The industry is always looking for ways to streamline and finesse the mortgage loan process, and ideally, lenders should start with the very first step—pre-approval. For borrowers, it really does pay to work with a lender who asks the right questions and procures all the appropriate documents, as they’re less likely to make a misstep and stall the process.
A common lender mistake is simply not doing enough research. Even if a buyer has a pre-approval letter from an esteemed mortgage lender, the loan application will be declined if the lender hasn’t looked into tax returns and credit reports sufficiently to find out that the borrower has, for example, already financed the maximum number of properties as dictated by Fannie and Freddie.
Given the importance of credit, many people have their credit report run every year. Although this is primarily to watch for suspicious activities on one’s credit card, knowing your credit score is an important step if considering a home purchase or refinance.
Self-employed borrowers also pose problems when it comes to income, as institutions won’t issue a loan based only on assets. If a borrower isn’t able to demonstrate any income—he or she is starting a new business, for example—the application will be declined, even if the borrower has several million in the bank and a pre-approval letter from a well-regarded lender.
Oversights like these leave everyone with a bad taste in their mouth—the seller loses time in selling the property, and the buyer loses time in searching for a property and has to cover the cost of the appraisal, at the minimum. Time and energy is wasted by all, and the mistakes are entirely preventable if lenders are diligent throughout the pre-approval process.
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