We advise our clients that prequalifying is just not enough and recommend they obtain a full credit and income approval prior to falling in love with a home and writing an offer.
So what’s the difference between a preapproval and a credit and income approval? Preapproval is fine for the simple borrower, who is usually much easier to underwrite. If you work at Walmart and you make $13.50 an hour, 40 hours a week, fine. The chances are that a preapproval might be enough. You don’t have large student loans. You have a set hourly rate or annual salary, and you are not moving your family across the country to start a new job. So, you complete a quick online application showing you have good credit, have been at the same job for two years, and receive a W-2 salary for $28,000 a year. Preapproved. It’s as easy as that. Congratulations! You fit the box.
Physicians always seem to have more moving pieces: new employment, student loans, relocations, and jumbo loan sizes all add complexity, which equals more potential pitfalls. You don’t want to work through documenting and getting underwriting approval on all these issues after you have a home under contract and you’ve started loading up the kids in the U-Haul.
Credit and income approval starts with an application online or over the phone, then you also submit all of the documents that underwriting will need to sign off and close your loan, including transcripts if you are just coming out of medical school, two years of tax returns and W-2s, your new employment contract or offer letter, your source of down payment, and explanation as to what’s happening with your student loans if they are transitioning between IBR or deferment and regular repayment.
All of these items can greatly affect your loan application being approved or declined. It’s my advice to not only have them reviewed by your loan officer but also insist that they are reviewed by an underwriter (the gatekeeper of the money) and ask for a fully underwritten credit and income approval. Once you have a credit and income approval, you’ve eliminated 99 percent of the things that can and do go wrong in the loan process. You also have a much more attractive offer to present when you find your new home. You’re not just preapproved by some gun-slinging loan officer; you’ve been underwriter approved. It’s basically a blank check at that point. Find a home that appraises well and you are done!
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