Mortgage 101 - How to qualify a borrower
Juggling is an art, wouldn't you agree? Well, so is pre-qualifying a borrower for a mortgage. In my opinion, it takes more than just basic knowledge and simple math skills.
In the last few days, there has been a growing debate out there that even the experienced realtors can pre-qualify a borrower. It doesn't matter if you :
-- know your borrowers credit scores
-- know that they are putting 20% down
-- know that they make x,y,z a year and the simple math says they qualify
What questions should be asked when qualifying a borrower?
- What kind of mortgage payment would you be comfortable with, to include taxes and homeowners insurance.
- What kind of future goals do you have? 3yrs? 5 yrs? 10 yrs? I ask this question for several reasons, depending on the term of the loan (30 yr fixed rate or 5 yr arms) and maybe to pay down the interest rate.
- How long have you been on your job? Are there any employment gaps in the last 2 years? Are you hourly, salary, self-employed. Do you get other types of income? Do you work overtime?
- Credit report - I need to see a copy or pull one myself. Then I go over all debts on the credit report. Then I ask if they have any other outstanding debts that don't appear. Do you have any alimony or child support? Are you making any payments on past collection accounts and or judgments? You also need to look at the borrower's pay stub for any other deductions that might not be found by looking at the credit report or from asking the questions above.
- What kind of cash assets to you have total and how much of that do you want to use? You need to review the bank statements to see if there have been any large deposits recently. This is one huge mistake that many loan officers make.
- And so much more...
Summary : There a are a few more questions that pertain to qualifying a borrower properly, but I wanted everyone to understand that it's just more than knowing what they make, how good their credit is, and how much they are putting down. Yes, realtors like to get a quick idea. But why? Is a day going to kill you? If you are so concerned about capturing that borrower, not losing them, have the borrower sign a buyer's agent agreement. I know some of you are against this, but I can't stress that realtors should not be giving any mortgage advice what so ever.
Great example.
I qualified a buyer a few days ago that is going to be using USDA financing. They told the realtor this and the realtor stated that many sellers are leary of USDA loans and that they would be better off going with a FHA mortgage. And that you really can't get much seller help on USDA loans, but that you can get up to 6% seller help on a FHA loan. (FYI - you can get reasonable closing costs paid by the seller for USDA loans. USDA has no percentage cap like FHA does.) She then proceeded to tell the borrower that even her loan officer stated that FHA loans are better. Are you kidding me? This loan officer hasn't even spoken to this borrower. You can not make that kind of judgment call so blindly. So maybe the loan officer is not comfortable with USDA loans and prefers FHA loans instead. That kind of thinking could hurt the borrower.
An excellent loan officer doesn't just ask the questions mentioned above, but reviews all the basic mortgage programs to see what best fits the borrower.
Just a FYI…..
What I find that so many borrowers are stuck on, fixated on?? It's that they want the best interest rate, yet they don't have a trusted loan officer that will ask them the first question that I try to ask first all the time. What payment do you feel comfortable in paying??
Important Reminder :
Yes, referrals are good, but don't hesitate to even interview your loan officer and or realtor. Not everyone is a fit just because they sound nice and or gave you the best deal. There is a lot more to this whole process than what meets the naked eye. Please read : Interview your loan officer and or realtor
Good Luck
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For more information on FHA loans, please go to this link. The FHA Expert
For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc
_____________________________________________________________________________________________________________________________
FOLLOW ME ON FACEBOOK
- FHA Loans - USDA Loans - VA Loans -
- Energy Efficient Mortgages -
- Conventional Loans - 203 k loans -
- FHA Home Loans - Mortgages -
Experience & Knowledge at its BEST !!!
Follow me on:
______________________________________________________________________________________________________________
For more information on FHA loans, please go to this link. The FHA Expert
For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!
For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors
Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc
THank you for this one. You are so right. I am not qualified to do the pre-qualifying for my clients but I know which lenders are. I respect your position so much that I don't want to mess it up with my input.
Jeff - Is this going to be a 27 part series?? Qualifying a borrower is like one of those books you read as a kid where you could choose which way to go (go to page ...) .For every question asked you could go in eleventeen different ways. Something hat comes with time and experience. :)
Jeff- Great post! I wish more loan officers asked question number 2 that you listed. It is so important to know what their future plans are. It is something that I always discuss with my clients when we begin our process of looking at homes. I don't think that there are enough lenders and agents that take time to ask questions 1 & 2. The answers to those questions are important in both the type of mortgage that best suits their situation, as well as what type of home they purchase. Thanks for another great post!
CHRISTINA.... . I was just getting sick of realtors telling my borrowers and other borrowers what they should do when it comes to mortgages. Sorry, in today's market, realtors just need to back off period. Sure, there are loan officers that are just as bad. I know this from picking up loans yearly, when they fail and don't close the loan. But realtors should not be explaining how mortgages work and which ones are better for the borrower. As in my example, that realtor was way off on her assumption about USDA loans.... it just needs to stop.
