The Pre-Approval Stage ofthe Mortgage Process Is the Most Important Part of Your Home Buying Process.
Many of you looking to shop for a home may had the real estate agent ask you if you are pre-approved for a mortgage. Most realtors will not show a home buyer a home unless the potential buyer has a pre-approval letter from a loan officer. Home buyers should not be offended when a real estate tells you that they cannot show you a home unless you have a pre-approval letter. There are two types of real estate agents on a real estate transaction: A Buyer's Agent and A Listing or Seller's Agent. The listing agent or seller’s realtor is the licensed real estate agent who represents the home seller. The buyer's realtor is the realtor who represents the home buyer. There are cases where the seller’s real estate agent will be the home buyer's real estate agent. If you were to drive by a neighborhood and saw a for sale sign that is from a real estate company, the number on the sign would be the contact number of the listing real estate agent. If you did not have a real estate agent who you are working with and would contact the realtor on the for sale sign, you would be calling the listing agent and if you were to put an offer on the home, the realtor would be both the buyer's and seller's agent.
Whether you are dealing with a home buyer's agent or listing realtor, a pre-approval letter will most be required. Even if the home buyer's agent wanted to show you a home, the chances are that the sellers agent would ask for a pre-approval letter. Pre-approval letters mean that a home buyer has been qualified for a mortgage loan by a loan officer. Every loan officer has their own system on pre-qualifying and pre-approving a borrower but all loan officers will take a mortgage loan application by the borrower, run credit, review the credit scores, and make sure that the borrower meets the maximum debt to income ratios allowed. fannie mae guidelines The loan officer will take the purchase price, the property tax information, and homeowners insurance figures as well as the borrower’s other monthly minimum debt payments and thoroughly review the borrower's income and compare it to the borrower's credit profile and have a figure on how much home the home buyer can afford. Shopping for a home without a pre-approval letter is like going Christmas shopping without your wallet. Your mortgage loan originator will let you know how much home you can afford based on your income and credit and when you present the maximum amount of your mortgage loan pre-approval to your real estate agent, your agent will narrow the home search to homes that meet your price range.
It Will Tell You What Would Be Your Interest Rate
What is a mortgage loan pre-approval? The pre-approval stage of the mortgage process is the most important part of the entire mortgage application and mortgage approval process. The number one reason why mortgage loans get a mortgage loan denial is because the loan officer did not properly pre-qualify a mortgage borrower and has issued a pre-approval letter without thoroughly analyzing and processing the borrower. A mortgage loan pre-approval letter is a one piece of letter stating that the borrower has been to a mortgage lender and the loan officer has taken a mortgage loan application from the borrower and has qualified the borrower for a mortgage loan based on the borrower's credit, income, employment history, assets, liabilities, and other necessary information. Based on the information the loan officer has of the borrower, the loan officer has made a determination that the borrower qualifies for a particular home loan program for a certain amount at a certain interest rate for a term of normally 30 years. A pre-approval letter from a loan officer is a written qualification letter that states that the mortgage lender that the loan officer is associated with is able to lend a certain amount for a home purchase.
Pre-approval letter is stronger than a pre-qualification letter
A pre-approval letter commands are more strength than a pre-qualification letter. A pre-qualification letter is a one-page written statement from a mortgage loan originator stating that the borrower qualifies for a certain loan amount for a certain loan program based on the loan officer's basic review of the borrower's credit, income, liabilities, and assets. These days, pre-qualification letters are not often issued because most real estate agents and sellers do not even honor them and consider them worthless. A pre-approval letter, on the other hand, carries weight and most pre-approval letters are not issued unless the mortgage loan originator has taken a formal mortgage loan application, has run a tri-merger credit report, has not just reviewed the borrower's credit report but has also checked and reviewed the overall credit report as well as the borrower's payment history, especially the payment history of the past 12 months. Most loan officers will review the borrower's two years’ tax returns, two years W-2s, and 30 days’ paycheck stubs. Every loan officer has their own way of pre-approving their borrowers. Some may run the file through Fannie Mae/Freddie Mac Automated Underwriting System, also referred to as AUS, while other loan officers will skip this step and just issue the borrower a pre-approval letter. Experience and diligent loan officers will not hastily issue a pre-approval letter and will take their time reviewing the borrowers loan application, credit report, liabilities, assets, and make sure there are no potential errors on the borrower's credit report and thoroughly interview the borrower.
