Understanding the Pre-Approval Process
The last few years have brought about significant changes in the mortgage and home loan process. Gone are the days of stated and no verification loans. This has resulted in significant changes to programs that cater to physician loans. As a result pre-approvals have become an important part of home buying.
Difference between a Pre-Qualification and Pre-Approval
In the real estate world there are two terms that are used frequently when it comes to getting a loan. They are a pre-qualification and a pre-approval.
Pre-qualification is generally completed over the phone. You call a lender and ask for a pre-qualification or pre-qual letter. They ask a few questions and fax or email a letter to you stating what home price range you should be looking in. While the process is easy, this letter provides nothing in the way of ensuring that you will actually qualify for a loan. They do not look at income, pull credit or even seek to understand your individual circumstances needed for a doctor’s loan. If you choose to use a pre-qualification letter you could find yourself looking in the wrong price range and even losing a contract because you cannot close on time, due to financing issues.
Pre-Approval is a process in which your credit is pulled, an application is taken and a lender reviews your information to better determine what size a home you will qualify for and what you need to close the loan. A pre-approval letter is much stronger and will give a more accurate starting place when it comes to the search for your new home.
Who Makes The Lending Decision?
There are two important parties when it comes to getting your physician loan approved. The first is the mortgage lender or mortgage broker and the second is the underwriter.
The mortgage lender works for a single company. A mortgage broker works for an independent firm and is able to shop different lenders and programs they offer. In both cases their job is to gather information, structure the loan, and recommend an appropriate loan product for your doctor’s loan. The “loan package” is then sent to the underwriter for approval. The lender is also responsible for making sure appraisals, inspections, and other details occur to move the loan from conception to closing.
The underwriter is the man behind the curtain. Generally you never speak to this person, yet they are the ultimate decision maker on the loan. While communication is directed through the lender, the underwriter is the one who decides what income and debt is counted and determine if you qualify for the loan you have applied for.
Finding a bank that understands the specific needs of doctors is the key to success in this process. The mortgage lender needs to be someone you are comfortable with, can be completely honest with about your personal finances, and has the resources to guide you through the complicated process of buying a home.
Not All Pre-Approvals are Alike
The pre-approval process will often include only the mortgage lender. The broker will review your credit and income and then make an educated guess, based on their experience, on which program you will be approved for and the amount the bank will lend.
Other lenders will have you complete the loan application, with all the verifications and send it to an underwriter for review. While a loan cannot be fully approved until a property is selected, completing the initial steps of the underwriting process will give you a much better likelihood of final approval without hiccups, after an offer has been made.
No company will guarantee you a loan as there are too many moving parts to a mortgage. The pre-approval that includes an underwriting review is the next best thing. Given the complexity of a physician’s loan, it is highly recommended that you only work with a mortgage lender that can include an underwriter’s review upfront in the form of a pre-approval.