What Is A Mortgage Pre-Approval And How Is It Issued

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What Is A Mortgage Pre-Approval And How Is It Issued

This BLOG On What Is A Mortgage Pre-Approval And How Is It Issued Was UPDATED On October 11th, 2018

What Is A Mortgage Pre-Approval And Are All Pre Approvals The Same?

What Is A Mortgage Pre-Approval?

  • Home buyers who are shopping for a home know what a mortgage pre-approval means
  • Home buyers need a mortgage pre-approval letter in order to be able to shop for homes that are listed on the market
  • A sellers real estate agent will only accept a real estate offer from a home buyer who is armed with a mortgage pre-approval letter by lenders
  • The mortgage pre-approval stage is the most important stage of the mortgage process
  • Every loan officer should diligently and thoroughly qualify every borrower

How Lenders Issue Mortgage Pre-Approvals

Loan officers has their own way of qualifying borrowers:

  • Every loan officer has their own system in issuing pre-approvals
  • Some loan officers issue pre-approval letters without thoroughly reviewing the borrower’s income tax returns
  • They just go off the borrower’s monthly income
  • Other loan officers will just look at the borrower’s credit scores and not thoroughly review the borrower’s overall credit report and the borrower’s credit payment history

Searching Public Records Prior To Issuing Pre-Approvals

Yet other loan originators will not investigate the actual recorded date of a prior foreclosure or deed in lieu of foreclosure and just go off the date of the foreclosure on the borrower’s credit report.

  • There is a three year waiting period to qualify for mortgages after the recorded date of a foreclosure or deed in lieu of foreclosure
  • Waiting period does not start on the date when the borrower has given up the property
  • The waiting period is three years after a short sale from the date of the short sale to qualify for loan programs
  • There is a four year waiting period to qualify for a Conventional Loan after the recorded date of a deed in lieu of foreclosure or short sale
  • A seven year waiting period after the recorded date of a foreclosure
  • A sloppy pre-approval is the main reason why there are hiccups and last minute mortgage loan denials

We will be discussing what is a mortgage pre-approval and the importance of a solid mortgage pre-approval on this blog.

What is a Mortgage Pre-Approval And The Importance Of A Solid Pre-Approval

A mortgage pre-approval letter is issued by lenders after loan officers has thoroughly reviewed the mortgage loan applicant’s credit scores, credit payment history, income, assets, and other credit and income information.

  • The loan officer needs to look into every aspect of borrower’s personal credit and income information
  • Loan officers needs to pre-process and pre-underwrite a mortgage loan applicant’s application before issuing a pre-approval letter
  • A solid pre-approval means the lender is more than confident in closing borrower’s mortgage loan
  • If there are any issues or potential issues, the loan officer should resolve the matter before issuing a pre-approval letter

What Does Pre-Approval Mean?

When borrowers has a pre-approval letter, it means they have gone through all the necessary due diligence by the loan officer and lender:

  • It means borrowers meets all mortgage lending guidelines as well as lender’s internal investor overlays
  • Sellers depend on the home buyer’s pre-approval letter
  • Home buyers, home sellers, buyers attorneys, sellers attorneys, buyers real estate agent, sellers real estate agent, and the title company all depend on pre-approval letter

What Is A Mortgage Pre-Approval And How It Affects Home Sellers

The real estate market is hot throughout the United States and in many areas:

  • Homes are selling the minute they come on the market
  • Many home sellers are getting multiple offers
  • Many home sellers are also getting cash offers
  • A solid pre-approval letter is what determines whether a home seller is going to accept from one home buyer instead of another
  • A fancy pre-approval letter does not mean anything
  • Many times, a home buyer’s pre-approval letter needs to be followed up by a phone call to the home seller by the mortgage loan officer
  • Loan officers should be available if sellers needs re-assurance explaining to the home seller how solid the home buyer is
  • Many home seller’s realtors will contact the home buyer’s loan officer and interview the home buyer’s loan officer on how the loan officer has pre-approved the home buyer
  • This practice is becoming more and more common
  • I get many phone calls by home sellers real estate agents
  • Many times by home sellers themselves asking me the strength of the home buyer

What Is A Mortgage Pre-Approval And Starting Pre-Approval Process

There is no cost or obligation in starting the mortgage pre-approval process with lenders:

  • A lender cannot charge a consultation fee nor are borrowers ever obligated to go with one mortgage lender
  • Borrowers can always cancel a mortgage transaction up to the date of your home loan closing
  • Once a buyer have decided they will buy a home, they should start the mortgage pre-approval process as soon as possible
  • Do not wait until the very last minute to get pre-approved for a home loan

Errors On Credit Report Prior To Issuing Pre-Approval

Remember that there may be errors on consumer credit report:

  • If there are errors on consumer credit report, it takes time to fix those errors
  • Also, by getting pre-approved early, it will give home buyers an idea on how much home they can afford and the maximum loan amount they qualify
  • Borrowers will also get an idea on how much money they need to save up for the down payment on home purchase
  • Also how much money they need for closing costs
  • Borrowers will also get an idea on how much their monthly housing expenses will be and what areas to look for to purchase a home
  • Property taxes can vary from county to county and some areas
  • Property taxes can be substantially higher than other areas
  • Having a pre-approval letter will give borrowers the confidence and lessen the stress in buying their home
  • They do not have to rush rush when a home of your dreams comes up in the market

Things To Avoid While In The Pre-Approval Process

Once home buyers are issued a pre-approval, they should avoid doing certain things until they close on home loan.

  • Do not apply for new credit
  • Under no circumstances buy a new car
  • A car loan can destroy pre-approval if borrowers have higher debt to income ratios
  • Car payments are higher because they are amortized over three to seven years are often issues on borrowers with higher DTI
  • An average auto payment is $300 per month
  • A $300 monthly payment is equivalent to a $60,000 mortgage
  • so if you are pre-approved for a home loan without a car payment and get an auto loan once pre-approval has been issued, that can make pre-approval void unless buyer get a co-borrower
  • Consumers can trade in their current car if the car payment was already calculated by their loan officer
  • But make sure to discuss trading in car during the mortgage process with mortgage loan originator before pulling the trigger

Applying For Credit During Mortgage Process

Also, do not co-sign on any loans and apply for new credit like furniture credit cards. Credit inquiries will drop credit scores. New debt will affect debt to income ratios. Never be late on any monthly credit debt payments during mortgage process.

Borrowers who need a solid pre-approval, please do not hesitate to contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays to take your calls and answer all of your questions.

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