The Importance of Pre-Approval for Homebuyers and Sellers
This guide covers the importance of pre-approval for homebuyers when buying a home. Homebuyers and sellers should realize the importance of pre-approval in the homebuying process. The number one reason why home loans get denied during the mortgage process is that the borrower was not properly qualified. Loan officers should realize the importance of pre-approval for homebuyers as well as home sellers. Danny Vesokie, President and Chief Financial Officer at Affiliated Financial Partners, Inc. a Sacramento, California based commercial loan officer training school says the following about the importance of pre-approval for homebuyers and sellers:
Homebuyers depend on loan officers that once they are pre-approved, that they can not just close on their loan but be able to close it on time. To this day, many loan officers do not realize the importance of pre-approval for homebuyers and sellers.
Loan officers should always thoroughly qualify a borrower before issuing pre-approval letters. In this article, we will discuss and cover the importance of pre-approval for homebuyers and sellers. If the buyer has not been properly qualified and pre-approved, the entire homebuying process will backfire and cause stress for both sides including the real estate agents. A sloppy pre-approval is the main reason for a last-minute mortgage loan denial and the reason a home transaction does not close.
Why Loan Officers Should Know The Importance of Pre-Approval
A pre-approval letter is extremely important due to the fact that it is a great predictor that borrower will close on their residential mortgage loan. Whereas a pre-qualification is a mortgage loan originator’s prediction that the likelihood of getting mortgage approval is good and promising if everything checks out. Most real estate agents require that potential homebuyers are armed with a solid pre-approval letter before they will show a property or let buyers make a written real estate purchase offer. Speak With Our Loan Officer for Mortgage Loans With Low Credit Scores
How Do Homebuyers Get a Pre-Approval Letter From a Mortgage Lender?
Pre-approvals are when lenders review the following when qualifying:
- Assets
- Cash for down payment and closing costs
- Debts
- Credit report
- Credit scores
- Credit payment history and see if there are outstanding credit disputes
- Review of income tax returns, W2s, 1099, and other income docs
- Employment history and Verification of Employment
- Bank statement history
- Payment history
- Automated Underwriting System Findings
- Public records
- Overview of derogatory credit tradelines
- Debt-to- income ratios
- Qualified and Other income
- Type of property borrower is qualified for
Importance of Pre-Approval For Homebuyers and The Mortgage Process
After reviewing the basics, the loan officer may require more documents for further review:
- The mortgage loan officer may require to review the borrower’s tax returns
- Business tax returns and 1099’s if they are self-employed or own their own business
- This is to make sure that the income they are declaring after write-offs will qualify them
- For borrowers with challenged credit scores or credit history or borderline debt to income ratios, the loan originator will most likely run the borrower’s application through AUS
- Fannie Mae’s Automated Underwriting System is to make sure they get an approve/eligible per DU FINDINGS prior to proceeding with the file
- How pre-approvals are issued depends on each individual mortgage company
- Many loan originators issue pre-approval letters in a matter of less than an hour which is not highly recommended
Once a home buyer is armed with a pre-approval letter, he or she can go and make an offer to purchase a home.
What is a TBD Underwrite Pre-Approval From the Mortgage Underwriter
GCA FORUMS Mortgage Group has a policy that all pre-approvals be fully underwritten and signed off by a mortgage underwriter. All pre-approvals issued by GCA FORUMS Mortgage Group are full credit mortgage loan approvals also known as loan commitments (TBD Underwrite Approvals). The only condition missing as a pre-approval by GCA FORUMS Mortgage Group is the property. Once the borrowers go and shops for property and gets back to us with an executed purchase contract, the property gets underwritten. The appraisal is ordered and title work gets worked on. All final conditions get submitted back to the mortgage underwriter for a clear to close.
What Is The Difference Between Pre-Approvals and Pre-Qualification?
Again, all lenders have their own policy on how they issue pre-qualifications and pre-approvals. The number one reason for a last-minute mortgage loan denial and/or stress during the mortgage process is because a loan officer did not properly qualify the borrower. There is no reason for a loan denial or stress during the mortgage process if the borrower was properly qualified.
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Importance of Pre-Approval For Homebuyers and Pre-Qualification
A pre-qualification is less formal than a pre-approval where the loan officer will just pre-qualify you whether you qualify for a mortgage loan. The loan officer will ask borrowers the following:
- Gross monthly income
- Credit scores
- Run tri-merger hard credit pull
- Whether the borrower has a prior bankruptcy and/or foreclosure, tax lien, judgment, or any public records not reporting on credit bureaus
- Monthly debt
- Assets
- Review credit report and thoroughly analyze the borrower’s payment history
- Special emphasis on credit disputes
- Run the file through the automated underwriting system for AUS findings
Most realtors do not give any weight on pre-qualification letters. Most real estate agents want pre-approval before buyers can view homes and enter into a real estate purchase contract.
