topic Re: The mortgage pre-approval process in Mortgage Loans

The mortgage pre-approval process

ShanetheMortgageMan — Wed, 21 Jul 2010 16:08:21 GMT

Many lenders have a different take on what the pre-approval process should include, or when they feel comfortable issuing a pre-approval letter. Some lenders are willing to just discuss your information over the phone and issue a pre-approval letter, which some may think is great since it's so easy, but there is quite a bit more to getting pre-approved then just having a verbal conversation about how things should look. Most mortgage applicants also don't know the difference between being "pre-qualified" and being "pre-approved". "Pre-qualified", this is an ambiguous term that is used to provide the homebuyer a false sense of security to engage in a mortgage transaction without the loan officer doing their proper due diligence. It's a cop-out for the explanation that should have been: "Based on the verbal information you sound good, however before you make an offer we need to verify everything we went over, that will include a credit check, reviewing income & asset documentation, and if needed, even verifying employment directly with your employer." In my opinion you should never be providing that initial paperwork after an offer is made, it should always be done prior to your offer.

The steps should actually go like:

1. Meet with a loan officer (this can be face to face or over the phone, I do not recommend solely done via email)
2. Loan officer will explain the process to the homebuyer, what will be done at each milestone, when out of pocket costs should be expected
3. Loan officer and homebuyer will verbally discuss the homebuyers situation, including financials, credit and any special circumstances the homebuyer is in (like getting gift funds, starting a new job in a new area, past employment, etc.)
4. Homebuyer will complete a loan application (this is recommended to do with the loan officer "live", not just simply filling out the application and sending it to the loan officer) and credit is checked
5. Homebuyer will provide loan officer documents the loan officer needs (paycheck stubs, W-2's, tax returns, bank statements, letters of explanation)
6. Loan officer reviews documents and contacts employers for any further required verification (for example averaging overtime, commissions, etc. and clarifying start dates if employment has been less than 2 years), including running the loan through the automated underwriting system (be it FHA, VA or conventional). If the loan is "borderline" then the loan officer should contact underwriting to get clarification on how any unique aspects of the loan will be handled, and may even go so far as to send the entire loan file to underwriting to have a conditional underwriting approval issued for a "TBD" property address.
7. Loan officer issues a pre-approval letter letting the homebuyer know they are pre-approved for a certain amount
8. Homebuyer makes an offer and it's accepted
9. Homebuyer or their real estate agent provides loan officer copy of contract terms
10. Loan officer re-runs actual terms/conditions through automated underwriting again
11. Loan officer/processing staff generates the loan application/disclosures for the homebuyer to sign/initial/date/return to the loan officer
12. Loan is sent to underwriting (sometimes the title report needs to come in, sometimes the appraisal needs to come in - YMMV depending on the lender - the title report is ordered immediately, the appraisal can be ordered once you receive the application/disclosures)
13. Underwriting reviews all documents and usually additional documents (called "conditions") are required, such as evidence of homeowners insurance, small items on the appraisal corrected (if needed), amongst a laundry list of possibilities (brace yourself for the underwriter to ask for small items so it doesn't come as a surprise, sometimes it isn't much at all, sometimes it can be a bit)
14. Conditions are sent in to underwriter and reviewed, final loan approval is issued
15. Loan officer informs homebuyer when documents can be prepared and delivered to title/escrow officer or closing attorney ("closing agent" is the generic term) for the closing (usually no more than 2 days from final approval)
16. Closing agent prepares the final settlement statement (called a HUD-1) for lender approval, lender approves, homebuyer goes in to sign final loan documents in front of a notary
17. Depending on the state you are buying in, it may fund/record the day you sign or there could be a few day period after you sign before it funds & records (rule of thumb is if you are east of the Rocky Mountains it's the same day, west of the Rocky Mountains usually there is a couple day delay - but vice versa can certainly be arranged ahead of time).

See how in the above process a majority of the processing/verifications were taken care of prior to the homebuyer going into escrow on the home, and not before? It cuts down on the "your paperwork didn't come over in the correct format and this is delaying your closing date" type of excuses. That is the way to properly handle a purchase transaction in my opinion.

If you want to know what steps your lender is taking to insure your pre-approval is solid, just ask, they shouldn't mind telling you, and it'll give you both a chance to feel more comfortable with the mortgage transaction process. Remember, this is like school, there are no stupid questions, and at no point in the process should your loan officer make you feel like you are wasting their time by asking questions.

