So, you are pre-approved for a mortgage loan and your shopping for homes. You can’t wait until you find your new home and can already see yourself living there….how exciting! Wait a minute, what do you mean I am not approved, I have an accepted offer on our new home?!
In my 18 years of being a mortgage loan officer, I have seen this happen several times to home buyers who come to me looking for an option. Conventional, FHA, Rural Development, VA…they all have different guidelines that either make that mortgage type easier or more difficult to qualify for.
For example, if you are using a conventional mortgage and you have student loans, you can use the payment that appears on your credit report in your debt to income ratio, even if that payment is income based. If you are using an FHA loan, you have to use 1% of your student loan balances as a monthly payment instead of the income based payment which can make a huge difference in the amount you qualify for! If you are self-employed, have any commission income, fluctuating income, bonus income, overtime income or part-time, it is VERY important that your loan officer review your income and asset documents before you shop for a home. These specific incomes can fluctuate the amount you qualify for and sometimes make it to where you do not qualify at all!
If you received a pre-approval letter from your lender and they have not reviewed your credit or income and asset documents, let them know that you would like that step to take place before you proceed with shopping for homes. This is typically not the fault of the loan officer, it’s just the way their company does things. I personally like to take a two step process with my clients when it comes to being pre-approved. The first step is a pre-qualification, which gathers some basic information about income and assets so I can narrow down which loan options will best fit their financial needs. I send my clients their loan options and make sure they are okay with the payment and out-of-pocket costs before having them apply for the mortgage. Once they review the options and choose a loan option, I will have them submit a full loan application, so I can review their credit and income/asset documents.
Also, remember that the loan officer is not the decision maker when it comes to lending money, that decision comes from the underwriter. A loan officer is charged with educating the borrower on their different loan options and knowing if that borrower will meet the guidelines. Sometimes, it might be necessary to submit the full application, credit and income/asset documents to the underwriter to review ahead of time to make sure that it will be approved. Even though it takes some extra efforts upfront from the loan officer and borrower, it is well worth it to know that you will be able to complete the transaction when you find your new home.
If you are pre-approved and you feel uneasy about the pre-approval process that you have gone through, you may want to get a second opinion. For my clients, I typically won’t pull credit to give them a second opinion if they can tell me how much their monthly debts are, what their credit score is and sometimes I will need to review their income and asset documents as well. Doing this in the past, I have found borrowers that did not meet guidelines or the amount that they were pre-approved for was different. It is always good to get at least one other opinion on available loan options and the amount you qualify for.
If you would like to get pre-approved for a mortgage in Michigan or would like a second opinion about the mortgage you have been pre-approved for, please contact me with with any questions you have and I would be happy to assist you.