If you are a first time home buyer, a seasoned home buyer, or a homeowner thinking of refinancing, the first most important step is to see whether or not you qualify for a mortgage. The mortgage qualification processes is not as simple as a mortgage loan originator just taking your 1003 mortgage loan application and running your credit and if your income and credit scores are high enough that you qualify. Mortgage qualification involves much more than that. If a mortgage loan originator does not qualify you the right way initially, you will go through the grueling mortgage application and approval process and may get denied at the end or go through stumble blocks during the mortgage application and approval process by trying to provide mortgage conditions requested by the mortgage loan underwriter. Reasons why mortgage loans get denied at the very end is due to the fact that the mortgage loan applicant was not qualified the right way. Just because you do not qualify currently does not mean that you cannot get a mortgage loan approved and closed. If you do not meet the mortgage qualification requirement, then the mortgage loan originator needs to correct the issues where you meet the minimum mortgage qualification requirements.
Good Income And Good Credit Scores: Why Cannot Qualify For Mortgage Loan?
Common sense dictate that if you have good income and high credit scores that you should qualify for a mortgage loan. However, this is not always the case. You can have great income and great credit scores but if you had recent late payments on your mortgage payments in the past 12 months, you may not qualify for a mortgage loan even if you have sold your home and the balance of your mortgage loan is paid off. One of the main mortgage qualification requirements is that you need to have been timely in the past 12 months. Some mortgage lenders may accept a one time 30 day late payment but if you have multiple late payments on your mortgage loan payments, you may need to wait 12 months until your mortgage late payments has seasoned. Also, you can have good income and good credit scores but if you had recent late payments, that may be an issue in you getting a mortgage loan approval. You can have had prior bad credit and low credit scores but mortgage lenders want to see that you have re-established credit and no late payments in the past 12 months. You can have unsatisfied collection accounts and charge offs and still qualify for a mortgage loan but you need to have been timely on your payments the past 12 months.
Automated Approval from Automated Underwriting System
Before your mortgage loan originator issues you a pre-approval, make sure that they run your mortgage application through either Fannie Mae’s Automated Underwriting System or Freddie Mac’s Automated Underwriting System. Fannie Mae Automated Underwriting System is also known as DU, or Desktop Underwriter, and Freddie Mac Automated Underwriting System is referred to as LP, Loan Prospector. You need an approve/eligible per DU FINDINGS or an approve/eligible per LP FINDINGS before you should get a pre-approval letter and enter into a real estate purchase contract. If you get a referred/eligible, your loan officer should run it by the mortgage loan underwriter to see if your file can be manually underwritten. If you get a Referred with Caution, that means there are major issues with your mortgage loan application and your mortgage loan originator needs to re-review your whole mortgage loan application.
If I Get Automated Approval From AUS, Am I Set To Go?
Just because you get an approve/eligible per DU FINDINGS and/or LP FINDINGS does not mean that you are solid and set to go. It depends on the mortgage lender. There are lenders like myself where I just go off DU FINDINGS and/or LP FINDINGS because I have no mortgage lender overlays. A mortgage lender overlay are additional guidelines that are above and beyond the automated findings where the mortgage lender implements. For example, if your debt to income ratios are at 56.9% and you get the approve/eligible per DU FINDINGS, I can do your mortgage loan with no problem. However, if the mortgage lender you went to has mortgage lender overlays on debt to income ratios that caps debt to income ratios at 45% or 50% and your debt to income ratios are at 56.9%, that mortgage lender cannot do your mortgage loan because you do not qualify with that particular mortgage lender. You will qualify with me because I just go off the findings of the automated approval.
Unpaid Collection Accounts
Same with collection accounts. Unpaid collection accounts do not have to be paid off to qualify for a mortgage loan. If you get an automated approval with unsatisfied collection accounts, you should be set to go if you choose a lender with no mortgage lender overlays like myself. However, many mortgage lenders have mortgage lender overlays that require you to pay off unsatisfied collection accounts in order to meet their lending standards. If you get an approve/eligible per DU FINDINGS or LP FINDINGS with unsatisfied collection accounts, you need to check with your mortgage loan originator whether or not his mortgage company has mortgage lender overlays on unsatisfied collection accounts.
Mortgage loan originators are human and make mistakes like many of us. Many times, a mortgage loan originator may just submit your mortgage application to processing and underwriting without checking on their mortgage lender overlays or not properly qualifying you. This will back fire at the end where your mortgage loan may end up getting denied. Mortgage Qualification is very basic but yet the most important factor in the mortgage application and approval process.