Are You Pre-Approved or Not? Pre-Approval VS Pre-Qualification

Are You Pre-Approved ... or Not?

Pre-Approval VS Pre-Qualification

If you take a look online, you can easily find multiple definitions and opinions on just what constitutes a Mortgage "Pre-Qualification", "Pre-Approval", and "Pre-Approval Letter", and the differences between them ...  

So that said, as a Loan Officer, when first contacted by a potential Borrower, I must ask (along with other things) what that client knows about the mortgage process as a whole, what they know regarding Pre-Qualifications and Pre-Approvals ... and to ascertain which (Pre-Qualification or Pre-Approval) best fulfills their need(s), both in the short-term and long.  

If trying to find out what financing or home buying options they may, or may not, have at their disposal ... or just hoping to spruce up their credit standing for future buying  ... Pre-Qualification may fulfill their needs.  But if they want to buy soon, or have an actual home in mind for purchase, most often, Pre-Approval serves their immediate purpose better.

So what are the steps needing to be taken to obtain a Mortgage Pre-Approval and Pre-Approval Letter?

The process to receive a Pre-Approval Letter typically includes the following:

• A client is hoping to buy or refinance a home
• That client has contacted an Originator (me) to be qualified for mortgage financing
• That client hopes to secure a Pre-Approval Letter stating that they are financially qualified to buy/refinance a home and successfully complete the financing process to do so
• The client provides me info (and hopefully supporting documentation) for the purpose of submitting that info to automated underwriting
• A Pre-Approval Letter is provided to the client 

I've found that sometimes the terms Mortgage Pre-Qualification and Pre-Approval ... and their definitions ... seem "muddy" or hard to differentiate between by new clients entering the home buying and financing process.  Their confusion often surrounds:

1.  Just how literally can a Pre-Qualification or Pre-Approval/Pre-Approval Letter be taken?  
2.  What assurances are gained from obtaining each?

Now, to be sure, there's a legal definition for each term.  (See links above) But I find it's the term Pre-Approval/Pre-Approval Letter that garners the most interest from potential Borrowers/Buyers and is increasingly requested by them (versus a Pre-Qualification).  

It's my opinion that Pre-Approvals are the preferred choice and more reliable for Buyer/Borrower's (and Seller's) sake when an actual Real Estate Contract is being negotiated.  That reliability is anchored in the fact that a more thorough scrutiny (and often automated underwriting) conducted by the Lender.  

It must be pointed out though that a Mortgage Lender does protect themselves during this portion of the process, as Pre-Approval Letters do include an "out" or ability for the Lender to withdraw or cancel a Pre-Approval.  The "out" comes into play should any of the discussed terms within the Letter change after more detailed data is learned ... either about the Borrower(s) or the property being proposed for financing.

You'll find some examples of changes or misinterpretations that will null a Lender's Pre-Approval below: 

• Variances in the Borrower(s) actual length of employment:  Dates regarding when a Borrower worked at a current or former Employer
• Variables in Borrower(s) pay:  

       A.  HOW they get paid

       B.  Actual number of hours worked

       C.  Actual rate of pay

       D.  Figures regarding Unreimbursed Business Expenses

       E.  Discrepancies surrounding Commission or Bonus

• Gaps in employment:  Gaps not previously reported and only verified by an Employer's Human Resource Department after the Mortgage Application is taken 
• Classification of employment:  Learning that a Borrower(s) is Self-Employed or Independent Contractor VS a salaried or hourly-wage employee
• Funds to Close:  Funds are found to be either in part or full from "cash on hand" with no verifiable means of documenting the source of the funds
• Large Deposits:  Large Deposits are made into the Borrower(s) accounts for the Closing Funds and Down Payment.  The funds cannot be sourced by traditional income or transfer of other assets from other accounts
• Property Type:  The Property Type is not reported correctly (Example:  What was reported as a Townhouse is actually Condominium Ownership and not approvable by FHA, Fannie Mae, or VA, as a Condo)
• Loan Specificity:  A specific loan program intended to fit the criteria of the loan scenario is discontinued or a Borrower(s) income or DTI (debt-to-income ratio) can't meet the specific requirements of that program ... and no other financing options are available 
• More ...

