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Tag: pre-qualificaiton

The Mortgage Pre-Qualification Letter – Questions to Ask

Every real estate agent, at one time or another, has run into the situation where the buyer/borrower was issued some sort of pre-approval letter that didn’t hold water under further scrutiny.

How can an agent really test the validity of a borrower’s pre-approval?

 

What Are the Findings?

This really should be the number one question asked by agents, as this is where the rubber meets the road – and where the majority of lenders have not completed the task.

First, nearly all the residential loans being originated to Fannie Mae’s or Freddie Mac’s standards must pass automated underwriting through Desktop Underwriter (DU for short) or Loan Prospector (LP).

Each loan is carefully run through an automated underwriting system whether the borrower is looking for a conventional mortgage, FHA mortgage or even a jumbo mortgage. If their loan does not pass automated underwriting, it’s more than likely the potential borrower’s loan won’t move forward.

It’s absolutely critical in the information-gathering stage – that lenders run and then receive an automated underwriting approval to make sure their loan will get the green light.

Make sure you know the automated underwriting findings!

Is This a Pre-Approval or Pre-Qualification

The pre-approval process is not a 15-minute conversation.  If you supply me with all the documents necessary for a full document (full doc in industry jargon) review, I need time to read them, do the analysis, load the data into systems, and run the analyticd…more than 15 minutes.  Giving your lender time to process the information helps to secure a reliable pre-qualification.

If your borrower’s lender is offering you a super speedy pre-approval, you as the agent need to question the choice of your borrower’s loan officer.  Obvious mortgage killers, un-seasoned bankruptcy, late payments, etc, are the exception. Mortgage killers take only a minute or two to disqualify the credit approval.

A true pre-qualification, on the other hand, is where the lender has done the appropriate analysis of the potential borrower’s income, assets, and credit and has received either Fannie Mae’s or Freddie Mac’s underwriting authorization (more on that to follow).

What Documentation Did You Obtain?

This list may vary from borrower to borrower (as some might be self employed or others might be utilizing commissionable income), but here is a standard issue checklist:

Copies of Driver’s Licenses/Social Security Cards – copies of driver’s licenses are typically required for all buyers that are going to be on the loan – and social security card verifies your US identity. These are important documents for buyer verification and fraud detection.

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Mortgage Statement/Coupons For All Real Estate Loans – if your buyer currently owns a home, whether they plan on selling it to buy a step-up home or plan on renting it out to live in another home, they will need to show their lender exactly how much they are paying monthly for their current home.

Most Recent Bank Statements – mortgage lenders need to see the most recent bank statements (all pages, and all accounts) from any buyers going on the loan. We will examine the debits and credits thoroughly.

Pay Stubs/ W-2 Forms for the Past Two Years (or 1099) – the past 30-60 days of pay stubs are required to prove and document their income, as well as W-2 statements for the last 2 years.

Retirement/Investment Account Statements – if a borrower has a retirement or investment account, they should provide one or two monthly statements to the lender. Even if they don’t plan on using these funds to buy your home, it may help prove that they are qualified. In some cases, the underwriter will need to see that the borrower has a certain amount of money in reserves.

Tax Returns (1040) – the past two years of borrower tax returns shows the mortgage lender your income, employer, address, verify your social security number and more.

Profit and Loss Statements –  if the borrower is self-employed or owns their own business, he/she will need to show two years’ worth of profit and loss statements. The lender may request additional items such as business bank statements as well.

In Conclusion

Much time can be saved and grief avoided if true pre-qualifications were given the time and effort they truly require. Make sure the lenders you deal with follow this process thoroughly – and don’t hesitate to contact me, as it would be my privilege to help!

Pre-Approvals and “Findings”

Here are a few great quotes from agents regarding the importance of the mortgage pre-qualification process:

“If the buyer I sent in your direction receives a pre-qual, and then three weeks later does not pass underwriting, whose fault is that?”

“To be honest, if the mortgage broker or lender will not invest in the front end, collect and verify the critical information, I truly don’t have much use for them.”

“I need to KNOW that the buyer, who has invested their trust in me, will not be compelled to find someone else at the last minute in order to salvage the transaction.”

With that said, you can actually evaluate the quality of the pre-approval you received from your lender with one question:

“What are your findings?”

This simple question will go a long way in determining the validity of your pre-approval letter.  The answer is either Approve/Eligible (Fannie Mae) or Accept (Freddie Mac).

What Are Mortgage Pre-Approval ‘Findings’?

These “findings” are in the report that outlines the factors that were used to either approve or disapprove that loan application.

The Fannie Mae (Desktop Underwriter) or Freddie Mac (Loan Processor) programs are the specific automated underwriting systems.  These should absolutely be completed prior to the issuance of that pre-approval letter.

The underwriting  report summarizes the overall underwriting recommendation.  It lists the steps necessary for the lender to complete the processing of the loan file.

If a lender receives the go-ahead from Fannie or Freddie through these automated systems, underwriting should be relatively easy.  If not, the transaction is most likely heading for trouble.

Timeframes

The pre-approval process is not a 15-minute conversation.  If you supply me with all the documents necessary for a full document (full doc in industry jargon) review, I need time to read them.  I’ll do the analysis, load the data into systems, and run the analytics….which takes a bit more than 15 minutes.  Giving your lender time to process the information helps to secure a reliable pre-approval.

If your lender is offering you a super speedy pre-approval, you as the agent need to question your choice of loan officer.

Obvious mortgage killers, un-seasoned BK, late payments, etc, are the exception. These issues take only a minute or two to disqualify the credit approval.

Negotiation Importance

Home sellers and their Realtors insist that home buyers submit a valid pre-approval letter along with their initial offer for the home.  Sellers don’t consider offers from people who haven’t taken the time to determine if they can even get approved for a loan in the first place.

Again, make sure to have your client reach out to me prior to going house hunting to get a true pre-approval letter!

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