WHAT TO CONSIDER WHEN TAKING A LOAN APPLICATION FOR PROCESSING
Many loan applications are rejected because loan originators are reluctant in taking an effective loan application. Follow these simple steps to ensure that this does not happen to you.
The responsibilities of loan officers when qualifying homebuyers are as follows:
Pre-Qualification
Pre-qualification starts the loan process. Once the mortgage professional gathers information about the borrower’s income and debts, a determination can be made as to how much the borrower can pay for a house. Since different loan programs can cause different valuations, the loan officer should provide the borrower with each loan type he or she may qualify for.
When attempting to qualify the homebuyer, there are two key factors to consider:
- The borrower’s ability to repay the loan
- The borrower’s willingness to repay the loan
Ability to repay the mortgage is verified by current employment and total income. Verify if employed at the same place for at least two years, or at least be in the same line of work for a few years.
The borrower’s willingness to repay is determined by how the property will be used. For instance, ask if the property is a primary, secondary or investment. Willingness is also closely related to how they have fulfilled previous financial commitments, thus the emphasis on the Credit Report and/or your rental payment history is very important.
As there are no rules carved in stone, each applicant is handled on a case-by-case basis depending on their history. So even if you come up a little short in one area, their stronger point could make up for the weak one.
THE APPLICATION
The application is the next step of the loan process. A loan application is not considered complete until the six key pieces of information are given on every loan application:
- 1 Borrower’s Name
- 2 Monthly Income
- 3 Social Security Number
- 4 The Property Address
- 5 An Estimate of the Home’s Value
- 6 The Loan Amount
This is also a great opportunity to ask the borrower for supporting documentation like paystubs, W2’s, tax returns, bank statements, insurance, mortgage statements, copies of their identification to complete the application and to determine if they are pre-qualified.
CREDIT REPORT
As a Loan Originators, your responsibilities when speaking to the homebuyers is to go over the credit report to avoid missing pertinent information that may cause the loan not to be approved.
Pay attention to the categories outlined below when reviewing the credit report.
Payment History -
Lenders want to get paid. A track record of making on-time payments is very important. In fact, in calculating a potential borrowers FICO score, payment history is the most important factor and lenders are excited about lending money to someone with excellent credit. Late payments, missed payments, mortgage default and bankruptcy are all red flags. While a few blemishes on payment histories may not affect your approval, the chances of getting a more favorable interest rate may be less.
Outstanding Debt -
Large amounts of outstanding debts on credit is a significant concern to lenders. It’s a bit of a paradox, but, the less debt you have, the greater your chances of getting qualified and low debts also decreases the borrower’s Debt to Income Ratio. If debts are too high, ask borrowers to pay them down if they are not able to be approved. Outstanding debt accounts for 30% of FICO score calculation, so paying down your debts will also improve credit score for a lower interest rate.
Length of Credit History -
A long track record of responsible credit use is good for your credit rating. So, verify the length of the accounts is crucial. Typically, most lenders require accounts longer than 24 months. Also, the length of your credit history makes up 15% of your FICO credit score.
Type of Credit Accounts -
Look to see if the accounts are installation, mortgage, revolving, student loans or authorization users accounts. Document anything for the processor that you think the underwriter will question. Pay close attention to mortgages that borrowers may fail to disclose.
Identifying information -
Pay attention to name variations, social security numbers, different home addresses within the past 24 months, fraud alerts etc. Advise borrowers to provide letters of explanation.
Employment Information -
Ask borrower to explain any discrepancy in employment that may appear on the credit report.
Public Record Information -
Tax liens, judgments, foreclosures, child support, and bankruptcy may cause your loan to be denied, so verify the status or discharge date and ask for supporting documents that the underwriter will need to make a final decision.
Inquiry-
Inquires on credit reports are usually an indication that the potential homebuyer may have just opened a new loan that was not disclosed. This can sometimes cause your loan to be denied if your ratios are tight. So asked the borrower why the creditors made an inquiry and to provide a letter of explanation along with supporting documents if a new account was opened.
Where credit is concerned, having a credit score of 680 and above is considered an A+ borrower. Borrowers in this category are more qualified for lower interest rates and their loans can close in a couple of days.
A score below 680 but above 620 may indicate underwriters to take a closer look at determining potential risk. Supplemental documentation may be required before final approval. Borrowers with this credit score may still obtain “A” pricing, but the loan may take several days longer to close. Borrowers with credit scores below 620 are not normally locked into the best rates and terms offered. This loan type may go to a “sub-prime” lender and the loan terms and conditions are less attractive with these loan types and more time is needed to find the borrower the best rates.
DISCLOSURES
As an experienced mortgage professional, you should evaluate a borrower’s situation and recommend the most suitable mortgage program, thus allowing the borrower to make an informed decision. To properly analyze a mortgage program, the borrower should advise you as to how long they plan to keep the loan. If they plan to sell the house in a few years, an adjustable or balloon loan may make more sense but If they plan to keep the house for a longer period, a fixed loan may be more suitable. Regardless, the program should be identified to the borrower upfront.
THE INTENT TO PROCEED
After the homebuyer has received the disclosure package, a decision has to made whether to move forward or not. An Intent to Proceed can be accepted in writing or by phone. All lenders are required to honor the terms of the Loan Estimate for 10 business days. If the homebuyer decides to move forward more than 10 business days after they have received the Loan Estimate, a new loan estimate must be provided due to new market conditions.
LOAN IS NOW READY FOR PROCESSING
Once the application has been received from the borrower, the processing of the mortgage begins. Loan Officers can then package the loan and send it over for processing. If there is an in-house setup loan coordinator, that individual will then order all third-party documents before assigning loan package to process. The loan is then submitted to the processing company. All files should contain a roadmap explaining any key information that you think that the processor and underwriter should know. This will help to prevent frustrating homebuyers who are usually irritated when we ask them for information that was already told or provided to you.
Once the processor reviews the loan and gathers all necessary documents from the borrower and third-party vendors if needed, the entire mortgage package is then put together for submission to the underwriter for a conditional approval. The processor then follows through to get the additional clear- to- close conditions that are needed for final approval.
SUMMATION
Top producing loan officers that consistently close over 10 or more loans monthly, follow these simple steps. Don’t be left behind! We will succeed together if you do your part! This process has been tested and proven several times. Reach out to us for help and we will show you how to get there too- Procmyloan!
REQUEST A QUOTE for our services so we can help you close more loans!