How Solid Is The Pre-Approval Letter?

Importance Of Pre-Approval Letter

Realtors count on a solid pre-approval letter from home buyers. Home sellers normally will not show a property and more importantly, will not accept a real estate purchase offer from a home buyer without a pre-approval letter. A shrewd real estate agent will question the pre-approval letter that they were presented with and will often contact the mortgage lender who issued the pre-approval letter to see how solid the pre-approval letter is and to see whether the mortgage loan originator has thoroughly reviewed the mortgage loan borrower’s tax returns, W-2s, and whether the mortgage loan originator has submitted the mortgage loan applicant’s file through Fannie Mae’s Automated Underwriting System.

Do All Mortgage Loan Originators Qualify Borrowers Same Way?

The pre-approval stage is the most important part of the mortgage loan process. Many mortgage loan officers just issue pre-approvals by running the credit report and seeing whether the mortgage borrower meets the minimum credit scores. They do not review the credit report to see whether they have had any late payments in the past 12 months, see if they have any credit disputes, check for unsatisfied judgments, check to see for any tax liens, or check for any other credit issues that may come up during the mortgage approval process. A sloppy pre-approval is the main reason why mortgage loans get denied. Other more diligent mortgage loan officers will look and thoroughly review the mortgage applicant’s tax returns to see if they have unreimbursed expenses or any other debt obligations such as alimony payments, or child support payments.

Prior Foreclosure

Most mortgage loan officers do not make a mistake with prior bankruptcies from mortgage applicant’s. There is a two year mandatory waiting period after a Chapter 7 Bankruptcy to qualify for a FHA Loan from the date of the Bankruptcy discharged date with re-established credit. There is a four year waiting period after a Chapter 7 Bankruptcy discharged date to qualify for a conventional loan with re-established credit. However, with foreclosures, it is a different matter. There is a three year waiting period to qualify for a FHA Loan after the recorded date of either a foreclosure and/or deed in lieu of foreclosure. The three year waiting period does not start until the date of the sheriff’s sale or the date when the deed of the property was transferred out of the homeowner’s name into the name of the mortgage lender or the name of the new homeowner. It does not matter when the homeowner surrendered the keys to the mortgage lender. Sometimes, years go by where the deed of the property has not been transferred out of the name of the homeowner and the homeowner thought that the foreclosure process was done and that they have met the mandatory waiting period. With conventional loans, there is a seven year mandatory waiting period to qualify for a conventional loan after the recorded date of the foreclosure or the date of the sheriff’s sale. There is a four year mandatory waiting period after the date of the short sale to qualify for a conventional loan. There is a four year mandatory waiting period to qualify for a conventional loan after the recorded date of a deed in lieu of foreclosure to qualify for a conventional loan.

FHA Loans

What Are FHA Loans?

FHA Loans are the most popular mortgage loan programs in the United States today. The Federal Housing Administration, FHA, is a subsidiary of the United States Department of Housing and Urban Development, HUD. FHA is not a mortgage lender. FHA’s mission and objective is to insure FHA Loans against default from FHA mortgage loan borrowers which are originated by banks and mortgage companies who are FHA approved and where all their mortgage loans meet FHA mortgage lending guidelines.  As long as the FHA approved banks and mortgage bankers make sure that all of their FHA mortgage loan borrowers meet minimum FHA mortgage lending guidelines, FHA will insure the FHA approved banks and mortgage lenders in the event if the mortgage loan borrower defaults on their FHA Loans.

Minimum Requirements On FHA Loans

FHA Loan Requirements include the following:

  1. Minimum 580 FICO credit scores for 3.5% home purchase FHA Loans.
  2. If credit scores are under 580 FICO, then 10% down payment is required.
  3. If credit scores are under 620 FICO, then maximum debt to income ratio is capped at 43% debt to income ratio.
  4. If credit scores are 620 FICO or higher, then the maximum back end debt to income ratios are capped at 56.9% and maximum front end debt to income ratios are capped at 46.9%.
  5. FHA does not count medical collection accounts and charged off collection accounts and are ignored. Each individual mortgage lender can have mortgage lender overlays on medical collection accounts and charged off accounts.
  6. Mortgage loan borrowers can qualify for FHA Loans with unpaid non-medical collection accounts without having to pay it off or without a written payment agreement. However, if the unpaid collection balance is great than $2,000, then 5% of the unpaid balance will be used as a monthly debt payment obligation and be used to calculate the mortgage loan borrowers debt to income ratios.
  7. FHA Loan Programs allow for non-occupant co-borrowers to be added on the mortgage loan in order to qualify.
  8. Borrowers with prior bankruptcy and foreclosure can qualify for FHA Loan Programs as long as they have waited two years after a Chapter 7 Bankruptcy discharge and three years after the recorded date of foreclosure and/or recorded date of deed in lieu of foreclosure and three year waiting period after the date of a short sale.
  9. FHA Loan Borrowers can get their down payment gifted by a family member and/or relative with a gift letter which states that the home buyer is not going to pay the gift funds back and that the gift funds is not a loan but merely a gift. 100% gift funds are acceptable.

Gustan Cho Associates

If you are shopping for a mortgage lender with no lender overlays, contact Gustan Cho Associates . Gustan Cho and his associates are experts in FHA Loans, VA Loans, USDA Loans, Conventional Loans, Jumbo Loans, and Portfolio Loans. Gustan Cho Associates are also commercial loan specialists and hard money lenders. Gustan Cho Associates is also associated with Doctors Funding Group, a direct lender where it offers unsecured financing to healthcare professionals such as medical doctors, dentists, veterinarians, pharmacists, physical therapists, and chiropractors. If you need a no mortgage lender overlay lender, contact Gustan Cho directly at 262-716-8151 or email Gustan Cho Associates at GustanCho@Outlook.com.