This Article Is About What Is A Mortgage Pre-Approval And How Is It Issued
What Is A Mortgage Pre-Approval And Are All Pre Approvals The Same? Homebuyers who are shopping for a home know what a mortgage pre-approval means. Buyers of new homes need a mortgage pre-approval letter in order to be able to shop for homes that are listed on the market. A seller’s 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.
In this article, we will discuss and cover What Is A Mortgage Pre-Approval And How Is It Issued.
How Lenders Issue Mortgage Pre-Approvals
Loan officers have 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 FHA and USDA loans after the recorded date of a foreclosure or deed in lieu of foreclosure. The 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 FHA and USDA loan programs. There is a two-year waiting period after foreclosure, deed in lieu of foreclosure, and short sale to qualify for VA loans. 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 foreclosure.
Non-QM loans do not have any waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale. Gustan Cho Associates offers non-QM mortgages one day out of bankruptcy and foreclosure with a 30% down payment.
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 have 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 the borrower’s personal credit and income information. Loan officers need 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 the 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 have a pre-approval letter, it means they have gone through all the necessary due diligence by the loan officer and lender:
- It means borrowers meet all mortgage lending guidelines as well as lender’s internal investor overlays.
- Sellers depend on the home buyer’s pre-approval letter
Homebuyers, home sellers, buyers attorneys, sellers attorneys, buyers real estate agents, sellers real estate agents, and the title company all depend on the 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 need 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 from 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 has 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 a consumer credit report:
- If there are errors in the consumer credit report, it takes time to fix those errors
- Also, by getting pre-approved early, it will give home buyers an idea of how much home they can afford and the maximum loan amount they qualify
- Borrowers will also get an idea of how much money they need to save up for the down payment on a home purchase
- Also how much money do they need for closing costs
- Borrowers will also get an idea of 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 in 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 when a home of your dreams comes up on 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 the 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.
The average auto payment is $300 per month. A $300 monthly payment is equivalent to a $60,000 mortgage. 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 the buyer gets 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 a car during the mortgage process with the 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. The new debt will affect debt to income ratios. Never be late on any monthly credit debt payments during the mortgage process.
Borrowers who need a solid pre-approval, please do not hesitate to contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, on evenings, weekends, and holidays to take your calls and answer all of your questions.
