Securing Final Loan Approval

You got pre-approved for a home loan when you started looking for a new home. Once you got serious about finding a new home, you hooked up with a mortgage broker and officially applied for a home loan. You were pre approved for a maximum amount that a lender would be willing to loan to you, based on your income and expenses. Now you have found the ideal home for you and your family, made an offer and it was accepted by the sellers. Your closing is coming up.

Securing the final loan approval and loan commitment from the lender should be fast, easy and painless if your journey to home ownership went this way. If you have followed our suggestions in previous articles in this series about prequalifying for a mortgage and applying for a mortgage and studied the mortgage questions, options and hints we provided, this should be one of the easiest steps to home ownership on your entire Home Buyer’s Checklist, because you have already completed most of the legwork.

In those previous articles, we emphasized the importance of getting early preapproval, obtaining an appraisal and discussed some of the mortgage options that are available. Most reputable real estate agents will ask early in the home buying process whether you have obtained financing for the home you desire, because without financing, there won’t be a deal.

Mortgage Preapproval vs. Final Loan Approval

Don’t confuse preapproval with final loan approval. Preapproval is much looser and more cursory — lenders often won’t ask for verifications to grant preapproval, but will take a client’s word – while final approval is much more stringent and requires full documentation (verification) of employment, income, assets and liabilities and that you satisfy certain “conditions” imposed by the lender.

Don’t sabotage your chances of obtaining your dream home by artificially inflating your finances during the preapproval process. Any financial problems or other negative information about your ability to afford your new home will be revealed during the final approval process.

The good news is that there is some overlap between preapproval and final approval. If you were preapproved prior to or during your house-hunting activities, you automatically began the final approval process. Any documents you supplied to the lender during preapproval are that many fewer documents you will need for final approval, although you may be required to update some documents if your original documentation is more than three or more months old.

You may have sought preapproval without a specific new home in mind. That’s OK. But now that you do have a specific home in mind, you must supply specific documents about that home, in particular the appraisal, purchase contract and title information. Your real estate agent, mortgage loan broker or agent and real estate attorney (if you are using a real estate attorney) are responsible for supplying your lender with this information, with your assistance.

Satisfying Conditions

Most lenders will qualify their preapproval letter with a statement that reads something like: “Final loan approval is contingent on certain standard and routine stipulations or conditions. …”

How do you meet and satisfy these conditions?

Documentation most often required to satisfy conditions

• Copy of purchase contract (on the real estate you are buying)
• Copy of sales contract (if applicable, on your existing home or real estate you are selling)
• Divorce or separation documents (if applicable)
• Bankruptcy information (if applicable)
• Relocation agreement (if applicable)
• Copy of most recent Socal Security benefits check (if applicable)
• Award letter and copy of most recent checks for disability, retirement or legal settlement
• Recent statements for all revolving charge accounts (credit card accounts)
• Bank and financial brokerage account statements from the past several months
• Individual Retirement Account (IRA), Keough and 401(k) statements from the past several months
• Titles of any vehicles less than five years old
• Recent pay stubs from employers
• IRS W-2 statements from the past two years
• IRS 1099 statements from the past two years (if applicable)

Self-employed borrowers typically will not have these last three items, but instead will often be required to supply the following:

• Federal tax returns (Form 1040 or its equivalent, with additional supporting documents, if applicable) from the past two tax years
• A year-to-date profit-and-loss statement for your business

Other examples of conditions that you may need to fulfill:

• If you are a renter and do not currently own a home, you may be required to provide proof of timely rental payments (which are not usually reported to credit bureaus), which you can usually obtain in writing from your current landlord (large rental companies can provide a VOR — a Verification of Rent form), or produce cancelled rent payment checks or bank statements that verify that you paid your rent on time and in full
• Depending on your financial situation, some lenders may require verification of your down payment, closing funds, and possibly, reserve funds, which may require disclosure of the assets available in your savings and checking accounts
• Employment information (where and how long), usually for at least the past two years

Not all lenders will require all of the information listed above. Many factors come into play, such as:

• Credit history and current credit profile
• Employment history and length of time with current employer
• The type of home loan you are applying for

Independent mortgage loan brokers or consultants can help in this regard because they work for you instead of a lender and presumably have your best interest in mind, but it is in the best interest of any mortgage company to complete the mortgage process because they typically do not get paid otherwise.

Once you satisfy all of the conditions of your loan application, your loan application will be forwarded to your lender’s underwriting department. The underwriters will review your paperwork and examine the home you want to buy and decide whether it is a good investment for them, based on the home’s value and your ability to pay off the loan you are asking them to give you in order to buy the home. Only then will you be able to proceed to the closing table, which is the final step of the home buying process when your loan is funded and the real estate transaction actually takes place.

The underwriting process is out of your hands and if both you and your mortgage broker have been honest and forthcoming throughout the mortgage loan process, you should have nothing to worry about. Once your lender’s underwriting department determines to indeed underwrite your loan, you are ready to conduct a final walk through, proceed to the closing table and complete your home prurchase.

In our next post, we will discuss the Final Walkthrough. In our last post, we discussed Real Estate Attorneys.