How Long Does It Take To Get Pre-Approved
One thing is that not all pre-approval letters are created equally. Some loan officers can whip out a pre-approval letter in a few minutes. GCA FORUMS Mortgage Group goes through a full underwriting process before a mortgage underwriter signs off on a pre-approval.vAll of our pre-approvals from GCA FORUMS Mortgage Group are TBD PROPERTY UNDERWRITING. We close on all of our pre-approved borrowers. The time it takes to pre-approve borrowers depends on borrower credit and income profile. It can take a few hours or a few days. It is best to make sure borrowers are properly qualified before getting a pre-approval issued.
Importance of Pre-Approval and Why Do I Need To Get Pre-Approved Instead of Pre-Qualified?
A pre-approval will determine how much of a home you can buy and what mortgage amount buyers will qualify for. I will also determine how much down payment will need including closing costs. A pre-approval will also tell borrowers how much monthly mortgage payments will be. Almost all realtors will not show a home unless buyers have a valid pre-approval letter from a mortgage lender. Sellers will not entertain any offers that you might offer. A pre-approval will determine what the term and the rate of mortgage will be. For those who do not qualify for a pre-approval, the loan officer can help borrowers with credit. So they can qualify in the very near future.
Qualifying For Mortgage With a Lender With No Overlays
Over 80% of our borrowers at GCA FORUMS Mortgage Group are folks who either gotten a last-minute mortgage denial or could not qualify with their current lender. This is again no fault of the borrower. It is the fault of the loan officer and lender because the borrowers were not properly qualified by their loan officer. A pre-approval letter should not have been issued by the loan officer PERIOD. Mortgage Underwriters should fully underwrite a borrower’s file before a pre-approval gets issued. A loan officer should not issue a pre-approval, unless the loan officer is highly experienced or in management. Chad Burns a dually licensed real estate agent and loan officer at GCA FORUMS explains the importance of pre-approval for homebuyers as follows:
All of our pre-approvals at GCA FORUMS Mortgage Group is fully underwritten and issued and signed by our mortgage underwriters. Minimum credit scores for a 3.5% down payment FHA loan is 580 .
Outstanding collections and charge offs do not have to be paid to qualify with FHA loans. Prior bad credit is acceptable as long as the borrower has been timely on his or her monthly credit obligations for the 12 months. Borrowers who need to qualify for a home loan with a national mortgage company with no lender overlays on government and conventional loans can contact us at GCA FORUMS Mortgage Group at 800-900-8569 or email us at gcho@gustancho.com. The team at GCA FORUMS Mortgage Group is available 7 days a week, evenings, weekends, and holidays. Qualify For Mortgage Loans With Lender With No Overlays
Frequently Asked Questions on The Importance of Pre-Approval for Homebuyers
Those interested in purchasing a house can understand the significance of pre-approval in the following Frequently Answered Questions.
Importance of Pre-Approval: What is Mortgage Pre-Approval?
Answer:
- A mortgage pre-approval means an assurance that lenders give you in a letter expressing how much you can receive from them to buy a house.
- The borrower’s earnings, payment history, and how he spends his money are checked.
- This information is valuable because it approximates the maximum amount of money you will likely borrow.
- Or a definite amount you can use to negotiate as a serious buyer who means business.
Explain the Difference Between Pre-Approval and Pre-Qualification.
Answer:
- Pre-qualification comes first in the application process.
- In this stage, the borrower gives the lending institution some information about him.
- The lending body will try to evaluate what this person can borrow.
- Pre-qualification is a guide that does not involve thoroughly reviewing your report or personal documents.
- On the contrary, a pre-approval offers a lender a more detailed picture of a borrower’s finances.
- This includes employment and asset verification, among other things, and credit reports.
- That is a summary of the borrower’s various loans.
- Pre-approval is more advanced.
- Hence, this approach is more advanced when trying to sell oneself to prospective clients as the clients are presented with more credibility.
Importance of Pre-Approval for Homebuyers
Answer:
- Pre-approval is significant as you have a certain amount to work with.
- Such a gestation will decrease if not frustrate the efforts to search for properties price-wise off the roof.
- It instills trust in the sellers and realtors that you are an actual buyer who has obtained a lender’s qualification.
- This shortens the time it would ordinarily take a buyer to undertake the entire home-buying process.
- There is a high chance that most of the financial findings have been undertaken.
- It allows you to limit their searches to properties that they can afford and allows them to sort out any credit issues they may have in good time.
Were Any Steps Taken to Mortgage the Property?
Answer:
- A pre-approval letter is the most advising document one should have before an offer is placed.
- This means that the seller is aware, just like you, that there is a good probability that the funding will be authorized, thus making your offer attractive.
- This is especially true when numerous buyers are bidding for one property.
When Buyers Present Pre-Approval Letters, They Are Regarded With More Gravity
- This is because, in the end, there is a reduced possibility of that sale falling through dramatic, typically financial hitches.
For How Long Can One Pre-Approval Remain Valid?
Answer:
- As a rule, a mortgage pre-approval order issued by most lenders is valid for up to three or six months.
- If it’s more than three months later and the conditions of the market or your situation have changed, your lender may want more documentation to extend your pre-approval.
Importance of Pre-Approval: What Documents Do Lenders Require for Pre-approval?
Answer:
- Certain factors cover pre-approval, which creates a certain financial picture of the borrower and their ability to repay.
