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I'm curious regarding a friend's situation. An offer was made on their house, submitted with a preapproval letter. My friend countered on the price and a couple of other issues and when the buyer countered their counter, he added that he needs up to 30 days to secure financing before he wants the escrow clock to start ticking. Why would he need that if he supposedly was already approved? This is for a conventional/jumbo loan if it makes any difference.
He probably isnt pre approved but rather pre qualified. That means he has submitted a loan application and his loan has been ran through automated underwriting but he hasnt submitted documentation such as pay stubs, assets, etc... to support the application.
Pre approved means the lender has recieved signed loan docs and all supporting documentation and are just awaiting a signed contract and appraisal.
A pre-approval is not a guarantee of obtaining a loan. Usually it is dependent on some items on a case to case basis.
A bank will still need to check if nothing has changed in the financial status of an individual since he/she applied for a pre-approval. Like if you incurred more debt, lost your job, etc.
In a buyer's market and with more stringent borrowing procedures, it is not uncommon to have a financial contingency with an offer. It protects the buyer from losing his earnest money just because the bank decided to deny the loan at the last minute.
When a loan is approved, two things are given equal weight: credit and collateral. A preapproval only contains credit approval. Then there are various stages of a preapproval: qualification review without documentation, qualification review with documentation, qualification review with an underwriter's review. In all three, the credit report is examined. If my borrower has had the latter two (documentation review and underwriter review), my preapproval letter will state this.
(A side note on how strange this business is......I only bother the underwriter with the very tough loans for a preapproval, after you do this for a while, you know what will fly. So, after I have the UW's green light, I write the letter that so-and-so have been preapproved, with an UW's review. I've noticed that that buyer's offer is usually picked out of several, just because an UW has seen it. What the sellers' agents don't realize, the underwriters only revew the very rough cases up front, most with very tough approval conditions.)
Once the contract is accepted, both the borrower and the property processing begins in earnest. It's because the appraisals are taking up to 3 weeks in some areas (and then another week to underwrite and close) 30 days could be needed. (We're turning them around from start to finish in two weeks - it really depends on your market).
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