Qualifying Borrowers For Mortgage On Home Purchase
This BLOG On Qualifying Borrowers For Mortgage On Home Purchase Was UPDATED And PUBLISHED On February 19th, 2020
- Qualifying borrowers for a mortgage on the first call is one of the most important steps in the overall mortgage process
- Most borrowers are new to the mortgage process even though they may have gone through it many times before
- It is not often where a person buys a home or goes through a refinance
- Another thing about the mortgage industry is that it is constantly changing with new rules and regulations
- Even veteran loan officers who have been in the business for many years and take a few years off have to start from scratch
In this article, we will discuss and cover qualifying for a mortgage for borrowers.
Steps In Mortgage Process
- We will be writing a series of the mortgage process on Gustan Cho Associates
- On this blog, we will cover the steps that lead to an approve/eligible per automated underwriting system findings
- Some lenders like myself who have little to no lender overlays will just go off the automated findings of the automated underwriting system
As long as the borrower can meet the conditions of the automated approval, there should be no hiccups and the loan should close.
Qualifying Borrowers For Mortgage With Initial Phone Interview
- What state are you calling from?
- How much are the homes that you are interested in buying?
- Can you give me the tentative ball park figure of the property taxes that the homes you are shopping for are?
- How much are the annual homeowners’ insurance premiums?
- Are there homeowners association dues on homes that you are shopping for?
- Are the properties you are looking at in a flood zone
- If so, how much are the flood insurance premium?
These are important questions that will impact debt to income ratios when qualifying borrowers for a mortgage.
Qualifying Borrowers For Mortgage With Co-Borrowers On Mortgage
How many borrowers will be on the loan?
- Ask if both borrowers are employed?
- If husband and wife, and if one of the borrowers are not employed, do not use them as co-borrower because of no income
Both borrowers do not have to go on the loan and they can go on title.
Income And Employment
Income And Employment is one of the most important factors when qualifying borrowers:
- Ask them what they do for a living?
- Do they work full time?
- Do they get social security?
- Do they get child support and if they do, find out the ages of the children
- Reason you ask the age is because child support income needs to continue for the next three years to be used as qualified income
- If a child is 17 years old and the borrower gets child support income, that income cannot be used
- This is because most states child support stops once the minor turns 18 years old
- Social security income can be grossed up 15%
- Part time income, bonus income, and a second full time job income can be used
- It can only be used if borrower had a two year history of receiving that income
- The likelihood of a three continuation of that income is likely
1099 and self employment income can be used if and only if the borrower had two years history of receiving such income.
Borrowers Outstanding Monthly Debts And DTI
Ask them about debts:
- First and foremost, the biggest debt they will have are car loan payments and student loan payments
- Ask them if they have an auto loan or auto loans and how much their monthly payments are
- Ask them how much their student loan balance is
- Ask them how much their monthly payment is
- If the student loan is in deferment, then 1% of the student loan balance will be used as a monthly debt
This holds true UNLESS they can get a written monthly payment statement from the student loan provider:
- Letter stating what the monthly student loan payment, amortized, if the student loan were to be out of forbearance
Ask them on all other monthly debt obligations.
Qualifying Borrowers For Mortgage With Collections And Charged Off Accounts
Agency guidelines do not require borrowers to pay outstanding collections and charge off accounts:
Ask them about collection accounts with outstanding balances:
- Borrowers do not have to pay off outstanding collection accounts and charge offs to qualify for an FHA, VA, USDA, Conventional Loans
- However, lenders do have to take into consideration outstanding collection accounts that total more than $2,000 in unpaid balances
- This is because underwriters need to take 5% of the outstanding collection account balance and use it as part of the borrowers’ hypothetical monthly debt
Qualifying Borrowers For Mortgage with Judgments And Tax Liens
Ask them if they have any outstanding judgments and/or tax liens.
- Borrowers can qualify for FHA Loans with outstanding judgments and/or tax liens
- However, need to have a written payment agreement with the judgment creditor and/or the Internal Revenue Service
- Need to have three months of payments
- Provide the lender three months of canceled checks and/or bank statements showing borrowers have made three consecutive on time payments
Cannot prepay the whole three months upfront just to qualify for mortgage.
