How Solid Is Your Loan Pre-Approval?

If you hear a lender toting they can preapprove you in just a few minutes, stop and run in the other direction- fast. A real pre approval is much more than a loan application and credit report. What to know before jumping into a home…

A Traditional Pre Approval Includes The Following:

  • you’ve submitted an application with a lender
  • you’ve given the lender authorization to pull your credit report
  • you’ve provided all requested supporting documentation
  • lender has specifically reviewed all supporting documentation including your tax returns and every piece of financial documentation
  • lender has determined you meet all credit guidelines based on the financial strength of your credit, debt, income, and assets
  • lender has communicated to you what monies needed for closing, total mortgage payment as well as all suitable programs you qualify for
  • lender has run your scenario through automated underwriting

Nearly all the residential loans being originated to Fannie Mae or Freddie Mac standards must pass automated underwriting through Desktop Underwriter (DU for short or Loan Prospector (LP) for short. Each loan is carefully run through an automated underwriting system whether you’re looking for a conventional mortgage, FHA mortgage or even a jumbo mortgage. If your loan does not pass automated underwriting more than likely, your loan is not moving forward. It’s absolutely critical in the information gathering stage after the lender determines how you can afford they run an automated underwriting approval to make sure your loan gets the green light. Most loans do receive “pass” in each system provided lender has done their proper loan analysis and have inputted the numbers from the supporting documentation you provided.

Are You Prequalified or Preapproved?

If there is any step overlooked in any of the above referenced aspects of your qualifying integrity, you are not preapproved. A good lender who knows what they’re doing will typically ask you a series of questions pre application to determine whether or not you meet credit score requirements, down payment requirements, coupled with debt and asset requirements. In other words, you can’t go get preapproved without getting prequalified first. A prequalification does not hold any water. Real estate agents want you to be preapproved, many times before even showing you a home. A prequalification is simply a verbal conversation with your loan professional about your financials, that’s it. It holds no water in a real estate purchase contract offer situation. However, a preapproval letter conveys to the home seller you’ve diligently done your leg work, and more importantly, you have the ability to perform.

 The Fate of Your Home Purchase Rests With How Strong Your Preapproval Is

Did your lender ask you a series of questions about your credit score, credit history, income assets and monthly obligations? Did it feel like your lender was grilling you with questions about your finances? These are good signs you have a professional in your corner. A good lender will question everything to better understand you, your finances and determine if you can qualify. Most real loan officers need at least a few hours after having the complete application, credit report and documentation to review your figures, especially if there is any of the following:

  • previous foreclosure, short sale or bankruptcy in the last 7 years
  • previous loan modification of any kind in the last 7 years
  • high consumer debt payments like income based student loans, car loans, credit cards, tax, child, or alimony payments
  • gyrating income
  • 2106 unreimbursed expenses on your tax returns
  • any and all self employed income
  • all investment property scenarios
  • or anything lender deems as complex

Any lender or mortgage broker that offers a preapproval letter and a quick cursory review of your financials is gambling with your money which could up costing you your earnest money down the road, especially if the underwriter later determines something in your financials does not jive. Be smart and give the time the lender requests for doing a solid preapproval and allow them to do their analysis.

Don’t Put The House Before The Finances

This is undoubtedly an aha moment as the allure of real estate is far more fun and exciting than the idea of getting a mortgage. Let’s be honest putting together tax returns, deputies, pay stubs and financial documentation for most consumers is not the most pleasant thing in the world to do, understandably. Picture this- for whatever reason you’ve not gotten preapproved yet, work, family, or life got in the way. You find a house on Sunday afternoon that you ‘must have’. It is the ideal home for your family with location, and all the other bells and whistles. Offers are due the next day Monday at 12:00 PM sharp. You call a lender or one the real estate agent recommends and demand they preapprove you on the spot for you to get your offer in for consideration. This is a recipe for disaster. Not only is it reckless with asking the lender to cursory review your financial documentation, but also sets you up for a more questions and more conditions from underwriting later on because the lender did not have the time necessary to devote in examining your financial profile earlier on. Get your finances lined up before you start looking at homes. You will be glad you did many times over once you do find a home that is a fit for you.

