When you are approved for a mortgage, the approval is for you, the borrower, and for the specific property you are buying or refinancing. Because mortgage approval is property-specific you cannot automatically transfer the approval because every property is different.
For example, the new property may not have the same value or the property type may change. For example, if the property changes from a single family residence to a condominium or co-op, additional documentation on the condo project or development is required when you apply for a mortgage. Additionally, if you decide to buy a multifamily property instead of a home, the qualification and appraisal requirements are different. Or if you want to buy an investment property instead of a home you live in your mortgage terms may change, which can impact your approval.
Additionally, in some cases, mortgage qualification guidelines change based on the property type. For example, you are usually required to make a larger down payment on a multifamily or investment property. The required credit score and maximum debt-to-income ratio may also change, depending on the property type and value.
Regardless of the property type changes, the lender needs to order a new appraisal report to determine the value of the new property. The lender uses this property value to calculate your new loan-to-value (LTV) ratio to make sure you qualify for the mortgage. If the property value changes significantly, you may need to reduce your mortgage amount or increase your down payment to meet the lender’s LTV ratio requirement.
In some cases the appraisal report identifies structural issues such roof, foundation, electrical, plumbing or HVAC defects that need to be addressed as a condition to closing your loan. Depending on the condition of the property, you or the lender may also order a property inspection report that could reveal additional issues that need to be corrected.
The lender also orders a new title report to make sure there are no easements or encumbrances that could prevent you from taking ownership of the new property. If the new property has a property tax lien or other title issue, you may need to resolve the issue before you receive final mortgage approval.
Although the lender orders a new appraisal and title report, there are other components of your prior mortgage application that the lender can use to make the process go more smoothly. For example, unless your financial or job situation changed significantly, you should not be required to fill out a new mortgage application. Additionally, the lender should be able to use your existing credit report, which is typically valid for 60 days when you apply for a mortgage. The lender may review your credit report again closer to closing but should not pull a new report when you re-apply for the mortgage as long as you are within the 60 day timeframe. In short, although you cannot use the same approval, the mortgagee process should be more efficient because you are already approved as a borrower.
Please note that the lender is also required to issue updated disclosure documents, including a new Loan Estimate, based on the revised property and mortgage information.
The lender then submits your complete loan application, including the new appraisal and title reports, to its underwriting department for review. Similar to when you were approved for your mortgage the first time, the underwriter reviews your loan application and provides a list of conditions to close that you must resolve before your mortgage funds.
In some cases the underwriter requires additional financial information from the applicant -- which is unlikely in this case because you have already been approved before -- and in other cases the conditions are specific to the property or title report. When these issues are resolved, the lender issues new loan documents that reflect the new property you are buying or refinancing and you are ready to close your mortgage.
One point to highlight is that mortgage rates may have improved since you applied for your initial mortgage. We recommend that you take advantage of this time to confirm that your current lender is offering you the best loan terms.
You can use the table below to shop multiple lenders. If you find better mortgage terms then ask your current lender to match them. If your current lender declines, then consider changing lenders. You need a new appraisal and title report regardless of what lender you choose, so changing lenders should not cost you too much time.
"Originate & Underwrite." Single-Family Business. Freddie Mac, 2020. Web.« Return to Q&A Home About the author