Re: The mortgage pre-approval process

srashada — Wed, 21 Jul 2010 17:14:55 GMT

hello shane,

you mentioned on a couple of your responses that bank of america doesn't pay attention to details that could be an issue until after you are under contract. well my question is how far in the process could you still expect issues to come up? I am scheduled to close on the 2nd of august. received my conditional approval a while ago. the only thing thus far that has been requested other than the docs i have already submitted are things from the builder because the home is new construction (builder's permit, warranty of completion, soil treatment and termite forms, etc). We just submitted ther remaining docs today, so everything should be going for final approval. Could there still be an issue at this point? Are we pretty much good to go or do we still need to be on edge until we get the official ok to close? I havent given my notice to my apartment complex yet because I am so afraid that the deal will fall through in the end.

Re: The mortgage pre-approval process

ShanetheMortgageMan — Wed, 21 Jul 2010 17:54:01 GMT

The issues typically arise when the loan officer hasn't thoroughly thought through the (score for alliteration) entire loan, and after the underwriter reviews. Items could range from not requesting tax returns which contain a self-employed business loss the loan officer didn't ask of or the borrower accidentally didn't disclose and the loss throws debt ratios out of qualification range, a low-ball estimate on property taxes and/or insurance or not taking into consideration of an HOA fee the home has, not reviewing bank statements to make sure all significant deposits are sourced, and simply just not asking questions when they are unsure of something. A lot of loan officers are afraid to ask questions, and with some lenders it takes a very long time to get accurate answers. A family member of mine made it to supposedly a week before closing when the past employer overseas was unwilling to verify employment, so they only had 1 year 10 months in the US, and were declined. While that is a pretty unique situation, the loan officer, who had been working for this lender for 10+ years, should have just asked underwriting if the previous employer is unable to verify employment will we have an issue, and then had that verification taken care of immediately (or found out they won't verify).

Bank of America is one of bigger lenders that doesn't typically do a lot of pre-underwriting, I suppose it's because of how large of a volume of loans they do just doesn't allow a lot of it. Usually 2 or 3 people can be involved in the pre-underwriting process, and having that many people's hands on a loan that isn't under a contract to buy a home may be cost prohibitive. Not all lenders out there are like that, so it's always good to ask what the pre-approval process entails. Talk about your situation, ask the loan officer if they foresee any issues (even small ones), ask how your loan will be processed. With a good loan officer, which can exist at any lender, including Bank of America, a loan can be properly pre-underwritten... it just takes a little foresight, persistence and determination.

Re: The mortgage pre-approval process

Dr-Acme — Wed, 15 Sep 2010 21:15:03 GMT

Good afternoon Shane. Thank you for all your helpful insight. This has eluded me for a long time… Perhaps you can help me out with this. When shopping around for a mortgage, would asking the competing banks the following questions be appropriate? Because in the past, the banks looked at me like I was from Mars or something.

1) What’s your % rate for a person with my credit (I’ll have a full copy of at least 2 current credit reports), job verification, past 3 years tax return and financial statement. Proof will be handed to them in a nice 3 ring binder with colorful “idiot” tabs.

2) Total amount of money for ALL FEES, not associated with the principal and interest.

3) And finally, banks policy on early termination / payoff fee (if any)? -Note if there is any, I won’t bank there…-

Now I provide them with all the data, so that they can give me their best deal with the information I gave them. I refuse, I repeat- I refuse to let them run a credit check until I know they are in the ball park of where I want to be. Most seem to say they really need to do a full credit check to give me their best deal and without that credit check there is nothing to talk about. To the consumer that’s like “going steady” before we even have the 1st date. A discounted %rate is no good if I get over charged for mis. fees .

Re: The mortgage pre-approval process

ShanetheMortgageMan — Tue, 09 Nov 2010 17:24:24 GMT

All 3 of those are excellent questions, and are entirely appropriate to ask a loan officer.

#1 usually requires a review of your situation, so it's good you'd be prepared with it.

#2 also requires figures to be known, such as sales price, down payment, where you are buying etc. Some of those numbers may not be known off the top of someone's head, so an estimate may be given instead.

#3 should be common policy that the loan officer should know. Most loans that are made these days do not have any sort of prepay penalty.

Re: The mortgage pre-approval process

llecs — Sat, 23 Apr 2011 00:53:27 GMT

Split post to form a new thread within Mortgage Loans

Re: The mortgage pre-approval process

ShanetheMortgageMan — Thu, 16 Jun 2011 19:33:51 GMT

I wanted to add this information as I feel it'll help people find the right loan officer, the loan officer who will make sure your loan has been properly pre-approved, and how you will probably know when you've found that person.

