What Is A Mortgage Pre-Approval


What Is A Mortgage Pre-Approval

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 and 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 a mortgage lender. The mortgage pre-approval stage is the most important stage of the mortgage process and every loan officer should diligently and thoroughly qualify every mortgage borrower. Every mortgage loan officer has their own way of qualifying a mortgage loan borrower and their own system in issuing a mortgage pre-approval. Some mortgage loan officer issue a pre-approval letter without thoroughly reviewing the borrower’s income tax returns and 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. Yet other mortgage 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 a FHA Loan after the recorded date of a foreclosure or deed in lieu of foreclosure and not 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 a FHA Loan. 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 and 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 a mortgage lender after the mortgage loan officer 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 the mortgage borrower’s personal credit and income information and needs to pre-process and pre-underwrite a mortgage loan applicant’s application before issuing a pre-approval letter. A solid pre-approval means that the mortgage lender is more than confident in closing the mortgage borrower’s mortgage loan and if there are any issues or potential issues, the mortgage loan officer should resolve the matter before issuing a pre-approval letter.

When a mortgage borrower has a pre-approval letter, it means that the borrower has gone through all the necessary due diligence by the mortgage loan officer and mortgage lender and that the mortgage borrower meets all mortgage lending guidelines as well as the mortgage lender’s internal investor overlays. There are many folks who 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.

What Is A Mortgage Pre-Approval: 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 and 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 explaining to the home seller how solid the home buyer is. Many home seller’s realtors will contact the home buyer’s mortgage loan officer and interview the home buyer’s mortgage 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 and many times by home sellers themselves asking me the strength of my mortgage borrower.

What Is A Mortgage Pre-Approval: When Should I Start The Pre-Approval Process?

There is no cost or obligation in starting the mortgage pre-approval process with a mortgage lender. A mortgage lender cannot charge you a consultation fee nor are you ever obligated to go with one mortgage lender. You can always cancel a mortgage transaction up to the date of your home loan closing. Once you have decided that you will buy a home, you 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. Remember that there may be errors on your credit report and if there are errors on your credit report, it takes time to fix those errors. Also, by getting pre-approved early, it will give you an idea on how much home you can afford and the maximum loan amount you will qualify for. You will also get an idea on how much money you need to save up for the down payment on your home purchase and how much money you need for closing costs. You will also get an idea on how much your 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 you the confidence and lessen the stress in buying your home where you 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 you are issued a pre-approval, you should avoid doing certain things until you close on your home loan. Do not apply for new credit. Under no circumstances buy a new car. A car loan can destroy your pre-approval if you have higher debt to income ratios. Car payments are higher because they are amortized over three to seven years. 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 you get an auto loan once your pre-approval has been issued, that can make your pre-approval void unless you get a co-borrower. You can trade in your current car if the car payment was already calculated by your loan officer but make sure you discuss trading in your car during the mortgage process with your mortgage loan originator before you actually do it.

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

If you need a solid pre-approval, please do not hesitate to contact me at 262-716-8151 or email me at gcho@gustancho.com. I am available 7 days a week, evenings, weekends, and holidays to take your calls and answer all of your questions.

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