STEVE.... . yes, I agree, qualifying a borrower can go in a few different directions. And even if one is getting sick of me preaching this, sorry, but we need to do more of this. I have spoken to 7 other loan officers just this week and each one stated that it has been getting worse with realtors giving mortgage advice.. or telling them which program might be better. And some realtors saying that they can qualify on the basics. Even the basics come with twists and turns... and as I have said to Christina, it needs to stop. We know it never will, but if I get a few borrowers that come across this post, maybe they won't listen to the next realtor. It's all about educating and you know that. Even if I have to start repeating this once every 3 weeks or so. And even those realtors that have time and experience, they should not think that they can do this correctly, as I have explained above. thanks
JEN... . I have spoken with some loan officers in the past and many borrowers that first talked to another loan officer, and questions 1 & 2 don't get mentioned as often as they should. This is said, becasue you can find out enough info from these questions to help determine what might be best for that borrower. And agents shouldn't even be asking these questions. Thanks for the kind words and for the compliments.
Jeff- I just wanted to add that I agree fully that agents shouldn't be trying to "prequalify" a buyer. I know that in the past, before I was in real estate, that was something that was done by a lot of agents. There are so many things that determine a buyer's ability to purchase, and I wouldn't presume to know what all the different loan programs require. I have a fellow agent that I often hear talking about creative ways for a buyer to get financing, ie. seller taking a second or paying points. I cringe at the thought. I feel that if the buyer is working with a lender that the agent trusts and respects, then the agent should trust that the lender has looked at the viable options for that buyer. I almost feel as though I am listening to a rerun of the Carlton Sheets infomercials sometimes:)
OK Jeff, I can see this is really getting to you and I'm starting to worry about you. I was thinking of shipping you some Ambien but thought that a little nerdy research might do just as well. I believe this is what you're looking for:
Regulation B, which implements the Equal Credit Opportunity Act, was amended by the Federal Reserve Board through a final rule that took effect on April 15, 2003. The regulation's amended provisions, which became mandatory on April 15, 2004, include provisions that govern pre-approvals and pre-qualifications.
In addition, Regulation C, which implements the Home Mortgage Disclosure Act (HMDA), now provides clear and distinct definitions of both terms. The definitions are part of several changes that became mandatory on January 1, 2004.
So, if someone who is "doing" preapprovals or prequalifications and they are not working for a bank or licensed as a broker or correspondent, they're playing with fire. They are excersizing a practice which makes them subject to all requlations (including penalties) prescribed in Reg C regarding pre-approvals and pre-qualifications. So unless they want to take the national NMLS test, do their 20 hours of continuing ed and start issuing statements of credit denial, they had better stop.
Does that help Jeff? . . . . I post because I care. . . . . :)
JEN.... . aaarrrggghhh... Carlton Sheets.... think about it, how come these infomercials run after 1am in the morning? In my opinion, 2 reasons.... it's cheaper and because those that either don't have a job, or have odd hours who are always looking for ways to make money, are up that late.
But in any case, it's bad enough when a loan officer can't qualify a borrower properly. Why does the realtor even think about this? And I am just talking about the fact that the borrower even has excellent income and has money down. Just too many uknowns and variables out there.
CHARLES.... . okay, so there are provisions. I don't know what they actually state and I wish you would have left a link in there for all to see. But I am using the terms pre-qualify and pre-approval lightly here. The reason being is because some realtors say that they can pre-qualify a borrower based on the basic information. Such information as great credit scores and a good paying job. My whole point to this argument is that this could still backfire because of so many unknowns... unknowns such as child support, alimony, maybe some kind of deduction on their pay stubs and or even their pay that was allocated because of some kind of judgment. The borrower usually doesn't tell you about these unless you ask them and or ask to see their pay stub... and not just look at the total income.
As far as the differences between the pre-quals and pre-approvals? I see so many realtors and loan officers that think they know the differences, and many don't. thanks for your input and feedback.
@ Charles- good info dude and very powerful indeed given the creation of the NMLS to further back it up. If your not a Realtor you shouldn't pretend to practice Real Estate and now vice-versa big time.
@Jeff- you know my feelings. Even when it is "cut and dry" and "squeaky clean" we are seeing deals die on minor technical issues. Unless you have the time to devote 48 hrs a day to the changing mortgage environment you simply don't know what you need to know to be assured a buyer can obtain financing-period! You can assume someone is finance-able, but we know what happens to those that assume!
Good one Jeff, but I don't think it will get featured :)
Gerry Suarez, Jr.
Your FHA Loan Pro!
Jeff, the extended version of this information is too long to put here so I'll e-mail it to you.
Jeff - Great post ! You are right in that one of the first questions should be is what mortgage payment amount are you comfortable with ? I believe a Realtor can do a little bit of pre-qualifying in terms of starting the conversation but before it gets too detailed, it makes sense to turn it over to the mortgage pro.
Jeff: Great advice as usual. Frankly, it galls me that people spend so little time on researching what their realtor or loan officer actually knows. After all, this is probably the biggest transaction the borrower will ever do! Take care.
Jeff - Why not? We have a realtor running the world's largest mortgage insurance fund and thats working out great!...errr uhhh nevermind.
JP
this is so important - that is why I send my clients to trusted mortgage professionals to get pre-qualified!