- This includes both the borrower’s credit and bank history.
- A person with a good credit rating has a better chance of being loaned money.
- This is even at a good interest rate.
The Employment and Income Relating to the Issuers
Lenders do this by the portion of your income and the certainty of employment to help the borrower have the capacity for the borrowed mortgage.
Debt-to-Income Ratio (DTI)
Lenders use it as a proportion derived by estimating the share of a borrower’s net income that goes to paying up other loans to determine risk.
Importance of Pre-Approval: Assets and Savings
Lenders review saving deposits and strategies in the context of closing requirements and all other costs that may arise, especially for the savings.
Will there be a Mortgage Loan if There are Already Pre-Approved Loan Conditions?
Answer:
- Pre-approval suggests that a loan is likely impossible to be received.
- However, that depends on only them having a different turnaround in the financial position of their affairs.
- The maximum loan amount is given to the client when they provide the entire mortgage application form.
- The lender also conducts several destruction activities.
- Such as an appraisal of the house and a title search.
Is There Hope for an Individual With Bad Credit Who Wants to Seek Pre-Approval for a Mortgage Loan?
Answer:
- In step 1, something like bad credit can still get pre-approval.
- This isn’t easy because the circumstances allow it.
- You might want to evaluate loans under FHA.
- This is because less harsh restrictions on its credit are in place.
- More severe down payments and other compensatory factors such as salaries or deposits.
Your creditors will pay attention to your credit history report; that is one factor I can guarantee. However, it has been argued that pre-approval would not help correct negative ratings, such as missed payments and a high debt-to-income ratio.
How Much Will I Be Pre-approved For?
Answer:
- The basis associated with the application determines the amount of pre-approval an individual can get.
- Income, property ownership, the status of existing loans, and other factors help guide lenders in determining the maximum loan amount that can be issued to different clients.
Will a Request for Pre-Approval Affect My Credit Scores in Any Way?
Answer:
- Once a request for pre-approval is made, a hard inquiry will appear on one’s credit report and potentially lower one’s scores for a short period.
- It is still possible to repay these debts.
- There’s a provision at the agency rate that if mortgage lenders attempt to borrow more than once in a fortnight or even longer (14-45 days).
- This is treated as a single fight in the everyday language of credit scoring.
That’s why one’s score would be fine even when trying to get the most competitive interest rates.
Is it Possible to Make a House Offer Without First Getting a Pre-Approval?
Answer:
- Yes, technically, you can.
- But sure, you shouldn’t go ahead and reverse such decisions.
- Particularly when it is a period when people buy properties a lot.
- Sellers tend to favor buyers from those who place pre-approved offers.
- Otherwise, some of them may treat your suggestion as a wild theory.
What Conduct Should Be Avoided After Already Being Pre-Approved?
Answer:
- After pre-approval, do not be complacent.
- There are certain limits to which one must comply while not getting disqualified for approval.
This, among other things, encompasses the following.
- We are opening new lines of credit or taking on new debt (e.g., credit cards, car loans).
- They are refraining from repayment of some debts.
- They are starting a new job, or there has been a decreased income.
- These changes in your financial condition could explain why the lender would refuse to approve releasing the last mortgage.
- Or limit the total mortgage amount available to you to a suffocating amount.
Can Borrowers Be Changed While Retaining the Same Lender? Do I Need to Get Pre-Approved Again?
Answer.
- If it is necessary to change the mortgage company, then it is necessary to obtain a new pre-approval letter.
- As every lending institution operates differently, so does the flow of processes.
- This flow of processes will include the approval of new documents, the approval of the loan terms, and the verification and updating of your details.
In Other Words, Will There be Instances When Several Prior Approvals By Lenders Will Be of No Use in Compelling One to Pay Off a Mortgage When More Than One is Taken Out on Christmas?
Answer:
- Yes, a refinance may be filed with more than one lender to compare and take advantage of multiple loan offers and rates.
- However, remember that these pre-approval applications and requests will cause credit karma to refinance hard inquiries.
- In this case, making all these applications simultaneously is better to avoid overburdening the credit history.
Importance of Pre-Approval: How Do I Go About Seeking a Pre-Approval of the Mortgage?
Answer:
- These steps must be followed regarding the request for pre-approval.
- Documentation must be gathered.
- Pay stubs, tax returns, W 2 Forms, bank statements, and other debts, if any.
- It has to be done by some lender.
- This can be done from home, over the phone, through the Internet, or even through a physical visit.
- A credit evaluation is more important than a credit evaluation if the objective is obtaining a mortgage.
- To do this, the creditor will seek your permission for this when the attending creditor orders and asses your credit report.
Importance of Pre-Approval: Receive a Pre-Approval Letter
If you are approved, the lending institution will issue a pre-approval letter indicating the highest amount that can be issued to you, the period in which the loan will be advanced without repayment, and the type of interest expected.
One of the most important activities when looking forward to acquiring a house through a mortgage is getting a pre-approval letter. It enhances the bid by defining the purchase price, facilitating advance processing of the loan, and approving the same if necessary. Knowing what pre-approval is helps you use the facilities that will make it easy for you to get the home of your dreams.
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