When any of these instances occur and a Pre-Approval is canceled by the Lender, it's often not received well by client or agent ...  

The basis for the Lender's withdrawal of the Pre-Approval is often viewed as an "excuse".  It's seen as info that should have been obtained, known, or raised as a potential problem by the Originator earlier in the process ... or anticipated because of the Originator's past work experience.  

In some cases, that is correct.  But even experienced Originators cannot know everything and make mistakes.   

While I still have a large number of clients that reach out to me via phone, email, text, and social media ... in a growing number of my files, Borrowers are themselves completing electronic filings for Pre-approval online.  While there can be an advantage for clients, it can have negative results too.

How?  

Sometimes Borrowers misinterpret or answer a question on the online application incorrectly and unknowingly.  In these instances, the obtaining of subsequent digital or paper copies of documentation, credit reports, statements, job histories, etc., later reveal a discrepancy, error, or misunderstanding made.

So it's vitally important for Mortgage Applicants to know:  Documentation subsequently provided to the Lender is where the all-important difference between Pre-Qualification and Pre-Approval resides ...   

As an Originator, I'm lucky ...  

The majority of my mortgage clients come to me as a "warm lead".  That meaning that their agent, attorney, accountant, friend have worked with me in the past and recommended my services.  They're a bit more well-versed and it's been explained that they need a Pre-Approval Letter before they can start their home search.  That gets us off to a positive start.

Still, my clients arrive in varying stages of readiness to buy.  Some are more informed than others and have an idea of what the mortgage process holds for them.  

Others know their credit scores because they performed a search prior to our speaking.  Or they gained their scores via a free monthly credit card service.  They may have a vague idea of what they can afford or a monthly payment they're hoping for.  

But it's rare that valid proof of income is in hand when we first speak or available to me at that time.  Valid proof meaning pay stubs, W-2's, Tax Returns submitted, down payment fund verified by bank statements, retirement account statements, investment funds, proceeds of a sale of property, etc.  (For a complete listing of documentation needed at the time of application, click HERE). 

Such was the case when I spoke to clients late in the day on Saturday this past weekend ...  

We had talked prior to that call, but it had been months.  They were in their car.  They'd been out viewing homes and they'd found one they really liked.  

Their question to me?  How quickly could I provide them with a Pre-Approval Letter so they could place an offer on the home?  Their agent was demanding it.

Time was of the essence for these Buyers and they did receive a Letter ... but it was a Pre-Qualification Letter, as it was provided without any income or asset verification to support our initial discussions.  It's not the scenario I recommend to my clients or agents.

This is just one of the many scenarios an Originator can face when receiving requests for Pre-Qualifications and Pre-Approvals.  There are always many moving parts to each request and varying timetables to negotiate.   

While there is no 100% foolproof guarantee that a Pre-Approval will turn into a Loan Commitment and Cleared to Close ... Pre-Approvals remain the closest thing to being so.  It's a wise Borrower that communicates with their Originator early, consistently, and thoroughly and allows their Mortgage Originator ample time to conduct the process needed to provide one.

There is so much to gain by taking early proactive steps ... certainly credit and financial-wise.  But also in reduced stress. 

So get started on your Pre-Approval early.  Contact me immediately upon making your decision to buy.  Don't wait until you're ready to view homes.  

You'll be glad you made the decision and the effort ...

* Hoping to Buy or Refinance a Home or Investment Property in the Chicago - Chicagoland area, IL or WI? 

Contact me!

I'll put my 48 years of Mortgage experience and expertise hard to work on your behalf.  I'm easily found at:

Gene Mundt

Mortgage Originator - NMLS #216987 - IL Lic. 031.0006220 - WI Licensed #216987

American Portfolio Mortgage Corp.

