In my continuing series of some of the most frequently asked questions that I get from consumers and prospects who contact me about affordable home loan options, in Part 3, I will discuss the type of documentation that is necessary in order to complete the pre-approval process.
Most Realtors/agents won't even show prospective buyers available property without a pre-approval letter. Without speaking to a lender about their financial and personal information, neither the prospective buyer nor the Realtor/agent knows how much the buyers can qualify for or what type of loan they will be getting and it's pointless to even start looking at properties.
First and foremost, I want to discuss what a pre-approval letter is and what it is not. It is not a guarantee that you will get a loan. It is also not when you will get to lock in your rate. The days of locking and shopping are long gone. I don't care what your friends and family have told you that you can do, neither I nor any of my lending sources are going to allow you to lock in your rate until you have a fully executed purchase offer. Even then, I may advise you to wait until we get the appraisal back just to make sure the property will appraise for what you are purchasing it at (that's a whole other post).
A pre-approval letter is simply a letter from a lender stating that the Mortgage Loan Originator (MLO) has reviewed your financial and personal information (income, asset, liabilities, employment, residence, identity, etc...) and that based on the findings from an automated underwriting system (AUS), the borrower meets the loan programs minimum requirements based on the information that has been provided.
It is just a conditional approval that is contingent on a whole lot of other things happening and a boatload of even more documentation being provided.
Many prospective buyers think that all they have to do is tell an MLO how much they make, where they work and how great their credit history is and voila, they're pre-approved. While some MLO's may pre-qualify their borrowers that way that is most certainly not how I do it.
The lending environment has become extremely complicated and convoluted in so many ways and it is now more stringent than it has been in years. A brief conversation on the phone with a prospective borrower about their finances and other personal information is not enough information in order to determine a borrower's qualifications or credit worthiness and actually, it never has been.
In an effort to make an accurate assessment of a borrower's qualifications and credit worthiness, an MLO needs to review a borrower's, income and asset information (pay stubs & bank statements) as well as their liabilities (credit report).
Furthermore, an MLO needs to verify a borrower's employment, residence, identity, social security identification, tax returns as well as their funds needed to close escrow. I even take it a step further and collect any letters of explanation (LOE) that I know I am going to need in order to get a final approval (that too is a whole other post).
Without reviewing all of this documentation, an MLO can not accurately determine if a borrower meets all of the lenders requirements as well as the guidelines for the program that the borrower is applying for. If the borrower's qualifications don't meet the lenders requirements as well as the program guidelines, they don't have a chance in the world of getting a loan or closing on an escrow. PERIOD!!!
Getting pre-approved is just the first step to getting into escrow and it is by no means the last time the borrower will need to get an approval or the last time the borrower will need to provide documentation. Once again, the pre-approval is just the beginning but it is where every prospective homeowner needs to start if they ever plan on buying a home and getting to the closing table.
Stay tuned for Part 4 where I discuss a particularly unpleasant and inconvenient practice that prospective buyers will have to go through (typically several times if they choose to) before getting into escrow. I will also discuss ways to avoid this despicable practice as much as possible and how I can help when it happens to you.
Today's real estate market can be really scary, which is why it's important to get as much information as possible before starting the home search. The pre-approval process is not a simple process and borrowers today need affordable loan options that are best suited for their own needs.
Furthermore, it's absolutely vital that they work with a seasoned MLO and lender that knows what it takes to not only close a loan transaction but one who can also ward off issues that invariable come up and get the transaction back on track and to the closing table.
That's what I'm here for and I would love to be able to assist you in your search for an affordable home loan. If you have any questions and/or concerns, please feel free to contact me, Donne Knudsen at 805.2069123 or firstname.lastname@example.org.