How Solid Is Your Lenders Pre-Approval Letter For Home Purchase

This Article Is About How Solid Is Your Lenders Pre-Approval Letter For Home Purchase

How Solid Is Your Lenders Pre-Approval? This is often a key question among not just homebuyers but home sellers and realtors. The Pre-Approval Stage is the most important phase of the mortgage process. The number one reason why borrowers go through stress during the mortgage process is that they were properly not qualified by their loan officers. The reason for last-minute loan denials is due to not being pre-approved correctly. Or because the loan officer issued a hasty pre-approval without properly doing his or her due diligence.

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How Long Does The Pre-Approval Process Take

There are many borrowers who want a pre-approval within minutes of them getting pre-qualified. However, if you want your loan process to go smoothly, then you need to cooperate with the loan officer. Make sure that the loan officer has all grounds completed. There is no set time on how long a pre-approval letter takes. It is better to wait until the loan officer has reviewed all of your documents prior to issuing the pre-approval letter. The number one reason for stress during the loan process and/or a last-minute mortgage denial is due to the loan officer issuing a shakey pre-approval letter to a borrower who did not qualify for a mortgage.

What Is The Automated Underwriting System

The Automated Underwriting System is a highly technologically advanced mortgage underwriting system that analyzes the following in a matter of a couple of minutes. Again, AUS FINDINGS is another way of showing borrowers how solid your lenders pre-approval is the borrowers’ income and co-borrowers if applicable.

Borrowers assets include the following:

checking accounts
savings accounts
any other asset accounts needed to verify funds for cash to close

Liabilities Reporting On Credit Report

Liabilities that are reporting on the credit report. Review the scores and overall credit history which includes the following:

credit tradelines
age of tradelines
late payments
charge offs
judgments
tax liens
public records on the credit report
any other pertinent information

Within minutes, the AUS will render a decision of one of the following three:

approve/eligible
referred/eligible
referred with caution

Approve/eligible means you have an automated approval. Refer/eligible means that the automated system cannot render a decision and an underwriter needs to manual underwrite the borrower’s application, referred/eligible means that the file does not qualify.

Types Of Automated Findings On AUS

There are two types of AUS FINDINGS:

Fannie Mae Desktop Underwriter or DU
Freddie Mac Loan Prospector or LP

With the 1003 and the credit report, the loan officer is able to run it through Fannie Mae’s Automated Underwriting System called Desktop Underwriter. This is commonly referred to as DU which is short for Desktop Underwriter. Same for Freddie Mac’s Loan Prospector often referred to as LP which is short for Loan Prospector.

AUS Determines On How Solid Your Lenders Pre-Approval Is

Again, AUS, which is the Automated Underwriting System, there can be errors. How solid your lenders pre-approval will determine in the AUS. If incorrect information of borrowers was entered, then the AUS will read incorrect data. The Automated Underwriting System is a highly intricate sophisticated mortgage computer system. It will just pick up all of the data that the loan officer inputs in the system. The accuracy of the inputted data such as the 1003 and the borrowers’ credit report is what the system picks up and renders the decision.

Factors That Affect AUS Findings

Here are factors you need to know about the Automated Underwriting System. Borrowers getting automated approval should close as long as they can meet the condition of the AUS. But the loan officer needs to make sure of the accuracy of the 1003 and the borrower credit report. Borrowers need to understand that DU or LP will only go by the data and information that is listed on the mortgage loan application and the credit items reporting on the credit report. Credit reports can contain errors. Judgments and tax liens and other public records that are not reporting on the credit report will be discovered by lenders. It will be discovered through a third party public records search during the mortgage underwriting process. So make sure to tell that to loan officer of any public records not reporting on the credit report.

Getting Properly Qualified By Experienced Loan Officer

Borrowers would want a very picky and thorough mortgage loan originator and a pre-approval should not be rushed. Some loan officers will just issue a pre-approval without looking at all of the documents provided by the borrower or sometimes many loan officers will not even ask for documents. A loan officer should carefully review the borrower’s two years tax returns. They should pay special attention to the borrower’s unreimbursed expenses as well as whether or not the borrower has declining income. Income tax returns for borrowers who are self-employed or are 1099 income or commission income are averaged for the past two years. In the event, if the tax return of the most current year is lower than the previous year, mortgage underwriters will definitely want to know that and question it. May just use the lower year’s income and not average the two years.

How Solid Are Your Lenders Pre-Approval: Proper Income Qualification

The above holds true as well for overtime income, bonus income, or other income. Two years of these types of income are required to be able to use it. The underwriter needs to believe that it will continue for the next three years. If there is an ounce of doubt as of the above income, the loan originator or processor needs to get a verification of employment before issuing a pre-approval letter. Many people who go to credit repair can have derogatory items removed and deleted from all the three major credit bureaus. This practice works for collections and charge-offs but not public records. This will work for outstanding collection accounts, late payments, charge-off accounts, and even car payments or installment payments and the borrower can get away with it.

Disclose All Public Records Not Reporting On Credit Bureaus

ALL PUBLIC RECORDS that are not on the credit report will be discovered by during a third party records search during the mortgage underwriting process. If you have overdrafts in the past year but do not have overdrafts in the past 60 days, then an astute loan officer will tell you to go to the bank and get him 60 days of bank printouts that is signed, stamped, and dated by the bank teller. Overdrafts can be deal killers by many lenders. Bank overdraft fees show up on bank statements. Bank statement print outs do not show overdraft fees. So if you have overdrafts, do not turn in bank statements and turn in bank statement print outs. Closing costs can be covered either by a sellers concession or by lender credit in lieu of a higher interest rate. Credit disputes should carefully be reviewed by the loan officer. Any credit disputes on non-medical collection accounts that the aggregate balance exceeds $1,000 or on any charge off accounts need to be retracted. Can have credit disputes on non-medical collection accounts with zero balances or on medical collection accounts. Retracting credit disputes yields a drop your credit scores.

Do You Know How Solid Is Your Lenders Pre-Approval Letter?

Once the loan officer has reviewed the mortgage application, they can answer the question on How Solid Is Your Lenders Pre-Approval. Properly qualified borrowers should not just close their mortgage but will close on time. The answer to How Solid Is Your Lenders Pre-Approval is right below.

Here are the steps in determining how solid is your lenders pre-approval letter:

Has reviewed credit scores and look for credit disputes?
Has the loan officer thoroughly reviewed the credit report?
Has the loan officer thoroughly reviewed income docs?
Has the loan officer thoroughly reviewed bankruptcy and foreclosure paperwork if applicable?
Has the loan officer thoroughly reviewed the divorce decree if applicable to see if you are obligated to pay and/or receive child support/alimony?
Has the loan officer asked for other documents and every other potential item a mortgage underwriter may question?

If the above is YES then the borrower will be deemed as pre-approved and a pre-approval letter should be issued.

How Solid Is Your Lenders Pre-Approval Letter For Home Purchase: Starting Mortgage Approval Process With Gustan Cho Associates

The pre-approval process should not take long. The time it takes on getting a solid pre-approval letter normally depends on how fast the borrower can get all of the docs to the loan officer. This BLOG on How Solid Is Your Lenders Pre-Approval was written by our top loan officer at Gustan Cho Associates. There is no reason why once home buyers are issued a pre-approval letter that their mortgage loan should not close.

Over 75% of our borrowers are folks who either got a last-minute mortgage loan denial or are going through a major stressful mortgage process. This is because they were not qualified properly by their original loan officer. If you are going through major stress or just gotten a last-minute mortgage loan denial, call us at 800-900-8569 or text for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.