Through the course of your home buying research, you have most certainly heard of and you'll most likely see these two items:
Prequalification Letter - Prior to contracting on a specific property, this letter says, a Loan Originator has looked at your application and credit and said "Yes, by golly, I believe I can get this person a loan based upon standard loan documentation and credit requirements".
Preapproval Letter - Prior to contracting on a specific property, this is letter that says your Loan Originator has gathered the basic documentation requirements (W-2's, bank statements, pay stubs, rent history etc. etc. etc.) and determined you meet the guidelines as they relate to general underwriting rules. In most instances, an underwriter may have, and should have, done a "Quick Look" at the file and said Yes, based upon this, I will consider the loan. However, in either case, no promises are made.
These two items are Highly touted by every Real Estate Professional and Lender/Broker/Banker site on earth. However, pay close attention as you will learn a huge secret.
You will note what each says - PRIOR TO CONTRACTING - as a loan file cannot be truly underwritten without a property. Many in Real Estate seem to never mention the most important document, you as the home buyer, can have. As a matter of fact, I don't remember ever reading about it anywhere. What is that? You haven't heard of it either? This is not surprising.
Once you have contracted on a property, as a borrower, the most important piece of paper you can and MUST get is a "Commitment To Lend". This document is only issued to APPROVED Loan Files. It will list all of the conditions remaining, post underwriting, you must meet to close. You Need This! This tells you exactly what you need to do and is the same information/checklist your Loan Originator is, or should be, working from.
If your Loan Originator cannot provide this to you, no matter how sweetly they say "Don't worry, you're approved", your loan is in fact, NOT approved. Period, End Of Story. Institutions that will not issue commitments don't issue them for a reason. Why? A Commitment to Lend is a legally binding document that says if you provide "A" list of items to our satisfaction, we'll provide you "B" in the form of funds to close.
So why would any institution refuse to issue a commitment? So they can ditch your loan file at the last minute with absolutely no recourse on your part other than a "I'm sorry, you didn't qualify for "X" reason credit denial letter.
It is absolutely critical, as a home buyer, that you get a Commitment to Lend from your Loan Originator. This Legally protects you from getting strung along by an institution that has made no commitment to give to you the funds you need to close! It is the only document you can get that tells you that you are in fact Approved for a loan with a set of conditions. Everything else is basically worthless.
This commitment, and the time it takes to get it, will tell you just how far along in the loan process you are Vs. the amount of time you have to close on your contract. If you have 30 days to close and 15 days into the process you don't have a commitment to lend, then you have big problems.
So, as soon as you contract DEMAND that "Commitment To Lend" document (Make sure it is SIGNED!) and get to work on the items listed that fall to you. Meaning items you need to provide in the form of additional documentation or clarification for the underwriter.
This alone will smooth your closing process provided you get it early enough into the purchase contract time period. If your Loan Originator tells you they Can't provide you with one, you need to find one that can.
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