Mortgage Qualification Process On Home Purchase And Refinance

This Article Is About The Mortgage Qualification Process On Home Purchase And Refinance

The Mortgage Qualification Process is the most important stage of the overall mortgage process.

Over 75% of our borrowers 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 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 home buyers decided to either buy a home or refinance their current home mortgage, they need to consult with a loan officer. The loan officer will interview either by phone or in-person and take a mortgage loan application, which is also called 1003. Any information you have should be disclosed to your loan officer.

Examples include 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, bankruptcy, 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 the lender
This is because all lenders will conduct a third party national search through Lexis Nexis, Data Verify, or other third party public search vendors

The loan officer should ask you many questions and do the following before issuing a pre-approval 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?
Credit will be pulled and see if you qualify with the minimum credit score requirement on the loan program
The loan officer will see what is the best loan program for you
Is it an FHA Loan?
Is it a Conventional Loan?
Is it a VA Loan?
Is it a USDA Loan?
Is it a Jumbo Mortgage?
Is it a Non-QM Loan?
Is it a Reverse Mortgage?
Is it an FHA 203k Rehab Loan?
The loan officer will thoroughly review the credit report to make sure that there are no issues that the mortgage underwriter will encounter

The loan officer will go over your liabilities and see if you qualify 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
Some may not even have run credit and took the borrower’s verbal work on the data they based the pre-qualification
For most pre-qualifications, there is no third party verification

Mortgage Pre-Approval

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
The loan officer may hastily issue the borrower a pre-approval letter

Loan officers should carefully analyze a borrower’s file during the Mortgage Qualification Process and make sure that they are 100% confident that the loan will close once the pre-approval is issued.

The Loan Officer’s Job Prior To Issuing A Pre-Approval Letter

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 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 to public records
Make sure that recorded dates are correct on foreclosures and deed in lieu of foreclosures
The 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
The loan officer should not just assume that you qualify for a particular mortgage loan program just because you meet the loan program’s guidelines

The loan officer needs to make sure that his or her employer does not have certain lender overlays that may affect 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:

The 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
The 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
The loan officer did not check the recorded date on the deed in lieu of foreclosure or foreclosure
Income was not properly qualified by the loan officer

Importance Of Qualified Income

Many loan officers will average two years of 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
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 the biggest reasons for last-minute mortgage loan denials

Borrowers going through stress during the mortgage process or get a last-minute mortgage loan denial and need a lender with no overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The Team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.