Qualifying Borrowers For Mortgage With Low Credit Scores Due To High Credit Card Balances
Ask them about their credit cards:
- Ask them about what each credit card limit is
- What they owe on each credit card balance and what the monthly payments are
- This question is important
- It is because if the borrower has lower credit scores due to maxed-out credit cards, paying down credit card balances can skyrocket the borrower’s credit scores
- Ask them if they know what their credit scores are
- Most people we deal with have had credit issues
Qualifying Borrowers For Mortgage With Our Typical Clientele Base
Over 75% of our borrowers are folks who got denied at the last minute by other lenders or could not qualify by other lenders so they know what their credit scores are:
- If they have a copy of a tri-merger credit report from a mortgage company that was pulled recently, have them email it
- Loan officers can do a quick review on it before running a new credit report and avoid dinging their credit scores
- Ask them about their credit profile
- Have they filed bankruptcy?
- Have they had a foreclosure
- If so, when was it and when was the recorded date of the foreclosure and/or sheriff’s sale date
- If short sale, when was the date of the short sale
Qualifying Borrowers For Mortgage with Late Payments After Bankruptcy And Foreclosure
Ask them about late payments after bankruptcy/deed in lieu of foreclosure/foreclosure/short sale and if they had any late payments after bankruptcy and/or foreclosure:
- Most lenders WILL NOT APPROVE any borrowers with any late payments after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
- Gustan Cho Associates will accept borrowers with late payments after Bankruptcy and Foreclosure
- This only holds true if they are able to get an approve/eligible per Automated Underwriting System but again, it depends on the circumstances
- If the loan officer seems that the borrower meets the initial mortgage qualification requirements, then they can be directed to their online mortgage application website
- For example, once the borrower passes the initial mortgage interview with me, I will direct them to our online application link and have them complete the APPLY NOW mortgage application
Once the borrower completes the online mortgage loan application, I will get an email alert and we then proceed to the next step with the mortgage application process.
Second Step In Qualifying Borrowers For Mortgage
Once the borrower has applied online and a loan officer has gotten the email alert through the mortgage CRM, the next step is to pull a tri-merger credit report:
- Make sure you log in all of your borrower’s information on the CRM system such as the borrower’s social security number, name, date of birth
- Thoroughly review the borrower’s credit scores, credit report, payment history
- Pay special attention that the borrowers do not have any credit disputes on their credit report with derogatory credit tradelines on non-medical collection accounts with an aggregate total of $1,000 or more and charge off accounts
- Credit disputes on medical collections and non-medical collections with zero balance is allowed and exempt from credit disputes
IF CREDIT SCORES MEET MINIMUM CREDIT SCORE REQUIREMENTS AND IF YOU HAVE REVIEWED THE Credit Scores Versus Credit Report YOU CAN THEN PROCEED TO THE NEXT STEP OF THE MORTGAGE PROCESS.
Third Step In Qualifying Borrowers For Mortgage And Completing Questionnaire
The third step in qualifying borrowers for a mortgage is to send out a one-page mortgage questionnaire for them to complete. Once they return it, you can run the mortgage file through the Automated Underwriting System.
Below is the list of questions the borrowers need to answer:
- Number Of Years Of Schooling For Borrower And Co-Borrowers
- Number of dependents listed on the Federal Income Taxes, if any, need their ages
- Email address for both (If married. can use the same one);
- What county is the property buyers are looking to purchase located in?
- How long have you been at your current address?
- If not 2 yrs or more, please provide additional addresses to cover that time period
- Do you get mail at the physical address?
- If NO; what is your mailing address
Employment Information Of Borrowers
Are you self-employed or W2 wage earner?
- Name and address of employer
- What is their address
- What are the phone number of the borrower and cell number and best number to be contacted
- What is the position of their current job
- What type of business or industry is the borrower employed?
- How long has the borrower been employed at their current job?
- If not 2 years please provide all employment information and gaps in employment above to cover a 2 year period.
- Need to provide how many years in the same line of work, especially in the past two years?
- If the borrower is an hourly wage earner, how much per hour, amount of hours worked per week
Qualifying Borrowers For Mortgage With Part-Time And Other Income
If borrower receives overtime, bonus income, has they had that income in the past two years.
- If borrower is salaried employee, how much is the annual salary
- If they receive bonuses how much bonus do they receive
- Have they received bonus for the past two years?
- If borrower has part-time income many hours per week do they work
- Have they worked part-time for the past two years
- Is the part-time income likely to continue the next three years?
Bank And Asset Account Information
If renter, what is current rent amount.
- How does borrower pay rent, pay by check?
- If you do, do you have 12 months canceled checks and/or 12 months bank statements?
- Names and addresses of banks or other institutions where you hold asset accounts?
