IF AN AUTOMATED UNDERWRITING SYSTEM APPROVES ME, DOES THAT MEAN I GET THE LOAN
IF AN AUTOMATED UNDERWRITING SYSTEM APPROVES ME, DOES THAT MEAN I GET THE LOAN?
Not yet. There is still an appraisal to be ordered, an inspection to be performed, a title to be searched, and a review to be done of any claims on the property. That’s just for starters. But in terms of an AUS, there’s still the verification process you need to go through. If you said you made $5,000 per month, then you can bet your lender will want to see a W-2 and a paycheck stub showing your earnings.
In fact, there are actually degrees of approvals using these systems. Loan applicants with little or nothing down and a limited credit history can expect to be asked to provide more documentation than people with a long track record of timely payments and a large down payment. But in any case, you will know ahead of time exactly what to document and what to ignore.
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Remember that lenders expect to get paid back, and so they determine your ability and willingness to do so. Secondly, and just as important, they review their collateral—your future home—by ordering an appraisal and reviewing the chain of title on that home.
Your potential new house and the ground it sits on also have to meet some guidelines. One is its value. Is the home worth what you’re going to pay for it? Is the price based upon similar properties in the same area? Are there any obvious defects in the property, like a foundation problem or leaky roof, that need repair? That affects the value of the home. And while you may be the best borrower in the world with stratospheric credit scores, if the house is a dump needing repair before you can move in, the deal won’t close.
The appraisal reflects the current market value of the home you want to buy. The current market value is, hopefully, the agreed-upon sales price of the home. If you buy a home at $320,000, then an appraisal is performed to justify that value by comparing recent sales of similar homes in your area. Market value is defined by appraisal guidelines, but it is also an art, since no two homes are ever exactly alike.
When an appraisal shows the property value to be lower than the sales price, many times the deal falls through and the buyer begins the search again. This rarely happens, but it’s not unheard of.
Another issue regarding the property is determining whether there are any other claims on that property prior to your buying the home. This is done by reviewing a title report, or a history of all previous ownership claims, liens, and interests. If there’s any interest other than yours showing up on this report, then those issues will have to be resolved.
A title report shows the chain of ownership in the property going all the way back to, well, all the way back to the first person who legally held ownership. Title reports can show owners in a home over several years, each time listing the owner of the property as well as any other party that might lay claim, such as a lender who holds a mortgage on the property. Each time a home is bought and sold, a new name is added to the title. The buyer is listed as the new owner and the seller signs paperwork releasing all claims against the property.
A title report may also show old liens on the property taken out by the homeowner or any judgments that were attached to someone’s home. When a home is transferred from one party to another, all previous owners, liens, and judgments must be released or reassigned before a new loan can be made. Your preapproval only verifies you, not the property.