Mortgage Pre-Approval: Why Your Lender Keeps Asking for Documents

Hey guys, welcome back to another week of Mortgage Matters in Minutes. Our 222nd episode over many many years here in coming to you each and every week. And this question comes up quite often. is that I have a mortgage pre-approval from you, Branch. Why are you still asking for more paperwork? And that's a very valid question. I think people have been told through the years a pre-approval is what you need. A pre-approval is what you have to have for putting an offer on a house, which is correct, but a preapproval isn't the final step in order to obtain a mortgage. Really, what a pre-approval is, it's a snap snap picture of time of your specific income, credit, assets, job, you name it, in that particular date and time. So, that could be in July, that could be in March, that could be in December. And the pre-approval lasts for four months. we also extend those pre-approvals for a longer period of time. But the reason why more documentation is asked throughout the process is preapproval again is not the final approval. The next step after a pre-approval is a loan commitment and that's a commitment to lend. And then once everything is matched off the loan commitment or signed off on or approved, we have what's called clear to close. And that means yes, all the items and all the federal laws and rules have been checked and the guidelines are meeting the rules that are needed for the loan. So when we do the initial pre-approval, we're trying to take away as many variables as possible to know moving forward as long as your income stays the same, you continue to have the same savings, your credit is going to be fine. But if anything were to change, such as spending your assets, losing your job, your credit score dropping, that would then obviously void the pre-approval. And in our world, unfortunately, they don't take anyone's word for anything. They just assume everything is bad until they can show that it's not. And when we submit items to underwriting, they are going to catch all kinds of different things. And different things meaning on the pre-approval, we're talking generalities. We're estimating what homeowners insurance is. We're estimating what property taxes are. We're estimating a few sets of numbers. But when it comes to a real final loan approval, they're going to look up specifically the house that you're looking to purchase, what the homeowner's insurance is going to be, what the taxes are going to be. Do the numbers still make sense. Is there some reason your job is going to be going away or is you're going to be getting a raise? Do you have extra income? Do you have extra debts that have changed throughout the process? So what we like to obviously advise is once you obtain a preapproval, do not change anything in your life for the final approval to make not happen or make a denial occur throughout lending process. Also, when it comes to mortgage loans, we all abide by the secondary market, which we've talked about, i.e. Fanny May, Freddy Mack. Per the way their rules are written, they always have to have the most recent set of documentation. So, most recent paystubs, most recent bank statements. And some people say, "Well, I just gave you those last month." Well, you've received two more paystubs since then. We have to supply those two paystubs to underwriting to review those items. Or you might have received a new bank statement or a new investment statement. You know, something might have changed. Your driver's license could have expired. Maybe you did move jobs in the same company and it's just a different job title. when they go to verify your employment, they say things have changed. We have to just verify those things that have changed to make sure they still meet the rules. Obviously, underwriting always has the final say. If they find something in the background like, hey, we show that you already own a property in this state or in this city or whatever the case may be, obviously, we have to address those things. or hey, we showed an extra account of yours that you didn't have here now is showing up here as a liability. What's going on there? Oh, that's my parents' credit card that I'm an authorized user on. So, there's justifications there, and we work to document every single thing that meets the rules of the mortgage process, but every so often there's going to be extra questions when a writer asks for. Is it normal? No. Is it just part of the, you know, step process game? Yes. They just have to go through and doublech checkck it because if your loan goes into foreclosure or any loan goes into foreclosure, they go back and audit that loan file and see what did that underwriter miss. And if something was missed, they now add that on their checklist the next time around. So things can be changing and with AI ever there's more and more double and triple checks that can be done by putting it through a computer system which can go much faster than our brains can think and operate as well. The idea between preapproval and closing is all we're trying to do is meet the mortgage rules that you stay qualified that you meet the credit score you meet the income the debt to income ratio you meet the asset requirement. Those are the three most important factors. And if anything does change throughout the process, that pre-approval obviously gets voided. And one thing that always happens a day before closing is your employment gets checked. And if all of a sudden they contact HR and HR says, "Well, employment's not likely to continue. We have a massive problem." So, while you know your situation, you know what's going on in your life with your income, assets, and credit, it doesn't mean that the underwriter or the lender that's doing the loan understands everything that's happening in your life because there's other people that were assisting along the way. So instead of making anything a form of discrimination, they treat everyone equally, asking for the same most recent updated paperwork to validate that you still meet the rules. So what we always advise, the best thing you can do as a borrower, provide the paperwork that we asked for. You know, many times where the struggle comes from is people want to give us something that looks like or it might be like what we've asked for where when we're needing statements or paystubs, we need the actual document, not a cut off, not a copy of one, not a half of one, not something that doesn't have your name or your account numbers on it. It's got to be a valid legal document for us to send and get underwriting to approve it. We both know that you sent it to me and that's probably the documentation you have, but underwriting wants to see something very formal and very official. So, if it's difficult for you to be organized with paperwork, know that going in and know that giving yourself more time to provide paperwork because when you sign a contract and there's a closing date, at the end of that process, we're going to have to meet that closing date. And if you are not able to get us the paperwork or the borrower is not able to get us the paperwork, we could have a delayed closing and no one likes or wants or wants to make that happen in regards to real estate transactions. So, hope you learned a little bit the difference between a pre-approval, final loan, and the steps that are needed in there are just part of the process and part of rules to ensure you meet the loan at closing. I'm Brent Rasmussen, owner of Mortgage Specialist. Here to help answer any questions and the why behind the questions because it does make a difference. Why are we asking for this or why is this required or why is this needed? Here's the answer that we can provide to you. We're just a phone call away at 402-991-5153 or check us out on our website at mtg-specialists.com and we'll see you here next time. Have a great week everyone. Mortgage specialists. Driven. Trusted. Reliable.