How to Get Full Credit Approval Before House Hunting
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Getting a full credit approval before you search for a new home can save you the frustration of being denied for a mortgage later in the mortgage process. Unlike a preapproval, a full credit approval involves a complete review of your income, assets and credit by the lenders’ underwriter.
If you’ve had some twists and turns in your job history, earnings or credit profile, a full credit approval lets you know exactly where you stand for a home loan.
What is full credit approval?
A full credit approval means every aspect of your credit profile is verified and signed off by a mortgage loan underwriter. It may also be called a conditional underwriting approval. In the mortgage process, the underwriter is the final decision-maker for approval or denial.
Why should you get full credit approval before house hunting
A full credit approval is valuable for situations that don’t fit into the standard underwriting box. In most cases, a mortgage preapproval is all you’ll need to make an offer on a home.
However, getting full credit approval before you start searching for homes may be worth considering if any of these scenarios apply to you:
- Your field of work, income type or business recently changed. This may entail a recent switch from commission to salaried income. Or you may have finished schooling and, as a result, changed your field of work.
- Your income or employment has been unstable. This includes working multiple jobs in a short time period or unemployment gaps between positions.
- You’re self-employed and have complicated sources of income. If your business income varies significantly from year to year, an underwriter can analyze your tax returns to determine your qualifying income.
- Your bank statements or a gift source need explanation. Large deposits that aren’t related to your income may require advance approval. If a non-relative is gifting you down payment money, the lender can make an exception in some cases (typically gifts have to come from relatives).
- You have major issues in your credit history. Any public record on your credit report, such as child support payments, bankruptcies or judgments, may require copies of legal documentation. For example, if you had to sell a previous home in a short sale or lost it to foreclosure, an underwriter needs to confirm you meet the requirements for a new mortgage approval. If you don’t have copies of supporting documentation, you may have to request certified copies from government agencies, which can take time.
Documents you’ll need for full credit approval
The home loan process for a full credit approval requires more proof of the information on your loan application. Beyond the standard pay stubs, W-2s and bank statements, you may need to provide:
Additional income documents
- Letters of explanation for any gaps in employment or large changes in income over the last two years
- Letters of explanation from your accountant explaining how you’re paid if you’re self-employed
- Employment letters for a new job
- Training or education certificates, college transcripts and/or a copy of your degree if you just graduated from college or trade school
- Explanations for multiple jobs in a short period of time
Additional asset documents
- Most current quarterly statements for 401(k)s or retirement accounts used for a down payment and cash reserves
- Verification from your employer that you can access retirement funds
- Explanations for any large cash deposits
- Explanation of bounced checks or negative balances on your bank statements
- Information about other real estate assets, or debt cosigned with other parties
Additional credit documents
- Letters of explanation for any negative credit situations
- Divorce decrees, child support and alimony agreements
- Bankruptcy papers with all corresponding schedules and discharge paperwork
- Proof of paid collections, judgments or federal/state tax liens
How full credit approval differs from preapproval or mortgage prequalification
A prequalification generally involves an informal conversation with a loan officer about your earnings, down payment amount and credit score.
A preapproval digs a little deeper: A loan officer reviews pay stubs and bank statements, and checks your credit report and scores. A loan officer also runs your application through an “automated underwriting system” to see if you meet the basic guidelines for the loan you’re applying for. Generally, sellers want to see a preapproval letter from your lender submitted with your offer to ensure you’re serious about buying a home.
On the other hand, a full credit approval is a complete, upfront vetting of your finances by an underwriter.
Mistakes to avoid that could derail a full credit approval
The mortgage process doesn’t end once you’ve received a full credit approval. In fact, you could wind up with a loan denial if you make the wrong financial moves.
Following these five tips may help keep your loan approval on track to closing.
1. Don’t rack up any new credit or take out new loans Lenders review your credit report again right before closing. An increase in your monthly credit card payment, or a new credit card or a car loan could push your debt-to-income (DTI) ratio above the limits your approval was based on.
2. Don’t change to a commission-income jobEven if the new position comes with a hefty signing bonus, lenders can’t count commission or bonus income unless you’ve received it for two years. The same is true for switching from a salaried role to self-employment.
3. Don’t change the source of your down paymenTYour lender will be expecting the funds to come from the source outlined in your approval. A last-minute change could send your application back to an underwriter’s desk for approval, delaying or preventing your closing.
4. Don’t miss payments on your credit accountsThe credit report your lender uses for full credit approval is good for 90 days. If it takes a while for you to find a home after your approval, a late payment could lower your score, resulting in a higher interest rate or potentially sabotaging your approval altogether.
5. Don’t change jobsYour employment is verified again right before your closing. Although you can get a mortgage with a new job, it’s best to wait until after closing to avoid any delays or problems with your mortgage approval.