Stop Wasting Money on Pre-Approvals: A Smarter Approach for Mortgage Lenders

With no immediate sign of mortgage rates dropping, housing inventory remaining low, and a general sentiment among younger generations that homeownership is out of reach, mortgage lenders have been actively seeking ways to operate more efficiently during a prolonged period of lower volume.

Some have taken the opportunity to re-examine their internal team processes to gain time savings; some have looked to technology to automate tedious parts of the loan process; and others have doubled down on the borrower experience to ensure that they attract and retain whatever volume there is. Whatever the measure, mortgage lenders are acutely aware that now’s the time to change.

One area that lenders are re-examining is their top-of-funnel experience, generally referring to what is known as the “pre-ITP” stage, or before the intent to proceed from the borrower.

What is the pre-ITP stage?

It's the non-committal phase where lenders work to qualify the borrower for a loan program and provide preliminary terms while borrowers are still free to shop around. Speed matters here, but so does cost efficiency: if the borrower isn't committed or qualified, any effort and expense spent on mortgage pre-approval income verification is potentially wasted.

In this post, we'll examine three income verification approaches your organization may be using during this phase and how each one may be costing you more than you think.

What are the risks of using document collection for mortgage pre-approval income verification?

We hate to break it to you, but collecting documents to verify income and employment is quickly becoming a thing of the past. It's a manual and tedious process for your internal teams, and now, thanks to AI, it's becoming almost impossible to know what's real and what's fake.

Instead, lenders are beginning to turn to automated technologies that connect directly to source-of-truth data, like user-permissioned credentials.

But it’s technically “free” to collect documents, right? Not necessarily. When you think about the manual effort that goes into collecting and reviewing documents, the hours add up. Depending on who in your organization is the one overseeing this document review process, you're wasting their hourly salary rate on mundane tasks when they could provide more value elsewhere.

Not to mention, human review is more prone to errors, which has downstream consequences if the information turns out to be incorrect for pre-approvals (or other formal verifications).

Even if it’s just for a pre-approval, collecting documents doesn’t have to be the way. It’s important to reduce manual effort in this early stage of the loan process, to set the stage right and pave the way for additional automation.

What are the downsides of using instant data providers for pre-approval verification?

Keeping borrowers interested means moving fast — so instead of the slow-moving process of collecting and validating documents, many lenders turn to instant data providers. But instant data comes with two significant drawbacks: rising costs and stale databases prone to inaccuracies.

If you're solely relying on instant data this early in the loan process, especially from legacy providers, you're trading the illusion of speed with bad data and high costs, and both your teams and borrowers lose out.

Asking the borrower to do it

Borrower-permissioned data where lenders ask borrowers to connect and permission their payroll or bank accounts goes straight to the source of truth. It removes the need to collect documents manually or rely on a costly instant database. As long as the borrower logs in successfully, you get verification data quickly.

But introducing this friction early in the process has real downsides:

• If the online application is already long, adding another step can cause borrowers to abandon the process
• If the borrower doesn't know their credentials, it pauses the process and causes delays
• If the borrower isn't familiar with user-permissioned processes, they may resist, slowing down top-of-funnel conversions

For the pre-approval stage, these delays can cost you borrowers before they've even committed.

What is the best income verification approach for mortgage pre-approvals?

No documents, no instant data, no user-permissioned data. What then? We believe that it’s not about a single-track approach or saying no to all of them. Just like every borrower is a unique case, your approach should be a comprehensive, adaptive, and intelligent approach that leverages a mixture of these processes to produce the best result for your teams.

As it becomes more important for lenders to provide best-in-class experiences to attract and retain borrowers, it’s more clear that a one-size-fits-all approach doesn’t work, especially during the delicate pre-ITP stage.

Holistic verification solutions like Truework can help you ditch the one-size-fits-all approach early in the loan process and leverage a tailored process that moves quickly, keeps borrowers engaged, and produces the most cost-efficient verifications.