NMLS #175656

Cell or Text: 708.921.6331

www.genemundt.com

gmundt@goapmc.com

  

             

      

    

Gene Mundt, Mortgage Originator, a Mortgage Originator with 40+ years of #mortgage experience, that will offer you exemplary mortgage service and advice when seeking: #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including: The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Lockport, #Channahon, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of #Chicago, #Cook County, and elsewhere within IL and Wisconsin.

Your Referrals & Testimonials are Always Greatly Appreciated!

  

   

  

Pre-Approvals: Are They Mortgage Zombies?

Pre-Approvals:  Are They Mortgage Zombies?

     A recent Wall Street Journal article discussed the decline of Pre-Approval applications among top Lenders and Banks.  The statistics they offer show that Pre-Approvals have pretty much died as a tool or service offered by many Banks and Lender.  Just like Zombies, they are dead, but still walking.

     For purposes of defining a Pre-Approval used within that WSJ article, a Pre-Approval is deemed to be:

     A full Loan Application.  Signed, documented with Credit Reports, Paystubs, W-2's or 1099's, Federal Tax Returns, Bank Statements, processed by a Lender, and submitted to an Underwriter for review. 

     What is NOT included within the Pre-Approval is:

     A Sales Contract, Appraisal, Title Report, Flood Certification, and any property-related issues.

     In other words, the WSJ Pre-Approval pertains to a proposed payment and loan amount in a proposed loan program, at a proposed rate, and a proposed loan to value ratio.  

     Using this strict definition, I agree with the article and the trend they report being seen within our business.  Pre-Approvals within this format and definition are disappearing from many Lender's menu of processes and services. 

 

     Why?

 

     I believe the process (as they describe it) should really be called a "Commitment to Lend", albeit subject to changes in: Property Taxes, Insurance, potential for Homeowner's Association Dues, Interest Rates, Credit Scores, (Credit Reports have expiration dates, typically 90 days after being pulled), and anything else related to having a SPECIFIC property ... AFTER a Contract has been written and secured.

 

     The process ... again, as it is described in the WSJ ... is rarely utilized, unless the Borrower(s) and loan candidate is marginal in one area of the Approval Process ... i.e. the Approval (or Denial) could go either way.  An experienced Loan Officer will likely know the results (or lack thereof) after doing the "due diligence" of Pre-Qualifying a client.  It's true that in some cases, if there are unusual or extenuating circumstances involved, a LO might want a 2nd opinion from an Underwriter.  But again, an experienced LO typically will have a good idea of the strength of their Borrower.    

     Lending institutions are paying processors and Underwriters to process and approve/deny Pre-Approval Applications.  These types of Apps typically take as much time to process, document, and submit to review as a "real deal" does.  Considering the large percentage of "fallout" from these Applications, they have become to be seen as more of a burden to Lender and Banks, than a positive.

 

     Very few prospective Buyers are willing to extend time or effort to complete a Full Mortgage Application just to receive a Pre-Approval Letter that goes in tandem with an offer on a property.  Definitely understandable.  And time typically does not allow for it either within the timeframe of viewing and placing offers on homes.  Especially now that homes are selling so briskly in many housing markets and multiple offers are being seen once again on many homes. 

     Still, the requests for Mortgage Pre-Approvals limps on. (Dare I say it, like a Zombie?).  Again, why?
 

     The only feasible action within the Chicagoland area remains that Buyers/Borrowers be screened well by an experienced Mortgage Lender.  That the Lender pulls a Credit Report, thoroughly interviews a prospect, verifies a Paystub, Bank Statement, W-2, and Tax Return ... then issues a Pre-Approval Letter or Pre-Qualification Letter based on the results found in that documentable information.

 

    The Wall Street Journal is right ... the Pre-Approval process is not perfect.  But to a great degree, the success found within the process relies on the strength, soundness, and validity of the individual Mortgage Lender's opinion, knowledge, and experience provided.  That's very important to remember as you're researching which Mortgage Lender to work with ...

 

 

     *  Looking to Buy a Home or Refinance within the Lincoln-Way area, Will County, or elsewhere in Chicagoland?  Contact me!  I'll put my 36 years of mortgage experience and expertise hard to work on your behalf.