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RELATED MORTGAGE ADVICE FROM SCOTT SHELDON

When buying a home, it’s natural to want the lowest mortgage rate possible. But sometimes, chasing a slightly better rate from another lender—especially after your offer has already been accepted—can backfire in a big way. Let’s walk through a real-world scenario. You’ve got an offer accepted on a house. You’re working with a lender who has you approved, documents in underwriting, and a 21-day close of escrow in place. Everything is moving forward. Then you hear from another lender offering a rate that’s 0.25% lower, with slightly better closing costs. It’s tempting. But before you make a jump, here’s what you need to consider. Switching Lenders Comes with Time Costs When you pivot to a new lender mid-contract, they’ll need to: Re-underwrite your entire loan, Order a new appraisal, Disclose and sign new loan documents, Submit the file for final loan approval, Schedule and fund closing—all over again. This doesn’t happen overnight. Even in ideal circumstances, the new lender is likely going to need at least 25–30 days to close. If you’re in a fast-moving or competitive market, this is a real problem. Most sellers won’t grant a contract extension just because you’re switching lenders. So, what happens next? A Contract Extension Can Jeopardize Your Deal Asking for a contract extension means the seller must agree to delay closing. But that delay introduces risk—especially if the seller has backup offers or simply wants certainty. They may not grant the extension. Or worse, they could cancel the deal outright and take another buyer’s offer. Even if the seller agrees to extend, your earnest money and negotiation power could take a hit. And for what? A slightly lower rate that might save you $50 to $75 a month? Mortgage Rates Aren’t as Far Apart as You Think Here’s the truth: all mortgage lenders get their money from the same place—the bond market. The pricing differences between lenders usually range from 0.125% to 0.25% in rate on any given day. If one lender seems to be offering dramatically better pricing, the first thing you should ask is: How? Head over to FreddieMac.com and check the average 30-year fixed rate posted weekly. This is one of the most reliable benchmarks for where rates truly stand in the market. If a lender is quoting you a rate that’s well below that average, ask for the details: Are they charging extra points? Is this a teaser rate with a prepayment penalty? Is it based on a different loan product or risky structure? Often, what sounds “too good to be true”… is. Consider the Bigger Picture Think long-term. If you’re financing $600,000, a 0.25% lower rate may reduce your payment by roughly $75/month. But what if you lose the house and have to start over? That monthly savings doesn’t mean much if you’re outbid on your dream home or lose your deposit. Also, remember: you’re not going to keep this rate forever. Today’s homebuyers typically refinance when rates drop by about 0.75% or more. So if rates fall within the next year or two, you’ll likely be refinancing anyway. Instead of paying extra points now or risking the entire deal for a minor monthly savings, it may be better to accept a slightly higher rate—knowing you’ll refinance when the time is right. The Real Risk Isn’t the Rate—It’s the Delay When shopping for a home loan, don’t just ask, “What’s your rate?” Ask: Can you close on time? Is this rate sustainable or based on hidden costs? Will switching lenders delay or jeopardize my contract? A home purchase contract is a binding agreement between you and the seller to perform within a set timeframe. If you can’t meet those dates because you're chasing a slightly better rate elsewhere, you may want to reconsider if now is the right time to buy. Final Thoughts Yes, interest rates matter. But execution matters more. Before making a switch mid-transaction, talk to your lender. Have an honest conversation about pricing, timelines, and strategy. You might find that staying the course, securing the house, and planning to refinance later offers a better path to financial security. Want to Know Your Options? Let’s compare rates and strategies the smart way—without risking your dream home. 👉 Click here to get a custom rate quote today.

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