What Kind of Paperwork Do You Need to Pre-Approve Me? FAQ - #3

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Mortgage and Lending with Los Angeles & Ventura Counties in CA

In my continuing series of some of the most frequently asked questions that I get from consumers and prospects who contact me about affordable home loan options, in Part 3, I will discuss the type of documentation that is necessary in order to complete the pre-approval process. 

Most Realtors/agents won't even show prospective buyers available property without a pre-approval letter.  Without speaking to a lender about their financial and personal information, neither the prospective buyer nor the Realtor/agent knows how much the buyers can qualify for or what type of loan they will be getting and it's pointless to even start looking at properties. 

First and foremost, I want to discuss what a pre-approval letter is and what it is not.  It is not a guarantee that you will get a loan.  It is also not when you will get to lock in your rate.  The days of locking and shopping are long gone.  I don't care what your friends and family have told you that you can do, neither I nor any of my lending sources are going to allow you to lock in your rate until you have a fully executed purchase offer.  Even then, I may advise you to wait until we get the appraisal back just to make sure the property will appraise for what you are purchasing it at (that's a whole other post). 

A pre-approval letter is simply a letter from a lender stating that the Mortgage Loan Originator (MLO) has reviewed your financial and personal information (income, asset, liabilities, employment, residence, identity, etc...) and that based on the findings from an automated underwriting system (AUS), the borrower meets the loan programs minimum requirements based on the information that has been provided. 

It is just a conditional approval that is contingent on a whole lot of other things happening and a boatload of even more documentation being provided. 

Many prospective buyers think that all they have to do is tell an MLO how much they make, where they work and how great their credit history is and voila, they're pre-approved.  While some MLO's may pre-qualify their borrowers that way that is most certainly not how I do it. 

The lending environment has become extremely complicated and convoluted in so many ways and it is now more stringent than it has been in years.  A brief conversation on the phone with a prospective borrower about their finances and other personal information is not enough information in order to determine a borrower's qualifications or credit worthiness and actually, it never has been. 

In an effort to make an accurate assessment of a borrower's qualifications and credit worthiness, an MLO needs to review a borrower's, income and asset information (pay stubs & bank statements) as well as their liabilities (credit report). 

Furthermore, an MLO needs to verify a borrower's employment, residence, identity, social security identification, tax returns as well as their funds needed to close escrow.  I even take it a step further and collect any letters of explanation (LOE) that I know I am going to need in order to get a final approval (that too is a whole other post). 

Without reviewing all of this documentation, an MLO can not accurately determine if a borrower meets all of the lenders requirements as well as the guidelines for the program that the borrower is applying for.  If the borrower's qualifications don't meet the lenders requirements as well as the program guidelines, they don't have a chance in the world of getting a loan or closing on an escrow.  PERIOD!!! 

Getting pre-approved is just the first step to getting into escrow and it is by no means the last time the borrower will need to get an approval or the last time the borrower will need to provide documentation.  Once again, the pre-approval is just the beginning but it is where every prospective homeowner needs to start if they ever plan on buying a home and getting to the closing table.

Stay tuned for Part 4 where I discuss a particularly unpleasant and inconvenient practice that prospective buyers will have to go through (typically several times if they choose to) before getting into escrow.  I will also discuss ways to avoid this despicable practice as much as possible and how I can help when it happens to you. 

Today's real estate market can be really scary, which is why it's important to get as much information as possible before starting the home search.  The pre-approval process is not a simple process and borrowers today need affordable loan options that are best suited for their own needs. 

Furthermore, it's absolutely vital that they work with a seasoned MLO and lender that knows what it takes to not only close a loan transaction but one who can also ward off issues that invariable come up and get the transaction back on track and to the closing table. 

That's what I'm here for and I would love to be able to assist you in your search for an affordable home loan.  If you have any questions and/or concerns, please feel free to contact me, Donne Knudsen at 805.2069123 or donne4loans@earthlink.net.