You'd want to start off interviewing a few loan officers which just means talking to them and asking as many questions as you can think of that you want to know about mortgage financing when buying a home - easy questions, difficult questions, scenario questions.

You'll want to ask what the pre-approval process entails and how long it takes. Will the underwriter who will be allowing your loan to close be the person reviewing your file as part of that process? Will it just be the loan officer reviewing your information? Will they even ask you for documentation?

You'll also want to ask what types of programs they offer, and once your documentation has been thoroughly examined you'd want to get what options would then apply to you, as well as ask what your loan officer thinks would be the best loan program for your situation.

You'll want to ask what type of fees & costs you could expect to incur along the way (credit report, earnest money deposit, home inspection, appraisal fee, closing costs, etc.), how much those costs are estimated to be, and when they are expected to be paid (at the time the service is performed, at closing, etc).

You'll also want to ask what type of loan terms can they offer you if you were to lock in your interest rate today. On the same day (preferably within minutes), ask all loan officers you are interviewing to send you their rates in writing for the same lock period (ex. 30 days) so you can see how many points (if any) or lender credit (if any) you will be getting for a range of interest rates (not just 4.500%, but ask for 4.000%, 4.125%, 4.250%, 4.375%, 4.500%, 4.625%, etc. so you can see how paying points affects your interest rate). You should also ask when your interest rate can be locked in (once an address is known, at submission to underwriting, once your loan is approved, etc).

You should also ask when & how they will be available - are you someone who likes to discuss things after the normal work hours on the phone? In person on a Saturday? Through email? If you like to have everything in writing to reference, but your loan officer can't put together explanations in writing to save their lives, then that may pose an issue. If you like to be able to drive to your loan officer's office quickly with an meat cleaver in hand looking for blood when things go wrong - then someone who lives far away will have a bigger head start than someone around the corner.

There are more variables to think of, some will be important to you and others will not, however I truly believe that you will have a feeling inside of you of pure comfort when you have found the loan officer who will be the perfect fit. You will leave the conversation having a full understanding of the road ahead and what is expected of you, as well as you'll feel the loan officer has left no stone unturned when going over your situation.

Re: The mortgage pre-approval process

sc400 — Sat, 03 Sep 2011 00:12:40 GMT

I need to get 9 points added to my combined score to get the loan I want. What is the best and quickest way to get the 9 points.

Re: The mortgage pre-approval process

Booner72 — Sat, 03 Sep 2011 03:52:04 GMT

sc400 wrote:
I need to get 9 points added to my combined score to get the loan I want. What is the best and quickest way to get the 9 points.

Pay down your revolving debt ( aka credit cards etc)

Re: The mortgage pre-approval process

Jazzymb7 — Thu, 06 Oct 2011 17:54:06 GMT

Hello

When trying to get mortgage loan should I consider CU or should I stick with Banks only?? please advise

Thank you

Re: The mortgage pre-approval process

Jazzymb7 — Thu, 06 Oct 2011 17:55:19 GMT

Can you provide good loan institutions?

Thanks

Re: The mortgage pre-approval process

klnst3 — Fri, 07 Oct 2011 13:41:03 GMT

Shane,

My fiance and I are looking to buy a house for the first time. I have a few questions for you. First, can you explain the difference between points and a down payment? As well as an advertised interest rate, vs. the APR? (I really don't understand this because banks are advertising a 4.25% interest rate, and then I've seen posts that mention interest rate AND APR... this is the first I've heard of it, so I don't understand.) 2nd, my fiance is doing the mortgage himself because I have over $100,000 in student loans and no bank will even consider using my info as well because of the loans. So, he has gotten 3 pre-approvals since April. The first is expired (and we really disliked the guy doing it... he wasn't willing to get back to us or anything) and the other two are more recent. We got the second pre-approval because our real estate agent recommended him to us. But he can't explain things to us in a way we understand them, and he wanted me to register for more classes (even though I just completed my MBA program) so that it would appear I was still in school and my loans wouldn't count against me. We felt that was really shady.

The third guy was recommended by my fiance's father, so Josh was pre-approved through him and we're meeting with him on Tuesday, despite the fact that he is so busy he barely found time to deal with us and it took 3 weeks to connect with him to get him to do the pre-approval. HOWEVER, we just saw an ad at a bank that says "lowest rates in town, no closing costs." We were wondered if getting a 4th pre-approval will cause problems with his credit score? He has a score high in the 700's and we don't want to ruin it, but the offer at the bank seems to be a great one.

