How can an agent really test the validity of a borrower’s pre-approval?


What Are the Findings?

This really should be the number one question asked by agents, as this is where the rubber meets the road – and where the majority of lenders have not completed the task.

First, nearly all the residential loans being originated to Fannie Mae’s or Freddie Mac’s standards must pass automated underwriting through Desktop Underwriter (DU for short) or Loan Prospector (LP).

Each loan is carefully run through an automated underwriting system whether the borrower is looking for a conventional mortgage, FHA mortgage or even a jumbo mortgage. If their loan does not pass automated underwriting, it’s more than likely the potential borrower’s loan won’t move forward.

It’s absolutely critical in the information-gathering stage – that lenders run and then receive an automated underwriting approval to make sure their loan will get the green light.

Make sure you know the automated underwriting findings!

Is This a Pre-Approval or Pre-Qualification

The pre-approval process is not a 15-minute conversation.  If you supply me with all the documents necessary for a full document (full doc in industry jargon) review, I need time to read them, do the analysis, load the data into systems, and run the analyticd…more than 15 minutes.  Giving your lender time to process the information helps to secure a reliable pre-qualification.

If your borrower’s lender is offering you a super speedy pre-approval, you as the agent need to question the choice of your borrower’s loan officer.  Obvious mortgage killers, un-seasoned bankruptcy, late payments, etc, are the exception. Mortgage killers take only a minute or two to disqualify the credit approval.

A true pre-qualification, on the other hand, is where the lender has done the appropriate analysis of the potential borrower’s income, assets, and credit and has received either Fannie Mae’s or Freddie Mac’s underwriting authorization (more on that to follow).

What Documentation Did You Obtain?

This list may vary from borrower to borrower (as some might be self employed or others might be utilizing commissionable income), but here is a standard issue checklist:

Copies of Driver’s Licenses/Social Security Cards – copies of driver’s licenses are typically required for all buyers that are going to be on the loan – and social security card verifies your US identity. These are important documents for buyer verification and fraud detection.

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Mortgage Statement/Coupons For All Real Estate Loans – if your buyer currently owns a home, whether they plan on selling it to buy a step-up home or plan on renting it out to live in another home, they will need to show their lender exactly how much they are paying monthly for their current home.

Most Recent Bank Statements – mortgage lenders need to see the most recent bank statements (all pages, and all accounts) from any buyers going on the loan. We will examine the debits and credits thoroughly.

Pay Stubs/ W-2 Forms for the Past Two Years (or 1099) – the past 30-60 days of pay stubs are required to prove and document their income, as well as W-2 statements for the last 2 years.

Retirement/Investment Account Statements – if a borrower has a retirement or investment account, they should provide one or two monthly statements to the lender. Even if they don’t plan on using these funds to buy your home, it may help prove that they are qualified. In some cases, the underwriter will need to see that the borrower has a certain amount of money in reserves.

Tax Returns (1040) – the past two years of borrower tax returns shows the mortgage lender your income, employer, address, verify your social security number and more.

Profit and Loss Statements –  if the borrower is self-employed or owns their own business, he/she will need to show two years’ worth of profit and loss statements. The lender may request additional items such as business bank statements as well.

In Conclusion

Much time can be saved and grief avoided if true pre-qualifications were given the time and effort they truly require. Make sure the lenders you deal with follow this process thoroughly – and don’t hesitate to contact me, as it would be my privilege to help!