 

 

 

What Kind of First Time Buyer Programs are Available in Los Angeles & Ventura Counties? FAQ - #1

What kind of property can I buy? FAQ - #2

Why Do I Have to Get Pre-Approved with Other Lenders I Don't Want to Use Before I Can Make an Offer on a Property? FAQ - #4

What Kinds of Things Can Go Wrong in the Loan Process? FAQ - #5

What are Impound Accounts & Why Do I Need to Have Them in Order to Close My Loan? FAQ - #6

Can You Help Me Get My Kid Get Out of My House? FAQ - #7 

I'm Supposed to be Closing Next Week Can You Help Me? FAQ - #8 

If I Buy a Duplex, Can I Apply the Tenants Rent Towards My Mortgage? FAQ #9

What Happens if My Appraisal Comes in Low? - FAQ #10

What is a HomePath Property and How Can I Buy One? - FAQ #11

Can I Still Get a Loan if I Don’t Have Perfect Credit? – FAQ #12

Are There Still Loan Programs Where I Don't Have to Put Anything Down? - FAQ #13

 

Photos courtesy of flickr:   jpersons   brototypes   mikezenero   giacomomacis

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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 Donne Knudsen

Realtor® - CalState Realty Services

DRE#: 01364050 / NMLS#: 249822 

 

805.2069123

 

E-mail   My Blog  

Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance

Los Angeles County  --  Ventura County

© 2010 - All Rights Reserved

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Rainmaker
361,912
Karen Feltman
Cedar Rapids/Iowa City, IA Skogman Realty - Cedar Rapids, IA
Relocation Specialist

Well Donne, you know how I feel about this already!  I won't show them any houses without them getting qualified by a lender FIRST!  Have a great weekend!

Jan 07, 2011 02:12 PM #1
Ambassador
1,655,635
Tammy Lankford
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Your Lake Sinclair Expert (706-485-9668)

Hmmm, I recently had a lender "lock" a rate when the offer was made.  Of course my buyer WAS prepared to pay list price IF she had to, but my MAD negotiating skills prevented that.  Is that YOUR rule, or what?  I'm confused, since I know a MLO did just that...

Jan 07, 2011 02:24 PM #2
Rainmaker
347,864
Rodney Mason
Prospect Mortgage - Atlanta, GA
FHA 203K, USDA, VA, HomePath Renovation Specialist

It's amazing how many loan officers are all too wiling to Pre-Qualify buyers without ever seeing the first piece of documentation.  I guess they don't ind wasting everyone's time along with possibly, the buyer's money.

Jan 07, 2011 02:57 PM #3
Rainmaker
599,136
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Karen - Glad to hear you're not one of those Realtors who goes around showing property to people who have no idea what they can buy.

Tammy - Yes, once we have a fully executed purchase contract, we can lock in the rate.  If the property is in good condition and is priced right and we don't expect any issues there and the buyers have no problem paying the difference if the appraisal does come in low, then by all means lock that puppy in!

However, if we anticipate any issues with the property condition or the appraisal and the seller/LA makes it clear they will not re-negotiate the sales price if the appraisal comes in low, then I will often suggest that my clients wait to lock.  My pull-thru rate is too important to me and if my borrower has a problem with that then they're free to use someone else. 

I get a lot of benefits and advantages because I have a high pull-thru rate and a low fall-out rate and I'm going to do everything I can to keep it that way.  Once again, if that is unacceptable to my borrower, they are free to use another MLO and lender.

Rodney - I'm in the business of originating and closing loan transactions; that is what my clients pay me to do.  I'm not in the business of pissing of my clients as well as all the other parties in the transaction because I didn't do my job.