- Bank Name
- If more than one, break down balances for each below and list specific bank
- Checking Account Balance
- Savings Bank Account Balance
- Any retirement accounts? (401K, IRA, etc)
- Where is the account held
- What is the vested balance
- Are you a US citizen?
Property Information And Proposed PITI
If you already own property please state following information:
- List the address(es) of the property
- Year the property was purchased
- Approximate value of the property if you were to sell it today
- What mortgage company do you have the first lien
- If you have a second mortgage what is the name of the second mortgage company name
- Annual property taxes of the properties that you own
- Annual Insurance premiums on all of the properties that you own
- Rent Amt Collected on the rental properties that you own
Government Data Monitoring
- I do not wish to furnish this information(place X here >)
- are you Hispanic/Latino
- what race do you claim
- what sex do you claim
Once the borrower returns the above mortgage questionnaire form, the file is now ready to be submitted to Fannie Mae/Freddie Mac Automated Underwriting System for an automated approval.
After Borrowers Get An Approve/Eligible Per Automated Underwriting System, the mortgage process proceeds to the next step.
Next Step After Automated Underwriting System Approval
Once borrowers get an automated underwriting system mortgage loan approval, the next step for the loan officer is to request all of the DOCUMENTS REQUIRED TO PROCESS LOAN:
- Documents Required To Process Loan needs to be carefully reviewed by the loan officer
- Make sure that there are no missing pages on bank statements, tax returns, divorce decree, bankruptcy paperwork, child support/alimony paperwork
- Any missing pages on mortgage docs can mean delays in the mortgage process
Docs gathered need to be uploaded to each designated corporate site.
- After all docs have been uploaded, a pre-approval letter can be issued
- Gustan Cho Associates Mortgage Group is extremely careful in reviewing all docs prior to issuance of a pre-approval letter
- Once a pre-approval letter has been issued, that means that we are confident that the loan will close and close in time
Real Estate Purchase Contract
After the pre-approval letter has been issued by the loan officer, the home buyer will go out and shop for a home.
- Once the buyer decides on entering in Real Estate Purchase Contract the home buyer will email the executed real estate purchase contract to the loan officer
- With the executed real estate purchase contract, the mortgage process is about to begin
Start Of The Mortgage Process
Corporate headquarters will send the Initial Electronic Mortgage Disclosures to the borrower via email.
- The borrower will need to acknowledge the initial electronic mortgage loan disclosures and the Intent To Proceed is uploaded
- The borrower’s mortgage application package will be assigned for processing and a mortgage processor will be assigned to the borrower
- The mortgage processor will order the appraisal
- This should be completed in about a week so prior to submitting the file to underwriting
- Home appraisal with be complete and back to the mortgage underwriter
- The mortgage processor will be in contact with the loan officer and with work together in scrubbing the file until the file is totally prepped up for underwriting
Mortgage Underwriting Stage Of Loan Process
Once the mortgage processor deems it complete, the file is then submitted to the underwriting department for approval process.
- A mortgage loan underwriter is assigned to the borrower’s mortgage file
- A conditional approval should be issued within 24 to 48 hours upon receipt of a mortgage underwriter
Conditional Mortgage Loan Approval
Upon getting a conditional mortgage loan approval, the mortgage processor, the loan officer, and the borrower need to get to work to gather all of the line items listed on the conditional loan approval.
- Once the mortgage processor has gathered all of the line items listed on the conditional loan approval, the processor then submits conditions back to underwriter for a clear to close
- A clear to close is when the underwriter has deemed the file complete
- Gives it a thumbs up for the mortgage lender to close the loan
Once clear to close is issued, file goes in line for closing disclosure.
- Once closing dept and closing company have the numbers figured out it will be sent to the borrower
- Once acknowledged they will have 3 business days to wait to sign loan docs
Closing Qualifying Borrowers For Mortgage And Getting CTC
Once the borrower is issued a clear to close, the title company goes to work and prepares the Closing Disclosures:
- They get figures from both the borrowers and sellers side of the transaction
- The actual figure, cash to close, from the borrower is figured out at this time
- Borrower needs to wire the appropriate funds to the title company
- Under TRID MORTGAGE REGULATIONS, there is a three day waiting period to close on a home loan from the date of the clear to close
- At closing, both sellers and buyers sign closing docs and the lender wires the funds to close and the borrower gets the keys to their home
This BLOG On Qualifying Borrowers For Mortgage Was UPDATED On February 3rd, 2020
February 19, 2020 - 11 min read