In my previous article about importance of a bad pre-approval we talked about how a bad pre-approval can cost you dearly. Today, let’s now review what a good pre-approval looks like.
I have been pre-approving people for mortgage loans for almost 18 years to this level of detail.
I’ve never had someone not be able to close on their property purchase due to the loan. Here’s my checklist for a good pre-approval. Remember, it’s a process – The mortgage loan pre-approval process is most likely the most significant part of the entire process and, if done properly, will help to ensure that the entire loan process runs smoothly and without surprises.
Signs of a Good Mortgage Pre-Approval:
- Credit report: At minimum, a tri-merged credit report (the three most popular credit bureaus merged together to create one easy-to-read credit report) with credit scores must be reviewed and analyzed line by line. You should get a copy of the report sent or delivered to you. You should expect to provide answers for items that are not considered to have a “perfect payment history.” You should be able to receive accurate suggestions from your mortgage lender on improving your credit and how your credit affects your mortgage and rates.
- Documentation: I will always be accused of being too detailed by those that do not want to do what is needed to receive accurate information. At a minimum you should expect to provide: pay stubs for the most current 30-day period, your last two years of both personal and business (if applicable) federal tax returns, including all W2’s, 1099’s, schedules, etc., (depending upon the type of loan) your most current two or three months worth of bank statements for all types of asset accounts (checking, savings, pension, retirement, stock, etc.), copies of current monthly mortgage coupons for any outstanding mortgages, and a signed authorization where you give permission for the mortgage lender to obtain your credit report and verify information. Expect your lender to review this information and ask follow up questions and perhaps request additional documentation.
- The Interview: In today’s ever changing mortgage market you want your lender to spend time with you so that they understand your unique situation. A good mortgage loan pre-approval depends on the lender getting to know your complete financial picture and what your future plans are. It’s not just about getting a loan; it’s about getting the right loan at the lowest cost and rates based on your short and long term goals and plans. It takes time to get the full picture, and it is the only right way to do it!
- The Mortgage Loan Pre-Approval Letter: At a minimum, your pre-approval letter should state the type of loan you are pre-approved for and what property tax, insurance and association payments (if applicable) were used. I also include what was documented and verified, what type and amount of seller concessions are allowed based on the type of loan you are pre-approved for, and what special circumstances there may be, such as rental income on the subject property or the seller performing a specific task.
The bottom line:
When you are about to embark on what will be one of the most significant financial transactions of your life, you want the people that are on your team to work in your best interest. You want accuracy and detail so you can rely on the information provided. In order to receive this, you should expect your team to work at a level of detail and accuracy that you know you can count on. For your mortgage lender to provide this level of service, they must fully document your entire financial picture so that you can be assured of an accurate result.
My advice: find someone who will spend the time with you and do it right.
Happy house hunting!