Hooray! You’ve been pre-approved for a home loan! You’ve had your credit report picked through, your earnings meticulously reviewed, your debts questioned, and your dignity turned inside out.
Well, the key word here—well, prefix—is “pre.” You are not done yet. Not even close. After you’ve had an offer accepted and passed through the inspection and appraisal phases, it will be time for final loan approval. Gird your loins!
Hopefully you have chosen a mortgage broker or loan officer to work with who does a lot of the “heavy lifting” up front. I mean someone who did much more than just glance over your credit report and last tax return before saying, “Go buy a house!” A very good mortgage professional will go through your financial profile with a fine-toothed comb looking for any red flags or concerns that could cause a problem when it comes to final approval. This person will also guide you through the process to make sure you don’t make any unintended errors (FYI….don’t open up a credit card, quit your job or deposit unusual amounts of money during your escrow).
When it comes time for underwriting and final loan approval—the very last steps of your home purchase escrow period—your entire financial profile will be checked again, and double checked, and maybe triple checked up until the funding of your loan. If that amazing mortgage professional did his or her job well up front, this process will be merely frustrating and not cause for hari-kiri.
Here is some valuable information on the final stretch to final approval from mortgage broker extraordinaire, Kristen Brown of Mortage Trust:
-A credit “refresh” is often pulled the final day before loan funds are wired. Higher credit card limits/payments, brand new credit, and having to explain new credit inquiries could be detrimental.
-Credit reports are good for up to 90 days, so sometimes a new report is pulled near the end of the escrow depending on how long it has been since pre-approval. A lower score can raise your rate and affect other aspects of final approval. Even stuff you think would be helpful – like paying off debt or a collection can HURT your score.
-More paystubs will be asked for. Changing the way you get paid – going from salary to hourly or commission could be detrimental as generally 2 years of commission is required.
Problems can come up during the final approval phase, and sometimes they are even problems beyond your control. That is why they call the first stage the pre-approval and this stage the final approval. Your credit, bank accounts and employment will be checked again and again. Any change can disrupt or ruin final approval. If you have a challenging financial profile—perhaps one that does not include traditional salaried income—the chances of problems can escalate.
Having a “sale fail” at this late stage is very rare, but it can happen. It does happen. You and your mortgage professional and your Realtor need to be ready and pro-active to make it through this last stage.
As Kristen regularly tells her clients, “I don’t want to get all up in your business – I just want you to keep your loan approval! Unfortunately, our normal human logic isn’t always the same as the lender’s logic.”
(Thanks Kristen for your wise and supportive input on this stressful topic! Kristen is one of my few go-to mortgage brokers--she offers competitive rates, excellent customer service, and a fun working relationship from start to finish and beyond)