Thanks for your help!

Re: The mortgage pre-approval process

llecs — Fri, 07 Oct 2011 17:52:55 GMT

Jazzymb7 wrote:
Can you provide good loan institutions?

Thanks

Recommending a specific lender is generally hush-hush on here, though mentioning your lender is generally OK so as long as it isn't a promotion of that lender or a mention of any forum user on here. In other words, you might not get too many responses.

DW and I purchased our first back in January. Two months in advance, we made a list of all of the lenders locally in the area (we wanted to sit face to face vs. communicating via phone or e-mail). We then interviewed all of them and narrowed it to our top three, of which all were small banks. We liked our #1 on the list and stuck with that after sitting down and interviewing her.

Re: The mortgage pre-approval process

ShanetheMortgageMan — Sun, 09 Oct 2011 18:25:40 GMT

klnst3 -

Points are what is paid in connection with the interest rate on a loan, in general the more points you pay the lower your interest rate is. 1 point = 1% of your loan amount, so on a $95k loan amount 1 point would be $950. Down payment is also usually expressed as a percentage, i.e. FHA requires a 3.5% down payment, and that percentage is based on the sales price. So on a $100k sales price a 3.5% down payment would be $3,500.

The interest rate, or "note rate", is the rate your principal & interest portion of your mortgage payment is calculated at. The APR is the figure when you take into consideration the closing costs in addition to the note rate, so you can understand the tradeoff between the rate & fees. It's required to be disclosed to you which is why you see it everywhere, but in reality the important items to consider are the interest rate, fees & terms (fixed rate, for how long, etc.) when making an apples to apples comparison of two loan options.

It is important that you feel comfortable with the loan officer you are working with, if they are difficult to get in touch with before you make an offer, do you really think that will change afterwards? Things will just "click" when you find the right one. When you get your credit checked for a mortgage, you have 30 days until another credit inquiry for a mortgage would impact your scores, so if you get it checked every 31 days then yes it should ding his scores a few points each time. You don't need to have your credit checked in order to get a feel if the loan officer is going to work out, you should only have it checked when you know that is the loan officer you want to work with. It's not like credit is an issue with scores in the high 700's... bring in a list of all of your payments (or even a report from here at myFICO.com) and tell them to assume the credit is OK, if they can't make that assumption then you know they are going to be difficult to work with.

Re: The mortgage pre-approval process

LondonMassey — Wed, 04 Jan 2012 10:11:21 GMT

Hi Shane! I live in the Las Vegas area and am looking into getting an FHA loan for my first home. My scores pulled by quickenloans.com were 650, 637, and 598 and when I pulled them on my own on 12/30/11 I got 640, 633, and 627. I have an income of 1600/mo that is solid and another almost $700 that fluxuates as my son is disabled and receives social security, but when he is in treatment, there is no payment. I only have one credit card with a very low limit (I like it that way) and can have it at a zero balance tomorrow if necessary.

I am hoping to purchase in the next 4 months and will be using a portion of my tax return to finance the down payment of 3.5%. I am looking at homes between 40K-70K (70k only if I receive assistance from a non-profit organization here). As far as debt goes, I made mistakes 10 years ago in college with credit cards (why I don't like them now), but there are 2 medical bills from 2005 that were refused by workman's comp for a total of 4k that will fall off in April/May of this year.

I have 3 very minimal medical bills ($35 here, $180 there, $40 there) from a car accident in 2006 that I guess were never paid by the at fault driver's insurance company. I then have a $12 home phone bill that I wasn't even aware that I owed until now from 2005, and one more medical bill of $380 from the birth of a child in 2007 while I was insured (I tried to get it corrected but they said it's been too long and insurance won't pay). I have a lien from the IRS in 2007 after I had filed my taxes wrong and a $2800 debt turned into $8600 with penalties and fees that has been paid in full and released as of 2010.

I had a student loan default from 2005 of $1050 in 2008 that is paid in full as of 2010 and debt from the VA of $811 for overpayment of educational benefits that was paid in full in 2010. I have rented in the Las Vegas area for over 9 years, never been evicted, always carried out my lease, and have been late approximately 3 times in all 9 years on paying rent (nothing more than a week due to payday schedule). The residence that I currently live in, I am on my 5th year lease and have never been late with rent.

