A pre-approval is when a home buyer and/or homeowner has completed a 1003 mortgage loan application and the mortgage loan originator has run credit and possibly ran the file through the automated underwriting system and got an automated approval per DU FINDINGS and/or LP FINDINGS and is confident that the mortgage loan borrower is qualified. Mortgage Qualification is so important and if the mortgage loan originator does not qualify the mortgage loan applicant the right way initially, the potential of a mortgage denial is imminent and this is the main reason for mortgage denials on the 11th hour. Mortgage Qualification stage is the most important stage of the mortgage qualification and application process. Poor mortgage qualification can mean a last minute mortgage loan denial.
How Do Lenders Do Mortgage Qualification
Every mortgage company has different systems on doing mortgage qualification. Once you submit your signed mortgage loan application and your documents such as your tax returns, W-2s, bank statements, and other required documents, it normally gets reviewed by the mortgage loan originator and gets submitted to processing and a mortgage loan processor will then package the whole mortgage package up and submit it to underwriting for a conditional mortgage loan approval. Some mortgage companies do not really go over each mortgage loan document like they should. Others, will go over every document with a fine tooth comb and make sure that everything is in order and no hiccups will be encountered by the mortgage underwriter. For example, mortgage lenders will require two months bank statements and many mortgage processors will just submit the two months bank statements the mortgage loan borrower submits to them. This can create a huge problem if there has been overdrafts in the past 60 days. Bank overdrafts are seriously taken by the mortgage loan underwriter and will be a cause of a mortgage loan denial. By catching a bank or bank overdrafts, the mortgage processor can omit that particular bank statement and see if the mortgage loan applicant has other bank statements with no overdrafts he or she can use. If not, then we need to let the bank account season for 60 days. For mortgage loan applicants with overdrafts, a bank print out that is signed, dated, and stamped by the bank teller needs to be used in lieu of actually bank statements. The reason for this is if you use actual 60 days bank statements, the year to date overdraft fees will be posted on the bank statements which raises a red flag that there were overdrafts whereas if you get 60 bank print outs, the year to date overdraft fees will not show up.
Income In Mortgage Qualification
Qualifying for income in the mortgage qualification process is so important and a mortgage loan originator who has not scrutinized the mortgage loan applicant’s income carefully can jeapardize the mortgage loan approval. There are many times where a mortgage loan processor will submit a mortgage file to the mortgage loan underwriter with just the recent pay check stubs and two years W-2s and wait to submit the two years tax returns because the mortgage loan applicant did not provide it to them. The mortgage underwriter can issue a conditional approval and one of the conditions may be to provide two years tax returns. When the two years tax returns are submitted, there can be a lot of unreimbursed expenses where the write offs on the tax returns will greatly reduce the borrower’s adjusted gross income and cause in a mortgage loan denial.
Conditional Approval: Loan Commitment
Most home buyers and mortgage loan originators want a fast quick conditional approval, also known as a loan commitment. A loan commitment is worthless if the conditions on the loan commitment cannot be satisfied or the mortgage loan originator has not properly qualified the mortgage loan borrower. The haste in not properly qualifying the mortgage loan applicant is the sole biggest mortgage loan denial at the last minute. Another reason of a mortgage loan denial where the mortgage loan applicant was not properly qualified is when a borrower is an hourly wage earner with overtime income. Whenever a mortgage loan applicant has overtime, bonus, or part time income, a verification of employment should be ordered by the mortgage loan processor before submitting the file to underwriting. Many times this is not done until after the conditional approval and there is a big discrepancy on the borrower’s overtime, part time, or bonus income. There are times where the employer states that the overtime, part time, or bonus income is not likely to continue and this will eliminate the overtime, part time, or bonus income from being used to qualify the borrower’s income for the debt to income ratios.