers are more diligent than others
Unfortunately, there still are loan officers who will just issue a pre-approval without looking at all of the documents provided by the borrower and this often leads to potential issues during the mortgage process.
Hasty Pre-Approval By Loan Officers
Unfortunately, there still are loan officers who will not even ask for documents and issue a pre-approval which is asking for potential trouble during the mortgage pre-approval process.
- A loan officer should carefully review the borrower’s two years of tax returns and pay special attention to the borrower’s unreimbursed expenses
- Tax returns for self-employed borrowers are averaged for the past two years
- However, if the most current year’s tax returns show a significant decrease in income, most underwriters will not average the two years but will only average the year with the lower-income
If the borrower needs overtime income, bonus income, or other income to qualify for the loan, the loan officer should get a verification of employment prior to issuing a pre-approval letter.
Public Records Not Reflected On Credit Report
Loan Officers should also question the borrower to determine if he or she has any public records such as judgments and/or tax liens that the borrower knows about but is not reporting on the credit report.
- Many people who go to credit repair can have derogatory items removed and deleted off all reports from the three major credit bureaus
- This will work for outstanding collection accounts, late payments, charge-off accounts, and even car payments or installment payments and the borrower can get away with it
- However, ALL PUBLIC RECORDS not on the credit report will be discovered by the lender
- This is because all lenders will hire a third party public records search company
- Usually DATA VERIFY or LEXIS NEXIS
Any public records such as judgments, bankruptcies, foreclosures, short sales, tax liens, federal student loans, and delinquent child support/alimony payments will be discovered prior to a clear to close.
Sixty days of bank statements are required and your loan officer should pay attention to overdrafts in the past 60 days and/or any overdraft fees on your bank statements.
- Borrowers with overdrafts in the past year but do not have overdrafts in the past 60 days, then a creative loan officer will advise to go to the bank and get 60 days of bank printouts
- Bank printouts need to be signed, stamped and dated by the bank teller
- Year-to-date overdraft fees are reported on the actual bank statements
- However, they are normally not reported on computer bank statements provided by the teller
- Proof of funds needs to be provided for the down payment
Closing costs can be covered either by a sellers’ concession or by a lender credit from the lender in lieu of a higher interest rate.
Reviewing Credit Report Prior To Issuing Pre-Approval Letter
The loan officer should carefully review credit report:
- Make sure there are no credit disputes on non-medical collection accounts for which the aggregate balance exceeds $1,000, or on any charge-off accounts
- Credit disputes are not allowed on non-medical collection accounts when the total outstanding balance of unpaid collection exceeds $1,000
- Borrowers can have credit disputes on non-medical collection accounts with zero balances or on medical collection accounts
- Removing credit disputes will drop credit scores
Borrowers who barely meet the minimum credit scores for an FHA loan or conventional loan (580 for FHA and 620 for conventional) and have credit disputes may no longer qualify once they retract those credit disputes.
Full Disclosure To Loan Officers
Not telling the whole truth to the loan officer is a fundamental mistake. This is because the mortgage business is extremely regulated and everything will be verified—and lenders will find out.
- The loan officer is on the borrowers side and will do everything possible to make the deal happen, but needs the borrowers cooperation
Once the loan officer needs to review the following carefully:
- mortgage application
- credit scores
- credit report
- income docs
- bankruptcy and foreclosure paperwork if applicable
- divorce decree if applicable to see if borrowers is obligated to pay and/or receive child support/alimony
- and every other potential item a mortgage underwriter may question
If the above has been thoroughly reviewed, then the borrower will be deemed as pre-approved and a pre-approval letter should be issued. The mortgage pre-approval process should not take long. But, ultimately, how long it takes depends on how fast the borrower can get all of the required documents to the loan officer.
Properly Qualifying Borrowers
Over 75% of borrowers who contact us at Gustan Cho Associates are the following folks:
- Borrowers who were told they have been denied a mortgage loan
- Borrowers who got a conditional loan approval and keep on getting asked for more conditions after conditions
- Loan Officers who are not calling borrowers back in a timely fashion
- Borrowers who are getting runarounds by their loan officers
Borrowers who have loan officers and lenders who have total disregard of their closing dates and the mortgage process is going on beyond 30 plus days.
How Long Does A Loan Take To Close
There is no reason why a pre-approved borrower should not be able to close their mortgage loan in 30 or less. The only reason for a last-minute mortgage loan denial or stress during the mortgage process is due to the following reasons:
- The loan officer did not properly qualify the borrower
- The loan officer did not know their lending guidelines
- The loan officer did not know their lender overlays
Borrowers who going through a stressful loan process and need a second opinion or a lender with no overlays to take over your loan process, please contact Gustan Cho Associates at 262-716-8151 or text us for a faster response. Borrowers can email us at [email protected] We are available 7 days a week, evenings, weekends, and holidays.
About The Author Of Mortgage Pre-Approval Process
Massimo Ressa is the author of the blog on How Solid Is Your Mortgage Pre-Approval and a contributing writer for Gustan Cho Associates Mortgage News. Massimo Ressa is the Chief Executive Officer of Loan Cabin Inc., a national lender with no overlays on government and conforming loans. Massimo Ressa, unlike other CEOs of national mortgage lenders, is proud to say that he originates his own loans and handles borrowers personally. Massimo feels he needs to lead by example and by originating loans himself keeps him abreast of the latest mortgage guidelines and products consumers need. Most of Massimo Ressa’s loan officers have been loyal to him and have been with him for many years, some as long as ten years. Gustan Cho Associates is proud to have Loan Cabin Inc. dba Gustan Cho Associates CEO Massimo Ressa as part of GCA Mortgage Group.