By Carole Hendricks
Senior Loan Officer
CTX Mortgage
You know, it has been my experience that the first thing a lender can do to make a realtor extremely upset, is to tell them that the borrower is APPROVED and hasn’t even reviewed any documentation with the borrower at all!
This is a big item in the Realtor community because they go through the day thinking that all is well in the world and then here they are, two days before closing, and they get the dreaded phone call. The borrower no longer qualifies! I have heard too many horror stories from realtors how their buyer was told they were credit approved and then the borrower was asked for more documentation, and all of a sudden there was no deal!
What do you do to prevent this from happening? Know the process.
There are three parts to loan approval:
1. Credit approved: borrower documentation has been reviewed and cleared
2. Appraisal has been underwritten and cleared
3. All conditions have been cleared.
You have to be able to trust that your lender is doing everything possible on the front end to make sure that the borrower will qualify. My famous saying these days would be that the 15 minute “prequal” days are over! The lender has to get ALL of the information needed right from the start to make a solid call to the Realtor. Every file should be run in the Automated Underwriting system that can be, and the lender should review the findings to make sure that all conditions can be met.
The loan application appointment needs to be set right away so that the lender can see if the income given can be verified or if credit issues can be documented. The underwriting process is for the sole purpose of verifying what the borrower has told the lender and that they meet all required guidelines.
Once all documentation has been reviewed and cleared, that’s when that borrower should be called and told “CONGRATULATIONS, YOU ARE CREDIT APPROVED!!”
Now, not so fast, everybody!!!! Are there conditions to be met? Are they missing documents? Can the borrower get the documents that are missing? Just because you are credit approved doesn’t mean you don’t have any outstanding conditions that haven’t been met. This is where the problems usually begin.
If you are working with a loan officer that knows program guidelines and underwriting rules, this is not a problem. If your not, then watch out!
When the borrower is called, they should be given the items still needed, if any, and the lender should request immediate response to those items. The Realtor and borrower should be given weekly updates on the status of the file. The Realtor should be made aware of any outstanding issues much earlier than two days before closing.
When the appraisal is received, this should be sent to the selling agent right away, so they can see if there are any repairs, made value, etc. The appraisal also needs to be reviewed in underwriting to make sure that the comparables make sense and that the buyer has received a solid appraisal for their new home. When this part has been completed, then the buyer should be called and told “CONGRATULATIONS, YOU HAVE FULL LOAN APPROVAL!” When you get this call, you should be able to trust that all work has been done on the file that can be done to this point.
Loan Officers that know products and guidelines are the key here for a successful loan closing. Using Automated Underwriting is a must in our environment. Knowing what works in this system can make everybody’s life easier!
Automated Underwriting is a universal tool being used now by most lenders. This is an underwriting tool that allows the Loan Officer to give loan determinations in the field. Conditions are given right there and, if the Loan Officer uses them correctly, they can give an accurate list of documents needed to the borrower immediately. In most cases, the documentation required is much less that it traditional was in the past. Less documentation always makes your buyers happy!
In the old days, lenders were restricted to certain debt ratio requirements depending on the type of loan it was. Now, with Automated Underwriting, income, assets and credit can have a totally different effect on the loan. Automated Underwriting has a common sense approach and sees that even if you have a few credit issues, a low debt ratio and money in the bank, you can still qualify! In a lot of cases, collections don’t even have to be paid off!
Example:
Borrower: Jane Good Loan
Income: Fixed income
Assets: Lots of money in the bank!
Credit: Excellent
Debt Ratio: 110%!!!!!!!
APPROVED AND CLOSED!
I did not have to use a stated or No Documentation type loan. Standard Conventional worked beautifully because the Automated Underwriting could see that this lady paid her bills and had saved money all her life. Even though her debt ratio was high, this worked for her and she was happy because she got a low interest rate and didn’t have to worry with documenting all of her other income!
In the old days, this loan would have been denied or put under a program that she would have been forced to pay a higher rate or additional closing costs.
Again, having a loan officer on your team that knows the programs, underwriting tools and guidelines will eliminate the dreaded phone call at the last minute and will make your life and your buyer’s life a whole lot easier!
Please feel free to contact me for further information, or if you have a buyer that needs some assistance with their new home purchase!
Have a stress free day!
—Carole Hendricks is with CTX Mortgage at 6867 Southpoint Dr. North, Suite 108, Jacksonville 32216. The telephone number is 296-0301, ext. 124, and her direct line is 394-1428. The fax number is 296-2728.