All utilities are paid up to date and have not had any late payments in over 2 years and no 30+ late payments in at least 4 (if any, sometimes my gas bill was only $8 so I would let it double up... not sure what damage that could cause me, if any). Due to my son's disability there are times that I have only worked part time in the past in order to care for him. In 2007, I went back to full time employment and the company closed in 2008 due to the economy. I was on unemployment for 6 months and then obtained a job where that company closed 4 months later in 2009.

I have since been employed full time as of October 2010, but I left that position in March of 2011 when I was offered employment with the State of Nevada, I was then laid off at the end of June 2011 due to budget cut backs. I then obtained my current position 2 weeks after leaving the state and am very comfortable where I am at, even though the wage is lower than I could get, the people I work for are honest and my job is secure.

The home I am currently looking at is $65000 and there is another one that I like that is only $40000. Given today's market and my history, what is the chance that I will be approved for this FHA loan? I don't want to end up ruining my score with hard hits for a mortgage or get my hopes up to have it all be a dead end. Aside from medical bills, my total debt is less than $400, which I am willing to pay to close, but I won't attempt to do anything with it now since they have been dorment for so long.

I am a single mother of 3, one of which is disabled, and given this circumstance and the credit issues of my past, I'm almost "proud" of my current scores, as they are increasing consistently. Because of the lack of credit, would I have to go through alternative credit? manual underwriting? Would I be denied for not having enough credit? Please let me know your thoughts! Any help would be appreciated!

Re: The mortgage pre-approval process

Mannytbs4750 — Thu, 23 Feb 2012 15:17:25 GMT

Hello Shane:

I've got pre-approved for $120,000 on 30y mortgage with exp 695 equi 678, and tans 712 scores, this is without my wife. Will that amounts remain the same when I find a house, and actually apply for my mortgage?, what if the house I want is 5 or 10 thousand dollars more than my pre-approval amount?

My wife has only had credit for almost a year, thats why I didnt include her in the pre-approval application, the officer told me she would need a score of 620+, and surprisingly, when I checked her credit, she had exp 700 equi 710, and trans 730. If I include her in the equation, will my interest rates and loan amount change in a positive effect?

Will it be easier to get approved?

The officer asked for my information while the pre-approval, he asked me for 2 years of emplyment. I gave him 1 year with my current employer, and a year with my last.

That, is not necessarily true because I was only working for my last employer for 6 months, that leaves me with proof for a 1-1/2 years of employment.

I know he will check my w-2 forms and find out, it also depends on how long I take to find a house, because if it takes me 6 months, they I've got all I need right?

My job before my last, was a cash job so I cannot report it, and I was not collecting unemployment. Is there any way around this mess?

My wife on the other hand has 5 years of employment to show!

The 3.5% downpayment, I posses in cash. The officer said I could not use it because I cannot prove how I earned it. So he said, give to a family member, and have them right you a personal check for the amount that states it is a gift for your new home, as long as they have that kind of money already in their bank account.

Will this work?

Thank you very, very much for your time!

Re: The mortgage pre-approval process

tryingtobuyahome — Sat, 10 Mar 2012 22:37:05 GMT

Hi Shane,

I am currently in the process of trying to buy a home and went to a mortgage broker who pulled my cr's and said there was no score available. (Credco I believe was what the inquiry listed as). I have paid everything in cash for the past 12 years after getting into some financial troubles but new I would need to establish some credit so opened a credit card with cap 1 back in Jan. It has now been reported for a month so the broker did a re-pull but it's still not showing a score even though I have a score with all 3 bureaus. The broker doesn't seem to have any experience in this situation and I have no clue what else I can do to increase my score and my ability to obtain a loan. I owned a home about 14 years ago but of course all of this has dropped off of my reports. The broker mentioned looking at rental history, utilities, etc. but I rent a room so none of that is in my name.

Scores:

EQ:589 as of 2/26 --607 as of 2/29

TU: 584 as of 2/26

EX: 593 as of 2/26

Re: The mortgage pre-approval process

joestay — Sun, 25 Mar 2012 17:10:35 GMT

I recieved the disclosure from my lender after the preapproval. Do I return the disclosure, singed and everthing, now or after I find a property?

Re: The mortgage pre-approval process

Lel — Thu, 29 Mar 2012 15:35:36 GMT

mdaniel100, I moved your question to the General Credit Topics board with the new title "What are my true FICO scores?"

Re: The mortgage pre-approval process

Lel — Thu, 29 Mar 2012 17:17:01 GMT

I'm locking this thread to prevent it from becoming unwieldy. If you have specific questions about your mortgage approval saga, please start a new thread. Shane does not log on here that regularly, so posting questions on this thread directed to him may go unanswered for some time. Thank you.