Profile picture for goschafer

Loan Pre-approval VS. Loan Approval

When a loan is "pre-approved" with a certain set of parameters (amount of loan, personal income, credit score, employment history, type of loan, location of home, etc), & you find a home that fits all of those parameters, what limiting factors are typical for not getting a loan?

Is there any motive for a banker to pre-approve a loan that would never actually get approved?

  • July 11 2014 - La Jolla
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Answers (9)

There's many a slip twixt the cup and the lip.

A loan approval has a lot of different aspects. There are multiple parties; main parties being the seller, the buyer, and the lender. The lender checks all the parameters, as you stated; while pre-approving. But in the escrow process any of these parameters may change. The banker might not have correct knowledge to begin with. 

I had an escrow once that started as a regular transaction. But while in escrow,
1) buyer's credit score dipped 60 points
2) Appraisal came in 6% lower than contract price
3) Seller lowered the price but won't do repairs
4) Bank won't fund the loan without repairs and re-inspection
And a few other factors I'm not at liberty to share. 

But all parties worked together and closed the escrow successfully. As Caroline shared below; agents in real estate and mortgage work on 100% commission. We are all invested in closing and client satisfaction.
 
 
 



 



 


  • July 13 2014
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Reasons why you could not close after lender reviewed: credit report, bank statements past 60 days, income taxes past two years and paystubs...
1. You buy a car in the process- heaven forbid you go to Carmax who will run your credit report 14 times by submitting to every auto loan outlet. Thereby your debt to income ratios are too high, and your FICO crashed.
2. You get fired during the process
3. You didn't tell the truth about your financials
4. appraisal comes in low
5. Rates skyrocket and ratios again are too high
6. a number of other things like the creek rises and washes the house away... some disaster.

Mortgage bankers work on 100% commission. They are paid if you close.
A person who works for a bank may have a salary but they are motivated to help you.

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  • July 11 2014
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It helps to keep your docs in a row. Have your last two years tax returns, your last two months asset statements (where the seasoned down payment money is), and your most recent 30-45 days pay-stubs, available, in email ready format, to send to the prospective Lender(s). Piecemeal delivery of the documents causes most misunderstandings.

If you really want to be "ready". You also can help assure success by knowing what insurance company you're going to use, what lawyer or title company you'd like to close the loan, what home inspectors, and other third parties will be involved, and what they will expect to be paid. Surprises cause indecision, which begets hesitation, and time kills deals. Proficient execution closes deals.
  • July 11 2014
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I agree with my colleagues below. There are typically only problems, if the documentation that you have does not support what you provided for your initial "pre-approval." There are ways of protecting you in the contract, so that you minimize your risk until you have full loan approval. Feel free to contact me directly, I would be happy to assist you.

Thanks!
Sinead
  • July 11 2014
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Profile picture for goschafer
Thank You all for your answers! This is my first time buying a house. I have surmised that there are minimums to where it is possible to qualify for an FHA loan (I exceed all the minimums), however, the banks have their own minimums. My friends & family members who have been through this before assure me that regardless of what the pre-approval  banker has told me, the guy who writes the check is going to be brutal. More specifically, the pre-approval banker has offered me a great pre-approved rate/amount, but, I have been self employed for the past 19 months (not 24), even though this is has been clearly stated for my pre-approval, I have heard horror stories from several of my self employed colleagues.
  • July 11 2014
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Profile picture for Kim Bills

In my experience, I've seen that the main reason for a pre-approval not leading to an actual application approval is when the buyer's financial situation drastically changes after the pre-approval, or the lender finds that the buyer may not have been truthful.  A lender would not want to pre-approve a loan that they didn't expect to be fully approved, because that doesn't benefit anyone!  However, as others have stated, the pre-approval is "conditional" and assumes that all information provided was truthful, accurate, and will remain generally the same between the pre-approval and final approval.  Last, make sure your pre-approval is for the correct type of loan you intend to apply for.  There are many differences between loan times, so ensure you understand what your pre-approval is for.  Good luck!! - Kim Bills, Licensed Real Estate Professional, NEBRASKA

  • July 11 2014
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Thank you for your question. There are many factors that are considered by the Mortgage specialist that must be verified throughout the process. During the process A Buyer should not create additional debt or purchase items that will affect the income to debt ratio.
  • July 11 2014
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Profile picture for GMerino
I would add if the banker does not know their guidelines when it comes to credit history, such as accumalation of collections could be reason put more attention to a file.  They can pull credit and run your file through DU or LP but bottom line if do not have a squeaky clean file the loan officer better be knowledgeable to know how to handle files that need more attention and be able to understand the findings.

A file is to me is pre-approved when a loan has gone through the channels of underwriting and offers a conditional loan approval. 
  • July 11 2014
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If all factors you listed were used for a PreApproval and have a credit approval in DU ( Fannie ) or
LP ( Freddie ) then you should be fine. Problems arise when the supporting documentation doesn't match the inputs on the automated approval like SE income calculated higher than actual income. Other issues that can stop a full approval would be Title issues, low appraisal, if condo and turns out to be non warrantable, etc.

  " Is there any motive for a banker to pre-approve a loan that would never actually get approved? "


No, that would simply cost everyone time and money. 
  • July 11 2014
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