Mortgage Qualification Process
This BlOG On The Mortgage Qualification Process Was Written By Gustan Cho
Mortgage Qualification Process is the most important stage of the overall mortgage process . Over 75% of my borrowers who contact me are folks who are either going through major stress during the mortgage process or have gotten a last minute mortgage loan denial by their current lender. The main reason for a last minute loan denial or stress in the mortgage process is because the loan officer did not properly qualify the borrower in the mortgage qualification process. There is no reason why a borrower who is pre-approved should not close on their home loan. We will discuss on the right mortgage qualification process where a borrower should not be going through major stress nor get a last minute loan denial.
First Stage Of Mortgage Qualification Process
Once you decided to either buy a home or refinance your current home mortgage, you need to consult with a loan officer. You loan officer will interview either by phone or in person and take your mortgage loan application, which is also called a 1003. Any information you have should be disclosed to your loan officer. Examples includes the following:
- If you had credit repair, things that gotten deleted should be disclosed to your loan officer
- Getting collection accounts, charge off accounts, late payments deleted is no problem and nobody can find out because they are not public records
- Getting public records such as judgments, bankrutpcy, foreclosure, deed in lieu foreclosure, short sale, tax liens, child support payments, government student loans, and any other public records deleted from your credit report will be discovered by your lender becasue all lenders will conduct a third party national search through Lexis Nexis, Data Verify, or other third party public search vendors
You loan officer should ask you many questions and do the following before issuing a pre-approvals letter.
Mortgage Qualification And Pre-Approval Stage Of The Mortgage Process
After you have either completed an online mortgage loan application, the next step is for the loan officer to qualify you. Here are some of the questions your loan officer will ask you:
- Type of income you make. Are you hourly or salary? Are you self employed?
- Your credit will be pulled and see if you qualify with the minimum credit score requirement on the loan program
- Your loan officer will see what is the best loan program for you. Is it a FHA Loan? Is it a Conventional Loan? Is it a VA Loan? Is it a USDA Loan? Is it a Jumbo Mortgage? Is is a Non-QM Loan? Is it a Reverse Mortgage? Is it a FHA 203k Rehab Loan?
- Your loan officer will thoroughly review your credit report to make sure that there are no issues that the mortgage underwriter will encounter
- Your loan officer will go over your liabilities and see if you qualify for with the debt to income ratio requirements
Mortgage Pre-Qualification Step Of The Mortgage Qualification Process
Mortgage Pre-Qualification is not the same as Mortgage Pre-Approval. Here are the differences:
- A mortgage pre-qualification is not an in depth analysis of the borrower’s financials
- A loan officer may just have interviewed the borrower and some may not may not even have run credit and took the borrower’s verbal work on the data they based the pre-qualification
- Most pre-qualifications, there are no third party verification
The Mortgage Pre-Approval Stage is the most important step in the mortgage loan process. As mentioned earlier, the number one reason for a last minute mortgage denial or stress during the loan process is because the loan officer did not take the right steps in the mortgage qualification process and hastily issued the borrower a pre-approval letter. Loan officers should carefully analyze a borrowers file during Mortgage Qualification Process and make sure that they are 100% confident that the loan will close once the pre-approval is issued. Here are certain steps every loan officer should take during the Mortgage Qualification Process and before issuing a borrower a pre-approval letter:
- Pre-approving a borrower does not take much time but needs to be done the right way.
- The loan officer should not just assume that the 1003 is correct. Go over the 1003 mortgage application with the borrower.
- The loan officer should not just be satisfied by the credit score. The whole credit report needs to be carefully reviewed and go over with the borrower as to the accuracy.
- The loan officer should pay attention on public records and make sure that recorded dates are correct on foreclosures and deed in lieu of foreclosures.
- Loan officer should go over case scenarios on situations he or she is not sure of with their lender’s help desk or underwriter before issuing a pre-approval.
- Your loan officer should not just assume that you qualify for a particular mortgage loan program just because you meet the loan program’s guidelines. Your loan officer needs to make sure that his or her employer does not have certain lender overlays that may affect your loan approval.
Common Mortgage Qualification Process Mistakes By Loan Officers
As mentioned earlier, there is no reason why a borrower who has been properly qualified and issued a pre-approval should not close on their mortgage home loan. Here are some common Mortgage Qualification Process mistakes made by mortgage loan originators:
- Loan officer did not properly review the credit report of the borrower
- Credit disputes are not allowed on non-medical collection accounts with total aggregate outstanding balances of over $1,000
- Credit disputes are not allowed on charge off accounts
- Retracting credit disputes will lower the borrowers credit scores which may disqualify them from meeting the mandatory credit score requirements to qualify for a mortgage loan
- Loan officer did not know that the lender had overlays on debt to income ratios, collection accounts, charge off accounts, credit scores, verification of rent, credit tradelines, or other credit/reserve/financial items
- Loan officer did not check recorded date on deed in lieu of foreclosure or foreclosure
- Income was not properly qualified by the loan officer
- Many loan officers will average two years tax returns of self employed borrowers or 1099 wage earners. However, if you have declining income on the most current year, the right hand rule is to use the most recent year tax returns divided by 12 instead of two years tax returns and dividing it by 24. With declining income, if the declining income is significant, mortgage underwriters will use the most recent declining income year of the tax return.
- Loan officers should get Verification Of Employment when using part time income, bonus income, overtime income, or other income and make sure they get an underwriters opinion on how they will use this type of income as qualified income especially for borrowers with higher debt to income ratios. Qualified income being discounted at the last minute by an underwriter is one of biggest reasons of last minute mortgage loan denials.
If you are going through stress during the mortgage process or gotten a last minute mortgage loan denial and need a lender with no lender overlays, please contact the Gustan Cho at 262-878-1965 or text for faster response at 262-716-8151. You can also email Gustan Cho at email@example.com. The Gustan Cho Team is available 7 days a week, evenings, weekends, and holidays.