Mortgages and homebuying are fields that can get confusing in a hurry. There's an array of acronyms, jargon and technical terms that can prove difficult to cut through in the search for simple understanding.
If you're confused, let us help you through the process of getting your dream home.
Off the bat, you might not think the concept of loan preapproval would fall into that category. It sounds clear enough, right? But it's surprising how puzzling this idea can get for some borrowers - and that can spell serious trouble in some cases.
Let's get this out of the way right now: Loan preapproval is not a guarantee. Preapproval means that your loan officer is ready to initiate your mortgage, based on the information and documentation you provided at the time you requested the preapproval.
In layman's terms, it is the equivalent of your lender saying, "We'll give you a loan, up to a certain amount, provided these conditions are met." This is a step in the right direction for prospective homebuyers, but it is usually weighed down with conditions and contingencies
The home you select must meet the VA's criteria, making it impossible for VA lenders to offer any sort of mortgage guarantee during this stage of the process.
Note: It's incredibly important for veterans and military families to understand this at the outset to prevent delays or complaints on the VA Loan process.
Your preapproval letter is a vital tool in your search for a new home. It is a letter informing all parties involved that your personal information has been reviewed by a certified VA Lender. Many times, these letters can be used as leverage to show a seller you are a serious buyer, or used to show realtors that you plan to use your VA benefits.
A typical preapproval letter will explain that negative changes in your credit history or debt-to-income ratio can render the preapproval void.
Technically, no, but your lender may find it necessary to re-review your financial information 60 to 90 days after issuing the letter. Or, if you become preapproved and make a large purchase that requires additional monthly payments, your debt-to-income ratio may increase beyond the point of handling the payments for a mortgage, which would impact your purchasing power as a borrower.
The re-review of your preapproval comes from the fact that your documents were previewed before taking on the extra risk associated with additional debt.
The voiding of your preapproval comes from the fact that your documents were previewed before taking on the extra risk associated with additional debt.
All of the conditions listed in the letter are important, and your mortgage can and will fall apart if any of them aren't met. Aside from changes in credit, the two largest conditions involve the appraisal on the property you hope to purchase and a final approval from the lender's underwriting experts.
Your loan officer will order an appraisal once you enter into a purchase agreement on a property. If all is well, an underwriter will ultimately examine your entire loan file, from tax statements and W-2s to recent bank transactions and credit scores. It is the underwriter's job is to make sure the loan application meets both the VA's and the lender's in-house requirements.
It's only when all of these conditions are met will the lender issue what's called a "clear to close," meaning you've got a firm commitment regarding VA mortgage financing. From there, it's on to closing day and getting the keys to your new home! An exciting step in every person's life.
The confusion behind loan preapproval undoubtedly spurs from the word "approval." Many times, borrowers hear this keyword and the rest fades away. Additionally, it's possible there are some mortgage companies out there that don't do a good enough job of ensuring that veterans have a clear understanding of the difference.
When searching for your new home, never forget that your preapproval will come with conditions, and if these conditions are not met, your loan could fall through - resulting in loss of the property, time spent on the process and your hard-earned money.
To protect yourself from incurring any losses, in the case that your preapproval is voided, make sure any purchase agreement you sign includes a condition covering your earnest money. Many sellers want prospective borrowers to put up earnest money, which is similar to a good faith deposit showing they're serious about buying the property.
Without that contingency, you can lose a significant chunk of change if one of the preapproval conditions isn't met.
For additional information on preapproval, see this Guide to Preapproval from Veterans United and save yourself time, complaints on the process and money out of your pocket.
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