Part 1: Prequalification, Application, and Processing
If you just say, “the loan process” out loud, it seems like it’s going to be a total pain. “Process” sounds so long and drawn out. But listen, it’s not a total pain. It’s really quite simple.
There are five phases:
- Loan application
We’re just going to walk through the first three real easy, and we’ll cover the last two in a separate post.
Step one is prequalification, and it is what sets up your loan for a successful closing. This is where we create a financial picture of you so that you will know what you can afford. It’s really hard to start house-hunting if you don’t know your price range.
We review your credit score, your income, and your assets. If you’ve already got a house in mind, we can advise you on what kind of financing to expect for that house.
It takes about 90 days, and it doesn’t cost you anything. We’ll even pay for your credit reports! I’ve written more on prequalifying here.
You saw THE house. You put in an offer. Now we apply.
A loan application is where we start gathering all of your documents for everything you gave us in the prequalification process. We have to verify everything we’re putting into this loan application. We do that through third parties — your bank, your employer, etc. We can’t just take your word for it.
So if you tell us you have $20,000 in your checking account, we need to get a copy of the bank statement for that checking account.
When we analyze your bank statements, if there are large deposits we have to source them. If you were planning on using that money but we find out it’s not from an acceptable source, you could have a problem.
We also review your tax returns. Say you receive 1099 income of a certain amount, but by the time you subtract your taxes and expenses, that income is much less. That can mean your qualifiable income is a lot less than what you started with.
Also, during the prequalification process, you may have told us you have a certain amount of money available for a down payment. However, there are certain assets that are not allowed to be used for your down payment. You cannot pull money off of a credit card, for example. You cannot use cash on hand if your grandmother just handed you $5,000. (This is a rule to prevent money laundering.)
So this is where we find out what you really have available for your down payment.
Our job as good loan officers is to look at everything up front, just as an underwriter would, so that we can address every issue prior to your loan getting to the underwriting phase.
It’s in your best interest to be as open and transparent as possible with us. It’s like if you go to a doctor for a physical and you tell them that you don’t smoke or drink, when you do. That’s just not going to help you. You don’t want to drag the process down or cause your own hiccups.
And remember, we’re not the judge and jury. We’re not the ones making the decision — that’s going to be up to the underwriter. So if you tell us everything we can help smooth it all over and build your case.
Processing: Validating through Third Parties
So even though we tried to get a certain amount of information through third parties for the application, and we reviewed all of these things and made sure that we had all of our ducks in a row, someone is going to review it another time during processing. (This is another reason to be open and honest the first time around.)
Many of those data points are going to have to be validated through a separate system altogether. The purpose of that is to make sure that a client hasn’t submitted false tax returns or incorrect bank statements that were computer-generated.
The loan processor is also going to do things like verify that you are still employed at the place listed on the loan application, and at the place from which we have bank statements. They may validate how long you’ve lived at each address put on the loan application.
Why All the Redundancy?
Do you remember the 2008 and 2009 debacle in the mortgage industry? Or at least you’ve heard of it. One of the things that came out of it is rules to make the loan process safer for the end investors — even though it can give clients a headache.
But I would also argue that it’s better for clients, too. You don’t really want to get into a home that you can’t afford. And it doesn’t do me any good to sell you a home you can’t afford. It may be a little bit of a pain, but it makes home-buying safer for lenders, clients, and investors in mortgages.
So now are you ready to learn about the last two phases of the loan process? Part 2 on Underwriting and Closing is coming up.
Also, if you have any questions on prequalification, the loan application, or processing, feel free to call anybody on our team at 205–986–4220. Connect with us on social media. Visit us on our website. We’re looking forward to hearing from you!
Certified Mortgage Planner
MortgageBanc / Fairway Nmls# 2289
Copyright©2019 Fairway Independent Mortgage Corporation doing business as MortgageBanc. NMLS#2289.4750 S. Biltmore Lane, Madison, WI 53718, 1–866–912–4800. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, License No 41DBO-78367. Licensed by the Department of Business Oversight under the California Finance Lenders Law, NMLS #2289. Loans made or arranged pursuant to a California Residential Mortgage Lending Act License. Georgia Residential Mortgage Licensee #21158. Licensed Nevada Mortgage Lender.