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.
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.