Mortgage Pre-Approval Process | Properly Pre-Approved for a Mortgagee
Looking for a fast mortgage pre-approval? The mortgage pre-approval process is one of the most important first steps to home ownership and the mortgage process. One major reason why borrowers stress during the loan process is because they have not been pre-approved correctly.
Solid Pre-Approval for a Mortgage
Being pre-approved correctly makes the loan process simple. The process starts by a Loan Originator putting together a list of documents required for underwriting and processing. This should be followed up by a brief conversation so that the Automated Underwriting System can be run and findings can be reviewed.
Request a Fast Mortgage Pre-Approval
Many borrowers want a mortgage pre-approval for a loan as fast as possible and some Loan Originators will just write one off of verbal information given by a borrower. The mortgage loan process goes a lot smoother and quicker if a Loan Originator takes the correct steps before writing a mortgage pre-approval. At Nationwide Mortgage & Realty, LLC, a borrower can get a real mortgage pre-approval for a loan the same day.
Step 1: Documents Required for Underwriting and Processing
Getting pre-approved for a mortgage can be done the same day when all of the necessary documents are sent to a Loan Originator. Every loan scenario is different and loan documents vary on the case scenario.
Assets
60 days bank statements are needed to see if there are any overdraft fees (this can, but not always result in a loan denial) and verify assets.
A transaction summary is also acceptable, which is a print out of transactions from the bank account. A ledger balance should be included with the 60 day transaction summary. Often, year to date overdraft fees will not be on a transaction summary.
- The transaction summary and ledger balance should be signed, initialed, and stamped by the teller.
If being used for the loan transaction, other assets such as a 401k, stocks, bonds, etc…
Income
If applicable, one month pay stubs will show enough information in order for a Loan Originator to calculate income.
If the case is that a borrower is self employed, they should ask for two years tax returns, a profit and loss for the current year, and a balance sheet.
A Loan Originator should ask if you have received bonuses in the past two years or overtime.
- A Verification of Employment (VOE) or end of the year pay stubs will help when calculating overtime and bonus income.
Overtime and bonuses should match the pay stubs on the loan income verification for the pre-approval for a loan.
Most recent two years tax returns may be required and in most cases a 4506t will be executed to order transcripts that will match the tax returns. In some cases, only W-2 forms are required. If applicable, the most two years W-2 forms are required.
ID Verification
- Copy of photo ID.
- Copy of Social Security Card.
If the case is that the social security card has been misplaced, a Loan Originator will be able to verify a borrower’s social security number by executing a SSA-89 form.
Purchase Loan Documents
A Loan Originator may send a list of documents for underwriting and processing for a purchase pre-approval that may look like this, but some may not apply to everyone:
- 30 days of pay stubs.
- Last 2 years of tax returns (all schedules).
- Last 2 years W-2’s/1099’s.
- Your addresses for last two years with landlord contact info.
- 401K and investment accounts (all pages).
- Copy of photo ID.
- 2 months of checking/savings account statements (all pages).
- Current mortgage statement (all properties you own).
- Homeowner’s insurance declaration page (all properties you own).
- Current property tax bill (all properties you own).
- Homeowners association statement (all properties you own).
Other Documents needed (only if it applies to you):
- Award letters (SSI/pension/disability).
- Purchase contract.
- Divorce decree (all pages).
- Bankruptcy discharge letter.
- Alimony received.
- Child support received.
- Child support orders.
Refinance Mortgage Documents
In the case that the loan is a refinance, a Loan Originator may ask for:
- Utility bill.
- Note.
- Loan modification agreement.
- Other documents.
A Loan Originator will know if additional documents are needed to be reviewed before issuing a pre-approval. The next step would be to run Automated Underwriting System to determine eligibility.
Credit Report
Looking at a recent credit report or credit monitoring system will give a Loan Originator more information before pulling credit. In the case that there is a dispute on a credit report, removing disputes may be required. Letting the Loan Originator know prior to pulling credit will prevent an additional credit inquiry, which could affect credit scores.
Avoiding letting multiple mortgage companies pull credit because credit inquiries can impact a credit score. A lender is always required to ask for authorization to pull credit. One point can make a big difference when it comes to qualifying and interest rate pricing because of mortgage credit score tiers.
Mortgage Credit Score Tiers
A higher score will award more favorable terms and increase the chances of being approved for a mortgage. Most mortgage companies pricing on interest rate will depend on the following tiers:
- Less than 500.
- 500 to 579.
- 580 to 599.
- 600 to 619.
- 620 to 639.
- 640 to 659.
- 660 to 679.
- 680 to 699.
- 700 to 719.
- 720 to 739.
- 740 to 759.
- 760 to 779.
- 780+.
One big example would be a borrower who had a 579 score versus a 580 – the 1 point lower score would require 10% down on an FHA loan versus 3.5%.
Step 2: Running the Automated Underwriting System
Loan Originators use mortgage software to input all the information in order to run an Automated Underwriting System. There are times when Loan Originators skip this step because they are confident that there will be an approval. This can result in a cancellation of a purchase contract and issues during the mortgage process due to not been properly pre-approved.
Fannie Mae’s Desktop Underwriter (DU) and Freddie Mac’s Loan Prospector are risk based programs that will result in automated underwriting results.
- The results should be reviewed by a Loan Originator and not assume that just because there is an automated approval that a pre-approval is ready.
- An automated approval does not guarantee that a loan will close, but if all the information is correct and results are reviewed, there should not be any issues during the underwriting process.
Reasons Why They are not Guaranteed:
- Credit reports can contain errors.
- The borrower can qualify, but the property does not meet minimum property requirements.
- The lender may have a set rule on top of the guidelines called an overlay.
- The loan has to go through underwriting.
Automated Underwriting System results vary depending on the type of loan and all the information gathered/inputted by the Loan Originator. Some Loan Originators are more diligent than others and may have a higher closing rate. Experienced Loan Originators will alleviate stress on the mortgage process by properly pre-approving borrowers.
Step 3: Writing a Pre-Approval for a Loan
The pre-approval should be based on the credit report, income, and assets that were provided and determine the eligibility of a mortgage under the terms. The pre-approval is not a commitment to lend money or a commitment as to an interest rate or term.
Terms will include the purchase price, loan amount, loan program, maximum loan amount, loan-to-value, and term of loans.
A maximum mortgage payment should be talked about with the borrower so that they understand debt-to-income ratios. Mortgage payments vary based on PITIA (principal, interest, taxes, insurance, and home owners association dues).
Being pre-approved for a mortgage is subject to a property appraisal, underwriting approval, FHA, VA, Fannie Mae, Freddie Mac, and private mortgage insurer, if applicable.
The Mortgage Pre-approval Should Be Followed Up With:
- An acceptable appraisal.
- Taxes and applicable HOA are within qualifications.
- Acceptable home owner’s insurance policy.
- Life of loan flood certification.
- A fully executed contract.
How Solid is the Loan Pre-approval
Unfortunately, there are still Loan Originators that issue pre-approvals based on verbal information from a borrower, which often result in a denial and cancellation of a purchase contract. A Loan Originator should carefully review all information from a borrower and run the in order for the loan process to go smooth. The mortgage pre-approval process should include:
- A credit report after authorization is given.
- All requested supporting documents.
- Review of supporting documents.
- Determination that all guidelines are met based on credit, debt, income, and assets.
- Communication to what is needed through the process.
- Automated underwriting system results.