Mortgage pre-approval is an essential part of any offer. If you cannot show that you have already researched your ability to buy a property, you are not ready to offer money for it. This is common sense. But, not all pre-approvals are created equal. Experienced agents and agents in well-run offices know that some lenders will write a “pre-approval letter” that means nothing. If you present a letter like this, you may fail to get your offer accepted.
- Weak pre-approval letters are written based on a phone conversation, with few or none of your financial records checked. Some companies do only that, and call it a “pre-approval.” Some companies add a credit report, which is still not enough.
- Weak pre-approval letters also come from lenders who do not do regular business in the area. If no one has heard of your lender, that is a red flag in the brokerage community.
- Weak pre-approval letters also come from lenders who are notorious for last-minute problems or last-minute mortgage failures. Any agency that faced last-minute drama or had a transaction fall apart never forgets which company caused the problem. That lender causes an immediate negative reaction whenever its name is seen on a pre-approval.
- A recent credit report (less than 90 days.)
- Tax returns. Especially important for self-employed, business partners, and people with unique income streams. Some of the items on your Schedule C can be added back into your income, so that your adjusted gross income more closely reflects your true income. Tax returns also find hidden liabilities which could cause your loan to fail later.
- Bank statements. The loan officer should be fully aware of the source of your down payment, funds to close, and post-closing reserves.
- Completed Automatic Underwriting. Lenders have software to check if your financial information will pass the standards for Fannie Mae and Freddie Mac (national mortgage resellers.) Your information should be checked against this software to assure that any problems are found early.
- Potential problems with the collateral. Once you find a property, tell your lender the vital statistics of a condo association or any factors that could come up in an appraisal. If you are planning to buy into a new condo development or a small condo association, there could be problems getting your loan approved. Discuss those options with your lender early in the process.
Thank you to Jesse Stein at Mortgage Master for notes leading to this entry.