The Pre-Qualification Process

It is more important than ever to make sure that the pre-qualification/pre-approval process is done correctly.  In order to do that it can’t be done in 10 minutes anymore and it should never be rushed.  I get calls every single day about deals that did not close and it is because there was an error calculating income and it all could have been prevented at the point of pre-qualification. 

It is so important for the loan officer to get copies of the borrowers past 2 years worth of tax returns (both personal and business, if applicable), 2 years of W-2s, most recent paystubs, and 2 months of bank/brokerage statements in order to correctly pre-qualify/pre-approve the borrower.  To speed the process up it might not be a bad idea to mention to your clients to start compiling this documentation. 

Just to comment on assets real quick, every institution needs all pages of the borrowers assets (even if blank) along with documenting and explain any and all deposits if it can’t be determined just by looking at the statement (i.e. a direct deposit or a transfer from one account).  I always advise the borrowers of this during the pre-qualification process but like a lot of things it goes in one ear and out the other.  To hear it from a couple different people never hurts. 

In case you want to know what is involved in calculating income click on this link https://www.efanniemae.com/sf/formsdocs/forms/pdf/sellingtrans/1084.pdf.  Although the worksheet seems self explanatory to come up with the final calculations it is no different than getting an automated approval in Fannie Mae’s DO/DU or Freddie Mac’s LP, it is only as accurate as the person inputting the information.  As you can see there are a lot of things to consider.  Most of the time for a W-2ed employee we are only subtracting out the 2106 Unreimbursed Expenses but I am blown away by the dollar amount claimed here and how some occupations shouldn’t have any but they do.  I am not sure if it is an accountant not advising the client correctly or what but it can affect someone being able to get financing.  I see a lot of police officers having a large dollar amount claimed here for uniforms. 

I hope this helps and should you have any questions please do not hesitate to call or email me.