Why a pre-qualification or pre-approval isn’t rock solid.

Buyers who obtain a pre-qual or preapproval letter are under the impression that their loan is approved. In some ways that is correct. There are a number of obstacles, that can arise that may challenge a borrowers capability to buy without necessarily being misrepresentation on the buyer’s part. Recently, I had a young client who suddenly experience a 25 point drop in her credit score from the time she pre-qualified until a month later when she actually applied for the loan. Closer examination showed that she had several very small credit cards with credit limits of around $300 each. Over the Holidays, she had left just a bit over half of these balances in      purchases on the card which resulted in the drop in her score. Approximately, $300 total dollars had made her credit score drop 25 points without paying late or overcharging. We were able to fix the problem by paying down the balances and re-scoring her credit.

There are also other instances where the buyer in good faith has pre-qualified and subsequently can’t achieve that final loan approval. Inability to verify income or sufficient income is commonly a problem. Under new regulations, overtime income that is not guaranteed, rental income that has not been filed on the prior years tax return, business income without a two year documentation on a tax return (the net business income on tax returns not the gross) all have a tendency to fall under the category of income that cannot be counted for qualification purposes.