Today’s Real Estate market demands that all buyers making an offer on a property they are interested in to have a Pre-Approval. In fact many sellers and prudent Realtors will not accept an offer without a preapproval.

Stricter lending guidelines have made it more difficult for borrowers to qualify for a mortgage and therefore, a Preapproval is so critical in the home buying process.

There are, however, different types of preapprovals provided by loan officers in the market place.

Preapproval without Validation

This type of Preapproval is executed based on the information the potential buyer(s) provide the loan officer, either over the phone or through the internet. A credit report is run and the information is then decisioned through an Automated Underwriting Engine and if approved a letter will be provided to the borrower(s) stating they are preapproved for a mortgage of X dollars with taxes on the property of Y.

Preapproval with Validation

This type of Preapproval  does the same as above, however a letter is not provided to the borrower(s) until the following documents are validated, last 2 years Tax Returns, most recent paystubs the last 2 months bank statements and W-2’s. This information is then analyzed to confirm the buyer’s will be approved for the mortgage based on the above information.

Two real situations that happened recently:

Borrower(s) wanted a Preapproval without a review of their tax returns although we had their W-2’s, paystubs and bank statements. We told them we cannot do that until we review their tax returns. On Schedule E they had a substantial deduction for unreimbursed business expenses. This reduced their income by $20,000 per year from what was disclosed and lowered the preapproved mortgage amount by over $50,000.

Borrower could not find his most recent paystub and when we received it, there were child support payments which are not disclosed on the tax returns. This decreased the amount of the preapproval by $30,000.

A validated preapproval is critical to the home buying process.

Contact John Naclerio direct at Wells Fargo Home Mortgage- 914 329 1261