Patrick Markert asked:


While shopping for a home loan, brokers and lenders will offer to pre-qualify or pre-approve you for a mortgage. Home loan pre-qualification and pre-approval are different and distinct processes, so it is important for you to understand the difference.

Pre-Qualified

A loan officer or loan processor working for a mortgage lender or broker can typically pre-qualify you for a home loan within an hour. Getting pre-qualified for a home loan is a good first step that will let you know if you should proceed to the pre-approval process. To get pre-qualified you will need to complete a mortgage application and allow the broker or lender to pull your credit. They will review the mortgage application and your credit and let your know if you are pre-qualified.

Pre-Approved

Only a mortgage underwriter can pre-approve you for a home loan, loan officers and processors can not. Typically mortgage brokers do not have underwriters on staff, so they typically can not pre-approve your home loan. A valid pre-approval is the best tool you can have when shopping for a new home. The key is to ensure that it is valid. A valid pre-approval has been underwritten by an authorized underwriter (an underwriter is the final person that says your loan is approved). If an underwriter pre-approves your home loan application upfront, all you have to do is find the home you want, have it appraised, and then you should be able to close in just a few days. Some mortgage brokers and lenders will issue pre-approvals that have not been reviewed by an authorized underwriter, be sure to ask.

To get pre-approved for a home loan you will need to provide the underwriter with your income and asset documentation (W2′s, Bank Statements, etc). The underwriter will review your credit, mortgage application, documentation, and then approve you for a set loan amount and property value. Once you have been pre-approved for a home loan you are ready to start shopping. The process typically takes a couple of days.

Knowing exactly what type of home loan you can obtain will allow you to shop and negotiate with confidence. For example, you could inform a seller that you are pre-approved for the mortgage and you are prepared to close next week. If the seller needs to close quickly, it will not matter if there is another buyer that cannot close for weeks or months. Plus, sellers do not like to take their properties off of the market for long periods of time. The ability to close quickly is one way to get a great deal.

Realtors will work much harder for you if they know that you have a valid pre-approval. Think about it, if the realtor is spending days or weeks driving you around, they want to make sure that they are going to be compensated for their efforts. By ensuring the realtor that you are approved, they will be willing to spend more time working for you.

In summary, a pre-qualification is a good place to start. Once you have the pre-qualification, you should proceed to the pre-approval process. Watch out for mortgage brokers and lenders offering pre-approvals that have not been fully underwritten by a mortgage underwriter.



MARCEL

Kristin Abouelata – Home Loans asked:


When a mortgage underwriter reviews customers’ credit profiles and income histories, what’s happened in the past two years holds a lot of weight as to what their future will be.  And what the future may hold for them doesn’t always count for much at all. At least when assessing risk in mortgage lending. 

 

If your future is difficult to substantiate, your past history is what a mortgage underwriter considers.  That’s why it can be difficult these days for newly self-employed people to obtain loans.  If you start a new business, you have no track record.  Couple this fact with the other odds reflecting it’s highly likely you’ll lose money your first year in business, and you can see why you have to be out of the gate two years before you’re not considered a risk anymore.

 

The history theory is also a hard lesson for people who earn tips as a large part of their income to learn   A lender will ask these individuals what Uncle Sam has on record for their earnings for the last two years.  There’s no way to soundly document what they’ve earned year to date, except for base pay and their two year history.  So, if they’re making a ton of more money in their third year of business, typically a lender can’t substantiate the marked difference in income.  The same can be said for people who are self employed and have multiple business expense and depreciation deductions.  Lenders count the bottom line when the dust settles.  And again, a lender can’t look at year to date earnings to offset what’s on historical record.  Year to date earnings might strengthen your profile, but basically, it is what it is. 

Of course, your credit score is a reflection of your past.  It’s a great indicator of what your future will be.  I guess that’s pretty self explanatory when you think in terms of lending.  Statistics prove that this number pretty much tells a lender how likely it is you’ll pay on time in the future.  It’s a good crystal ball, in general.  So if you have an iffy credit score, you need to work to improve it, and reapply for a mortgage in the future.

Sometimes a lender can look to the future, and it’s to your advantage.  For instance, if you have a debt, like a car payment, that will be completely satisfied in 10 months or less, it won’t count against you when calculating your monthly debt.  The same can be said for child support or alimony that’s about to expire (or at least the legal obligation is about to expire). Likewise, certain payments sometimes won’t count if they’re deferred for a couple of years, like student loans.  In addition, generally, a person can just have started a salary job and provide a pay stub after loan closing.  However, some programs may be more stringent than others where these areas are concerned.

You see, a lender is going to always count what can be verified, not what the future will hold – no matter how rosy it appears.  And most programs these days would require that an applicant be prepared to verify the information, even if the underwriter doesn’t ask for it.  So, be informed when you consider buying a house.  Your credit history can mean the difference between an A+ and a C- in your interest rate secured and ability to obtain a loan.



LEOPOLDO