     I can be easily found at:

Direct:  815.524.2280

Cell/Text:  708.921.6331

gmundt@goapmc.com

www.genemundt.com

eFax:  815.524.2281

Click HERE for your

FREE Chicagoland Mortgage Consultation!    

Ready to Apply for your Mortgage?

 

 

 

             

                 
 

 

 

 

  

 

 

 

 

    

 

 

      

      

With Golf and Mortgages: It's Important to Know the Rules

  With Golf  and Mortgages: 

It's Important to Know the Rules

There are a LOT of rules in golf ...  

That fact has drawn increasing attention as of late.  But truth is, golf rules have always provided controversy and remained front and center during golf tournaments over the years.  

Just ask these golf pros:

LPGA star Lexi Thompson, PGA players Craig Stadler and Paul Azinger, golf mega-star Tiger Woods, and more. Not knowing ... or being unaware of a rule ... cost them strokes during important golf rounds and ultimately a win (and money) on the tour. 

Strong parallels between golf and mortgage lending can be made.  Be unaware or not know the rules of mortgage lending?  It can possibly cost you ... in time, money, and opportunity to attain success.  

Just as in golf, the rules of mortgage lending are important.  They are intended to ensure all play by the same rules.  The "rules" demand that Lenders ... and the entities that insure loans ... approve borrowers that are "qualified" to borrow money and have the ability to repay the loan in full, no matter race, sex, familial status, location of property (redlining), and more.

The Mortgage Pre-Approval is another good example of a "rule" existing in the modern mortgage process.  While the act of being pre-approved was suggested by agents years ago, it has now become almost a necessity.  While some agents may show a property to a potential Home Buyer that has not pursued Mortgage Pre-Approval, it's become increasingly rare. 

So how and why did this "rule" come about?  The process of obtaining a Mortgage Pre-Approval likely started with Home Buyers needing to prove an "edge" over their buying competition in a highly competitive housing market ...

When a Buyer proves they can successfully complete their home financing to buy, they're viewed more favorably by Sellers.  It's easy to understand why most Sellers stick to this "rule" regarding Mortgage Pre-Approvals and entertain offers from pre-approved Buyers only.  

It's easy to see why:  Do otherwise, and they risk a possible loss of time and money ... and disappointment.

The backbone of any Mortgage Pre-Approval is the potential Borrower's Credit Report.  In order for me to order a tri-merge Credit Report, I, as your Lender, need the following basic info from each Borrower to be placed on the Mortgage:

• Full Name(s)
• Address(es):  2 years required.*
• Social Security Number(s) Date(s) of Birth
• Permission to run the Credit Report(s)

       *If you haven't resided at your current address for two years, info regarding previous address(es) is required.  If currently renting, SOMETIMES, the following is needed:  The Name, Address, and Telephone Number(s) of Landlord or letter from Landlord stating the amount of Monthly Rent and the Statement "Paid as agreed for past 12 months".

What does this all-important Credit Report disclose to your Lender?

It provides your Credit Scores from each of the 3 main credit bureaus:  Equifax, TransUnion, and Experian.  The middle Credit Score received is the score that Lenders utilize during your Pre-Approval.  

Here's an example of that "rule" ...

Credit Bureau 1:  723 Score

Credit Bureau 2:  735 Score

Credit Bureau 3:  741 Score

The score the Lender uses is:  735

Why are Credit Scores so important?

Most mortgage loan programs/loan types have minimum Credit Score requirements.  Some loans are simply not available to Borrowers with lower Credit Scores ... or those that don't meet minimum loan requirements.

"Rules" regarding Credit Scores are clear.  The lower your Credit Score, the lower your chance of securing a Loan Approval.  Likewise, lower Credit Scores typically mean higher Interest Rates, increased financing costs, or both.  The higher your Credit Scores, the lower the Interest Rate earned for financing.

