When a buyer begins his or her search for a home to purchase, they usually visit with a lender and obtain a pre-qualification. The pre-qual indicates; that based on the preliminary information provided the buyers are pre-qualified for a determined amount. Some of the information that the lender requires for pre-qualification are copies of pay stubs, W-2’s, bank statements and marital status.
Armed with this document, the buyers are then able to begin their search for a suitable property. When they find a home and make an offer to purchase, the pre-qualification document is included with the offer and gives the seller some piece of mind that the buyers can follow through with the transaction.
The information in the document is based on what the borrower has relayed to the lender and does not constitute final loan approval. All information provided must be approved by an underwriter, and any material change in the buyer’s credit or financial profile may render the pre-qual void.
There are numerous pitfalls that a buyer may encounter between pre-qual and final loan approval. Among the most common are underwriting guidelines, borrowers credit information, verification of employment and that the property appraises for contract price. During the process of getting final loan approval, the buyer’s lender will send out a weekly Loan Status Update (LSU) which shows what the status of the loan is at the time.
The LSU is sent to the borrowers, their agent and the seller’s agent who then provides it to the sellers. If the lender discovers any issues, the buyer will be notified and at that time they will determine if it can be mitigated. If the problem cannot be resolved it can put the transaction in jeopardy.
One of the most common reason that buyers do not get final loan approval is that during the period between pre-approval and final approval they have made some unwise purchases which raises a red flag with the underwriter. My advice is that upon receiving pre-approval for a loan, do not go out and buy a new car, boat, motorcycle or any other item on credit until after you have closed on your new home. And finally, never ever quit your job while you loan is in underwriting.
If you would like a sample copy of the Arizona Pre-Qualification Form and the Loan Status Update used by our lenders, drop me a note and I will be happy to send one to you.