What does it mean to get qualified for a mortgage loan and why is it important?

Many people call me and want quick answers about their ability to qualify for a mortgage loan. I am told "my fico scores are 700, I can fully document income, and I can put down 10%." The most important thing to keep in mind - I can only give back what I receive. If I receive only small bits and peices of information, that is what I am prepared to give back in return. This section will explain what a mortgage company needs to get out of the loan application process, and why.

Credit. I am not just looking at a credit score. When I review an applicant's credit report, I am looking for credit depth (number of open/active tradelines, credit limits, length accounts have been open, and payment history) and any derogatory items. An applicant may have an excellent credit score, but one 30-day mortgage/rental late within the last 24 months could disqualify that applicant from a loan program. I can also make sure that nothing has been reported incorrectly. That way, we can address any mistakes ahead of time instead of waiting until the last minute. Another little-known fact is that credit reports pulled for mortgage purposes use a different scoring system than many other reports. So, that free report that you downloaded online could have a different score than the one I pull.

Income. While you may know your hourly wage or how much your W2 was for last year, you may be forgetting items like social security/pension, bonuses, dividends, overtime, 2nd jobs, self-employment income, reported tips, etc. It is important for me to review your income documentation thoroughly, because this is what determines how much you can borrow.

Assets. This is becoming more and more important. Most lenders want to make sure that after closing on your loan, you have enough money in liquid accounts (checking, savings, retirement, and investment accounts) to make your housing payment for 2-3 months. If your transaction involves an investment property, the lender may require as much as 6 months housing payment reserves. Why? In the lender's eyes, you are less likely to default on your loan if you have a cushion to fall back on. You will typically have to verify assets even if you are using a loan program that does not document income ("stated income").

What can I do after reviewing this information? After I have taken a complete loan application, I can submit your specific scenario to my underwriting department or download your information into an online underwriting system. This will give me detailed answers regarding what items I will need to move forward and what potential issues we may confront as we process your loan. This way, you can feel much more comfortable that your loan will close smoothly before you sign a purchase contract or pay for an appraisal.