When youre ready to buy a home, pre-approval is an important part of the process. You talk to a lender who will go over your situation and then give you a pre-approval letter. The letter helps determine your budget and how much of a monthly payment you can afford.

Lenders will look at some major factors before giving you a mortgage pre-approval, which include:

Debt-to-income ratio DTI
Loan-to-value LTV ratio
FICO score
Credit history
Employment history
Income

A pre-qualification isnt the same as a pre-approval, even though theyre sometimes mistakenly used interchangeably.

With a pre-qualification, you give a lender a general overview of your financial situation, primarily focusing on your income and debts. A lender then provides you with an estimated loan amount.

The lender doesnt verify the information you provide. Having a pre-qualification might help you personally to know what you can spend and get you started as you look for houses, but it doesnt carry any weight when you make an offer.

Below, we discuss what happens after a pre-approval and whether you can still be denied.

Information is Verified During a Pre-Approval

As mentioned, you provide a lender with your financial information to pre-qualify, but youre actually going to fill out your mortgage application for a pre-approval.

You provide your Social Security number, and your lender does a hard credit check. The lender will ask you to list your assets, debts, employment and income history, and bank account information.

A lenders primary goal during the pre-approval process is to ensure you can repay a loan.

The lender uses the information collected to calculate your LTV and DTI ratios during this time. These are part of how theyll determine the best type of loan for you and the interest rate.

Your final loan approval will come after an appraisal is done and the loan is applied to a property.

If youre pre-approved, your loan file goes to an underwriter. The underwriter also verifies your documentation compared to your application. They will make sure youre going to meet borrower guidelines for a loan program.

The Underwriting Process

Underwriting again is when your lender is verifying your home loan eligibility. The underwriter also works to make sure a property is going to meet the loan standards. Underwriters are the ultimate decision-makers, and they do have to follow strict guidelines, but they have some leeway in certain areas.

Underwriting timelines can vary, but initial underwriting approval can typically happen within 72 hours of a file being submitted. In rare cases, underwriting can take as long as a month.

Underwriters take a deep look at your financial situation. Once they review your file, theyll issue conditional approval. If youre conditionally approved, the underwriter says they think your loan will close even though you still may need to provide more information.

The last step for the lender is final approval, meaning you can close.

Can Your Mortgage Be Denied In Underwriting?

Although its fairly rare, a mortgage can be denied in underwriting.

There are a lot of reasons that an underwriter could deny a loan, including having too much debt compared to your earnings, a low credit score, or the appraised value of the home doesnt support the sales price.

Your loan officer should tell you why if youre turned down in underwriting. You can try to overturn their denial, and its not official until you receive a denial letter.

If you are turned down in underwriting, you can check with other lenders. Having one lender turn you down doesnt mean they all will give you the same answer. For example, some lenders have manual underwriting options to approve loans when other lenders cant.

To avoid being denied in underwriting, generally cleaning up your finances and making sure you arent trying to borrow more than you can afford helps. You can also make sure your loan application is complete and accurate. You want the lender to have a full picture of everything they need to decide, so there arent any surprises in underwriting.


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