Prequalification, Preapprovals & Loan Commitments
When buying a house, the first thing you do is get pre-approved. This video explains how lenders navigate the approval process with buyers and, more importantly, the pitfalls to look out for.
Lenders use three common approaches when counseling buyers through the approval process. The first is a prequalification, which is nothing more than a basic conversation of your income, assets, and credit score. Based on that, the lender gives their impression of what you could do knowing the guidelines.
A pre-approval takes that just a step further. This is where a lender looks at information proven by documentation, such as a review of your credit, pay stubs and W-2s, and bank statements. (For most people, we have technology that digitally extracts that information to alleviate the need for scanning and uploading documents!) The lender can run an automated underwriting approval and give you something in writing that says, yes, you really can do this.
Take that one step further. You could get an official loan commitment. A commitment from a lender is where the underwriter personally reviews all those documents and says we are committed to giving you the money. The loan is 100% guaranteed. (Few lenders take this step)
Pitfalls In The Process
Interestingly, even when lenders issue a pre-approval, there can still be delays. Conversations like this are not uncommon:
BUYER:
"Oh my gosh, I put a contract on a home and was just told my loan got denied."
FRIEND | REALTOR | PARENTS:
"Well, weren't you pre-approved?"
BUYER:
"Yeah, I was. But they said the underwriter disagreed with __________________"
The pitfalls of lending most likely occur at the very beginning, in that prequalification or preapproval stage. Often, a loan officer misinterprets income or fails to ask more questions to determine whether assets could be used. Other times, they don’t know the guidelines inside and out and make a poor judgment call!
Our Philosophy
At the Downs Group @ Vellum Mortgage, we always take it a step further. We use the prequalification process to focus more on your long-term goals to ensure that you're buying the right house and have confidence in what you're doing. We use our loan commitment process, getting everyone pre-underwritten before they write their contract so that they can compete with cash buyers.
If you are considering buying a house and want to have a detailed conversation with a lender, make sure you're digging deeper into all those different segments. We're always here for you and would love to help.
