Before the crash, it used to be easy. You called a loan officer, told them what you made and what you owed and BAM! – they sent you a pre-qualification letter.
Then came the CRASH and the huge losses when values plunged and people could not afford the homes they purchased. They could not sell for enough $$ to pay off the mortgage companies and their homes ended up in foreclosure or a short sale situation.
Pre-Approval vs. Pre-Qualification, What did the regulators do?
They tightened up the process and even went further. The pendulum swung from easy credit to one that can drive you to distraction. In order to determine what a mortgage company will perhaps lend you, they now require a more thorough review of your financial situation. Today, you need to complete a loan application first. If the initial review looks good, the loan officer will issue you a Pre-Approval letter – and be sure to ask for the “supporting documents.” A Pre-Qualification is no longer sufficient and most mortgage companies will not even issue one.
Even with a Pre-Approval letter, it will clearly indicate that this approval is contingent on a lengthy list of requirements that must be completed and rechecked prior to settlement. Trust me, they will check it again and again and you will start to wonder why they are doing this to you. It’s not personal and they are doing it to everyone that wants to borrow money to purchase a home.
Remember your Scout days and always be prepared. Get a “Pre-approval” 12 months prior to purchasing to ensure you know your purchasing power and with enough time to “fix” anything that needs fixing.
You will need to document, document, document. Have you moved cash from one account to another? Why? Have you made an unusually large deposit recently? Anything that appears to be a departure from the norm may be questioned. I once had a client who had a really difficult time with a mortgage company because of something he had always done. Here’s the story –
For whatever reason, my client had always taken his paycheck to the company’s bank and cashed it. Then he would make a cash deposit into his own bank account. He did it this way forever and no one ever questioned him. Then he and his wife applied for a mortgage to purchase their dream retirement home. The mortgage company gave him a really hard time. It was if they thought he was a drug dealer! If you knew this person, you would laugh out loud just like we all did when we finally got to the settlement table!
What I mean is do nothing that will materially affect your credit. Don’t apply for any new credit, don’t even decide to pay off a credit card. Do nothing until you sit down with a loan officer like one of the local firms listed here – Mortgage Companies in Delaware.
Sometimes I have seen people innocently do things that disqualify them from getting a mortgage despite their great credit and solid financial situation. Here’s the story –
I was working with a couple that had planned very well for their retirement, or so they thought. The husband had retired with a good pension and sufficient savings to put a good down-payment on their retirement home. They had 3 children and wanted to do something for each of them so they co-signed a car loan for each of them helping them buy a new car. When the mortgage company saw that it was game over! It didn’t matter that this couple was absolutely certain their children would diligently make their car payments on time. The mortgage company was just as certain they would not and the liability would fall on the parents. Ouch. The children would have to make the payments for 12 months and document that they did so as to not count the debt against their parents.
That carries over to co-signing on a mortgage for a family member. Don’t do it unless you will not need a mortgage or other major credit purchase yourself for a very long time.
Need advice as you plan for your retirement? Let us help. Over the years in real estate we have formed relationships with other experts in their field. Whether it is mortgage related, estate or legal questions, we can call on our partners to help you prepare.