Thx for stopping by folks; I really appreciate it.  Have a good day and a wonderful weekend.  :)

Jan 07, 2011 04:14 PM #4
Rainmaker
231,029
Ken Barker Realtor® GRI, E-Pro Certified
Dilbeck Real Estate - Burbank, CA

Donne - First I want to comment quickly on Rodney's comment. You are talking pre-approval and Rodney indicated pre-qualify. That is totally different.


Pre-qual over the phone info.
Pre-approval actual documentation supplied.

Nice explanation of what paperwork EVERY buyer should be prepared to talk about.

Jan 07, 2011 04:55 PM #5
Rainmaker
347,864
Rodney Mason
Prospect Mortgage - Atlanta, GA
FHA 203K, USDA, VA, HomePath Renovation Specialist

Ken.....My Pre-Quals are pretty much the equivalent of Donne's Pre-Approval.  Our company does not issue Pre-Approvals as policy.  Ours are title Pre-Qualifcation.  I will not issue a Pre-Qual without seeing pay stubs, tax returns, W-2's, and bank statements.  The confusion comes from some LO's not doing a complete job upfront by requiring all of the necessary info.  In this day, no one should be issuing a Pre-Qual without complete documentation review.

Jan 07, 2011 07:05 PM #6
Rainmaker
599,136
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Ken - It's true that what we refer to as a pre-approval, other MLO's and lenders may actually call it a pre-qual.  The important thing is what the MLO has done to support the borrowers ability to get a loan.

Rodney - Yep, no documentation - no pre-approval from me.  You and I are on the same page.  As I said in my earlier comment, I'm in the business of closing loans not wasting time.

Thx for stopping by guys; I really appreciate it.  Have a great weekend too.  :)

Jan 07, 2011 07:27 PM #7
Rainmaker
231,029
Ken Barker Realtor® GRI, E-Pro Certified
Dilbeck Real Estate - Burbank, CA

Rodney - Thanks, I had always heard pre-qual and had assumed what it was.
I did not know that some LO's collect all docs for that. I will have to pay more attention to the MLS when a bank property indicates "you must have a pre-qual". Because some can mean exactly what you state and if I show up with a pre-qual without having had an LO review docs I might waste my clients and my time.

Sorry Donne for invading your post.

Jan 07, 2011 07:28 PM #8
Rainmaker
599,136
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Ken - No apologies necessary - really! I think I can speak for Rodney when I say that we MLO's love educating Realtors as well as anyone else who wants to know more about the loan process or the lending industry.  As a matter of fact, if you ever get the chance, check out Rodney's blog, very educational and informative!

Jan 07, 2011 07:49 PM #9
Rainmaker
150,368
Eric Anderson
Prudential PenFed Realty (Fayetteville) - Fayetteville, NC
Fort Bragg Military Relocation Services, Fayetteville, NC Realtor

Donne, great information for the public.  It will help consumers truly understand the loan process. 

Jan 07, 2011 11:58 PM #10
Rainmaker
1,268,152
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

The biggest problem I have with MLOs is getting them to send me a preapproval letter in a Word format instead of a PDF. I get a lot of resistance over that. And when they won't do it, they tend to lose their customer to a MLO who will do it. Why do you suppose?

Jan 08, 2011 11:33 AM #11
Rainmaker
599,136
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Eric- I hope so. The more prospective buyers understand about not only the real estate market but the lending industry, the better they will understand the challenges that I and their Realtor will be up against in working with them, especially here in Los Angeles & Ventura counties.

Elizabeth - LMAO!!!  Why do I think MLO's won't give you a pre-approval letter in a word doc?  It's a CYA kind of thing girlfriend.  A word doc can easily be altered without the MLO's knowledge and thus making the MLO accountable to something they didn't authorize.  A pdf file can be altered too just not as easily and so we feel more comfortable issuing letters in pdf format.  TO COVER OUR @$

Thx for stopping by folks; I really appreciate it.  Have a good day everyone and a wonderful weekend.  :)

Jan 08, 2011 03:25 PM #12
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Donne Knudsen

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