Once it's determined that you are credit eligible, you will be asked for more detailed information regarding:

• Employment - Employment History
• Current Employer
• Length of Employment
• Income 
• How you are paid (Salary, Hourly, Commission, Bonus, Overtime) Social Security, Pension, Investments - if retired or disabled)

Those items or documentation that will verify income will be requested at this time too.  Those include:

• W-2's
• 1099's
• Tax Returns (Last 2 years)
• PayStubs (Last 30 days, consecutive)
• Court Orders for Support or Alimony ...

You then move on to the topic of DownPayment Funds.  Be prepared to answer the following questions:

• What DownPayment Funds do you have available, if any?
• Are Gift Funds being provided to you?  If so, by whom? How much?
• Are you eligible for VA home buying benefits?

      Note:  Should you wish to flex your VA home buying benefits, you will be required to supply the following documentation in addition to all the basic info:

• Copy of your original Certificate of Eligibility
• Copy of DD-214

Most Buyers are typically asked for the following: 

• A copy of your Driver's License or State ID Card
• A signed copy of the Real Estate Contract on the home you're purchasing, plus any Riders
• Names & Contact Info for your Attorney 
• Name and Contact Info for your Insurance Agent

Where/when applicable, you may be asked for:  

• All pages of your Recorded Divorce Decree(s) or Separation Agreement(s)
• 12 Month Court Printout of Child Support received
• Bankruptcy Papers:  Recorded Bankruptcy Discharge, plus the Schedule of Creditors
• Collection Documentation:  Filed & Stamped Release of any Judgment, plus explanations of any outstanding  Collections
• Your most Recent Social Security Award Letter or Pension Award Letter

If you currently own Real Estate, you'll be required to provide the following info:

• Mortgage Account Information 
• If applicable, info on any Home Equity financing
• Home Insurance Policy Info/ Real Estate Tax Bill
• Address and Info on additional Real Estate owned (Investment, Vacation/2nd Home, Timeshares)

For those that are self-employed and seeking Pre-Approval or Mortgage Application, the following documentation is typically required:   

• The last 2 years of filed Year-to-Date Profit and Loss Statement
• 2 years of complete Tax Returns

If you hope to be Pre-Approved and apply for a Mortgage, you can pretty much count on all the above questions and requirements being in play.  Those are the "rules" with financing currently.  

Yes, you're right ...  

There are lots of "rules" involved in the current mortgage process.  But as I pointed out above, a knowledge of the rules beforehand helps immensely.  

Have questions?  Ask them.  The sooner the better.  Want to know more about the mortgage process?  Reach out to me.  Hope to be Pre-Approved or apply for a Mortgage in New Lenox? Will County?  Elsewhere in the Chicagoland area?  Contact me.  

Know the "rules" regarding mortgages ahead of time.  Be aware of what info and documentation you'll be asked to produce during your Pre-Approval or Mortgage Application (and gather it pro-actively).

It helps you elevate your financing "game".  Helps you avoid the "traps" and "water hazards" some find during their mortgage process.  And it will make you a winner ...

         

* Hoping to be Pre-Approved ... or to buy or refinance a home in New Lenox or elsewhere in the Chicagoland area? Contact me!  I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I'm easily found at:

Gene Mundt

Mortgage Originator - nmls #216987 - IL Lic. 031.0006220 - WI Licensed

American Portfolio Mortgage Corp.

nmls #175656

Direct: 815.524.2280

Cell or Text: 708.921.6331

eFax: 815.524.2281

www.genemundt.com

gmundt@goapmc.com

              

       

Gene Mundt, Mortgage Originator, an Originator with 40+ years 

of mortgage experience, will offer you exemplary 

mortgage service and advice when seeking: 

Conventional, FHA, VA, Jumbo, USDA, and Portfolio Loans 

in Chicago and the greater Chicagoland region, including: 

The Lincoln-Way Area, Will County, (New Lenox, Frankfort, 

Mokena, Manhattan, Joliet, Shorewood, Crest Hill, Plainfield, Bolingbrook, Romeoville, Naperville, etc.), DuPage County, 

the City of Chicago, Cook County, and elsewhere within IL & WI.

Referrals are Always Appreciated and Welcomed!