The “pre” stuff verifies two critical elements in credit approval: your ability and willingness to repay a mortgage. Ability and willingness go hand in hand. While you can make enough money to be able to afford to pay back a loan, if you don’t have the willingness to do so, then it won’t work. And, of course, there are certainly a lot of people out there who may have the willingness to pay someone back, but they just don’t have enough money to do so.

By verifying income and the available assets to close on a house, and then reviewing the credit report, these two initial hurdles are overcome. It’s no big deal, but documenting your prequalification really is your very first step. Let’s examine the process a little more in detail.


First, here’s what doesn’t happen: Loan applications aren’t sent to some loan committee for review. Loan committees went out with leisure suits. Once upon a time, yes, that’s how it happened. Potential borrowers would apply for a mortgage and extol their financial virtues; a loan committee, usually meeting once per week, would later discuss the positives and negatives of the applications. A host of old men in black suits, smoking cigars and saying things like “harrumph,” would eventually approve or disapprove the loan request.

Today, your loan application is approved or not approved at the very beginning of the process—before it ever gets to an underwriter (the person who physically approves your loan). This process is now fully automated and everything is approved first, before anything is ever verified. It’s different from the old days. It used to be document and verify absolutely everything before any approval whatsoever. You could go three to four weeks without really knowing if you were approved. Today, your loan is approved first, then verified later.

Decades ago, the first thing you did was to gather all your documentation—bank statements, tax returns, and paycheck stubs—whatever you could think of. Then you trotted down to your local mortgage company, bank, or savings and loan and met with a loan officer. You completed the loan application with the loan officer, who then detailed the types of documentation needed. Your credit report was also pulled and reviewed. Your debt ratios were calculated to make certain you weren’t borrowing more than you—in the lender’s eyes—could handle.

If there were any credit problems—say, a late payment on a car last year—the loan officer would ask for an “explanation letter.” The credit report would show whether the problem was a pattern or an isolated instance. The explanation letter was a secondary requirement that had to be in the file. Many times the letter simply said, “I forget why it was late,” and it would still be okay. The explanation didn’t have to convince anyone or be necessarily plausible; it just had to be there.

You’d also have to address any other discrepancies, such as length of time at your current job or a gap of employment. Didn’t work because you broke your leg? Provide some medical bills to prove it. Sudden deposits of money in the account? Prove where you got the funds. You needed to show that you didn’t borrow the money from somewhere else and make sure it wasn’t affecting your debt ratios or perhaps hiding a prior lien on the property.

And that was just from your standpoint. At the same time, an appraisal of the home you were considering buying would be ordered, along with some initial title work. Then a bevy of folks would start mailing stuff to you, explaining this and declaring that, and using words you’ve never heard before. Then about three weeks later, after all of the required documentation had been gathered, and only then, your complete application would be sent to a loan underwriter for approval. By then it’d been nearly a month and the mortgage company still hadn’t looked at your complete application.

Your loan today is electronically submitted to an automated underwriting system. The loan application is electronically submitted to the system, which quickly, as in just a few seconds, issues a response. The response will show whether the loan is eligible for an approval and what items must be provided in order to ensure the final loan is compliant with the guidelines set forth for the loan being applied for.

This process simply means: Verify first, approve last.


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