Getting A Mortgage Pre Approval
Are purchase offers still submitted with a Pre-Qualification letter and not an actual Mortgage Pre Approval?
I hope not. There is no good reason for a buyer or buyer’s agent not to submit a Pre-Approval, at least a copy of a Fannie Mae Desktop Underwriter (DU) approval.
You probably see DU approvals, but are you reviewing them? Most residential purchase loans including conventional, VA and jumbo can be evaluated by and receive a decision from Fannie Mae’s DU system. Lenders run loan applications through this type of automated underwriting system at the beginning to ensure the loan will meet the basic credit guidelines.
Unlike most pre-qualification letters, the DU approval is based on the actual loan application data. Submitting a copy of the DU Approval (see below for a sample DU Approval) with a purchase offer allows the seller to gain confidence in the strength of the offer, understand the borrower’s ability to qualify and spot potential qualifying issues to resolve before entering into a contract.
When a purchase offer that is subject to obtaining financing includes a copy of the DU approval, it makes the offer stronger. The buyer’s credit has been pulled, employment history, assets, income and debts have been considered. In most cases, when the DU findings are “Approve Eligible” the chances of receiving a final loan approval are very strong as long as the inspections (Buyer’s physical and appraisal) and title are acceptable.
Ability to Qualify – Details
The DU approval print out excludes the buyer’s social security number, so most are fine with providing a copy. The approval does include specific information such as loan amount, credit scores, qualifying ratios, and assets for the seller to review. Make sure to ask the Loan Officer if the income and asset documentation (W2s, pay stubs, tax returns and bank statements) have been reviewed.
Potential Qualifying Issues
There are a few areas on the approval that sellers and agents can focus on to spot issues. These have to do with how the qualifying factors such as employment history, income, credit and assets are related. For example, watch for the combination of higher debt-to-income ratios of over 45% and credit scores under 680. Or when the down payment comes from a gift and there are little funds for reserves in the buyer's own accounts combined with a higher loan-to-value.
DU is a great tool and the purchase transactions that receive an “Approve Eligible” have a great chance of closing. But remember that the system is only as good as the data provided, so if the loan application is accurate, the approval will be as well. Freddie Mac has a similar automated underwriting system, it’s called Loan Prospector or LP. The LP approval is just as good as the DU approval, they are just not as common.
Send all of your buyers to get a DU approval as early as possible. It’s a great way to determine who is serious. You will find that the really motivated ones will work with the lender’s recommendations to get an approval, even if it’s not easy for them on the first try.
We issue DU approvals 24 hours from receiving the loan application. We like to work with all future home buyers, good credit or bad, showing them exactly what they need to do to get a loan approval. And best of all, the DU Approval is free. We do not charge any upfront fees for this.
Are you ready to get your Pre-Approval?
Call us at 800-607-1941 x220
Brian and his team have been funding real estate loans for over 25 years.
Since 1991, they have funded over 1.5 Billion Dollars in loans.
You can reach Brian at 800-607-1941 x220 or firstname.lastname@example.org .