When you’re ready to buy a home in Champaign-Urbana, it helps if you have been pre-approved for a loan. When your lender gives you this letter, he or she will explain how much of an income is necessary in order for the mortgage payments to fit within your budget. That way there aren’t any surprises down the line when closing time comes.
Lenders will look at some major factors before giving you a mortgage pre-approval, which include:
- Debt-to-income ratio (DTI)
- Loan-to-value (LTV) ratio
- FICO score
- Credit history
- Employment history
- Income
A pre-qualification and a pre-approval are not the same thing.
A pre-qualification is an informal process in which a lender gives you an estimate of how much money they are willing to lend.
A pre-qualification is not a binding commitment, and the lender doesn’t check your information carefully. A pre-qualification can help you get started looking for houses but won’t influence whether or not you’re approved when it comes time to make an offer on one.
In this blog, we discuss what happens when a person has already been pre-approved for credit and whether they can still be denied.
Information is Verified During a Pre-Approval
When you are applying to get a mortgage, most lenders will require that you fill out paperwork and provide them with your financial information.
You provide your Social Security number, and the lender does a hard credit check. The lender will ask you to list assets (like cars), debts, employment history and bank account information.
During the pre-approval process, a lender’s main concern is whether you can repay the loan.
The lender uses the information you’ve provided to calculate your loan-to-value (LTV) and debt-to-income ratios (DTI), which are part of how they determine what type of loan is best for you.
Your final loan approval will come after an appraisal is done and the loan is applied to a property.
After you are pre-approved by your lender, your loan file goes to an underwriter. The underwriter verifies all the documentation related to your application and compares it with borrower criteria for a particular loan program.
The Underwriting Process
When your lender is verifying your home loan eligibility, they are also making sure that the property you want to buy meets their lending standards.
It is true that underwriters are the ultimate decision makers and must follow strict guidelines, but they do have some leeway in certain areas.
Underwriting timelines can vary, but initial underwriting approval can typically happen within 72 hours of a file being submitted. In rare cases, underwriting can take as long as a month.
Underwriters take a deep look at your financial situation. Once they review your file, they’ll issue conditional approval. If syou’re conditionally approved, the underwriter says they think your loan will close even though you still may need to provide more information.
The last step for the lender is final approval, meaning you can close.
Can Your Mortgage Be Denied In Underwriting?
Although it’s fairly rare, a mortgage can be denied in underwriting.
A loan can be denied for many reasons, such as having too much debt compared to your earnings, having a low credit score, or the appraised value of the house does not support the sales price.
If you are turned down in underwriting, your loan officer should explain why. In the event that they deny your request, you can appeal, but it won’t be official until you receive a letter of rejection.
You can check with other lenders if you are turned down in underwriting. The fact that one lender turns you down does not mean they will all do the same. In some cases, some lenders can approve loans through manual underwriting when other lenders can’t.
Generally, cleaning up your finances and not borrowing more than you can afford will help you avoid being denied underwriting. Ensure that your loan application is complete and accurate. You want the lender to have a full picture of everything they need to decide, so there aren’t any surprises in underwriting.
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