Pre-Approval Letter Will Determine On How Much Home You Can Afford
Reason number two of the 6 reasons why your real estate wants you pre-approved before showing homes is to determine the selection of home he or she can show you and not go in a wild goose chase on showing homes that you cannot afford.
Your mortgage loan officer can determine the maximum home you can afford during the pre-qualification and pre-approval stage of your mortgage process. platinum home mortgage You loan officer will get you the maximum amount of your mortgage payment that you qualify for, which includes the principal, interest, property taxes but it will not include your utilities, maintenance, and potential repairs needed on your new home purchase. By knowing what your maximum monthly housing payment is allowed will narrow the home search where you can look at homes that you can afford and not go on a wild goose chase on looking at homes that is beyond your budget. You would not want to see a home and fall in love with the property to later find out that it is outside your budget and be disappointed.
Sellers Will Take You Seriously
Most sellers and real estate agents will not want to show a potential home buyer a home without a pre-approval letter. Many listing agents will not accept an offer from a home buyer without a pre-approval letter. There are listing agents who will want to speak to the home buyer's loan officer before presenting the real estate purchase offer to the home seller. The verbiage of the pre-approval often adds weight. For example, if the loan officer were to state that the borrower has not just had their credit and income reviewed by also has an approve/eligible per Automated Underwriting System, this carries more weight than a pre-approval letter that does not have such verbiage on the pre-approval letter. The buyer's agent should always offer the listing agent that they are welcomed to contact the buyer's mortgage lender. This is especially important when there are situations where there are multiple offers on a property.
How Solid Is Your Pre-Approval Letter?
As mentioned earlier, not all pre-approval letters are created equally. Buyers need to make sure that their loan officer did not just issue a pre-approval letter within a matter of minutes without them thoroughly reviewing the docs. If a borrower gets a pre-approval letter from a loan officer in a matter of minutes, the borrower should question the loan officer on how they were pre-approved? Was credit run? Was income reviewed? Were assets confirmed? Does the borrower meet all minimum federal lending guidelines as well as the lender's own internal overlay requirements? Was the file submitted to an Automated Underwriting System, AUS, and did it yield an approved/eligible per automated findings? Remember that the number one reason for last minute loan denials or major stress during the mortgage process is due to the loan officer not qualifying the borrower correctly and issuing the pre-approval letter when it should not have been issued. Some of the items that need careful analysis include if the borrower has any credit disputes on their credit report, irregular income and/or part time or bonus or overtime income may need Verification of Employment from HR to make sure a solid income number is used and not guessed especially with borrowers that have higher debt to income ratios. Many loan officers will get second opinions by a fellow loan officer or colleagues before issuing pre-approvals on questionable income wage earners or self-employed borrowers.
It Will IncreaseChance to Purchase Your Property
A pre-approval letter is not a mortgage loan approval and is not a guarantee that you are guaranteed funding. There are times when home sellers or listing agents will show a property without a pre-approval letter. However, almost all sellers and seller’s agents will not accept a real estate purchase offer from a home buyer without a solid pre-approval letter. For example, you do not need a pre-approval letter when visiting an open house on a weekend and anyone is invited. However, if you and your family were to visit an open house and all of sudden that home was the exact home you and your family wanted and was the perfect home for you, most listing agents will not accept an offer from you without a pre-approval letter. It is best to always have a pre-approval letter when going to an open house because you do not know when you are going to run into that perfect home. Plus, if there were multiple interested buyers on the home you are ready to place an offer in, you do not want to lose the opportunity to put an offer just because you did not have a pre-approval letter.