June 11, 2024 • 39 mins
In this episode of "Loan Officer Training," we dive into the crucial steps of completing a purchase preapproval. Join us as we explore the ins and outs of this foundational process, ensuring you're equipped with the knowledge to guide your clients seamlessly through their home-buying journey.
We'll cover everything from gathering the necessary documentation to evaluating credit scores and income verification. Learn expert tips and best practices to streamline your preapproval process, avoid common pitfalls, and boost your clients' confidence.
Whether you're a seasoned loan officer or just starting out, this episode will enhance your skills and help you close deals with greater efficiency and success. Tune in and elevate your loan officer expertise!
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About The Mortgage Calculator:
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Based Mortgage Programs, No Ratio CDFI Loan Programs, DSCR Investor Mortgages, Commercial Mortgages, Fix and Flip Mortgages and thousands more!
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Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA an
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording Jun 11, (00:00):
All right.
(00:00):
So welcome everyone.
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
president Nick Hiersche and oursales manager Jose Gonzalez.
We are a lender that specializesin non QM loans.
And what we do every Tuesday,Wednesday, and Thursday evening
at 7 p.
m.
Eastern on this show is gothrough a new loan officer
training topic.
And tonight we're going to betalking about something very
basic, but very important, whichis how to properly complete a
(00:22):
purchase pre approval.
So Jose has been doing purchasepre approvals for 28 years.
I'll let him take over and let'sget into it.
Good evening everybody.
Thank you for joining us fortonight's training.
Today, tonight's training is,going back to the basics, but,
(00:44):
always in times of, increasedactivity and and volatility.
It is always a strongrecommendation to get back to
the basics.
Make sure you're covering allyour bases, dotting all of your
I's, crossing all of your T's,and as always being the ultimate
loan consultant, which is whatwe strive to be at the Mortgage
(01:06):
Calculator.
So tonight's training is on howto properly complete a purchase
pre approval.
So we're adding a couple of,interesting twists to this as I
always like to do, so that wecan always add value to the
transaction and ensure that,everybody's expectations are
(01:29):
exceeded and you receive manyreferrals and have a
sustainable.
MLO career.
So let's jump right into how toproperly complete a purchase pre
approval.
So let's define a little bitwhat we mean by a pre approval,
(01:50):
right?
A pre approval for a real estateloan is a preliminary evaluation
of a potential borrower todetermine which program options
they qualify.
Now, You know how we do our preapprovals here very thorough,
right?
As you can see there in thebottom in red It is not a
(02:14):
prequalification, but a creditand income approval.
The purchase preapproval is thefirst step on the path to home
ownerships.
Now be aware of certain criticalpoints here.
First, very important point toconsider regarding purchase pre
(02:37):
approvals is that general, isthat listing agents generally
require that an offer, any offerto be submitted on a property
that they're going to receive beaccompanied by a loan pre
approval.
If your offer is not accompaniedby a pre approval, there's a
good probability that it is notgoing to be reviewed.
(02:59):
It is just going to sit thereuntil the pre approval is
received.
Right.
What, what good is it to have agun if you don't have any
bullets?
I mean, the pre approval is thatimportant in this whole process.
now also note the following.
To be able to present the offer,you have to be able to look at
(03:22):
properties, right?
And buyer's agents, at leastgood and successful buyer's
agents, generally require abuyer be pre approved before
showing the offer.
Any properties to that buyer.
You're not going to go showsomebody, show me some homes,
three bedrooms, two baths andsuch and such neighborhood.
And you go and you show themproperties.
(03:44):
And then lo and behold, they,they don't have any money.
They thought they could, youknow, they heard how these
things could be done, but theyhave no idea.
but they didn't realize itwasn't going to be possible with
their 500 credit score.
Right.
So, you know, just obviouslythat's an extreme example, but
we want to prevent that for allparties involved.
Right.
Why, Create unrealisticexpectations for your borrower,
(04:08):
right?
All of our expectations have tobe based in reality and that has
to be assisted by the loanconsultant from the mortgage
calculator.
Pre approvals also allow forbudgeting and financial
planning, right?
How are you going to know howmuch you need to save or if you
have enough or, or if you'regoing to be able to, even though
(04:32):
technically you qualify, ifyou're going to be able to live.
So again, the pre approvaldetailed one, very important.
And also, being pre approvedallows for a more focused and
efficient process.
And this is key because thisresults in higher success and
(04:54):
satisfaction for all.
All involved parties, right?
The buyer slash borrower, ourborrower in this case, the
seller, the real estate agent,title company, insurance agents,
right?
They're going to say, wow, Jose.
He's the next best thing toslice bread and they're going to
send referrals.
(05:15):
Matter of fact, I just receiveda referral today from Texas on a
deal where I did not, get thedeal.
Eventually I did not get toclose the deal because the bar
came to me after he had alreadyapplied with somebody else
submitted, almost ready toclose.
Then they decided they wanted toclose an LLC and the other
company couldn't get it.
(05:36):
We didn't close it because theydidn't give him the extension.
But I did such a thorough job ingetting it ready to close.
Should the, in my communicationwith the, his real estate agent
at the developer and with theborrower and with the title
company and everybody involved,they were so impressed with how
(05:58):
I handled that scenario comparedto how the other company was
handling the scenario.
That they referred me today dealand not that other company that
gave them a big headache.
So that's, that's the kind ofstuff that we're talking about,
about the sustainable MLOcareer, steady stream of
referrals.
That's what you're going to get.
If everybody, if you exceedeverybody's expectations, that's
(06:20):
the end results.
Steady stream of referrals and asustainable MLO career.
So you could see how gettingoff.
On the correct trajectory and,and, and following the correct
steps in the process is a win,win, win situation for all
involved parties, especially youas the MLO, right?
(06:42):
Increase profits, right?
Less waste of time, less moreefficient operation.
All the things that we'rementioning about.
That, that we're mentioning thatis basically music to
everybody's ears.
So again, the pre approvalremember is not a pre
qualification.
Pre qualifications really areworth the ink on the paper that
(07:05):
is written on.
That's about it.
A pre qualification isessentially maybe their first
initial conversation you havewith them.
Very brief.
Yeah, I think that can be done.
Now let's do the actual preapproval, right?
This is where you review credit.
Income, if there's already aproperty, you reviewed property,
always striving to be theultimate loan consultant.
(07:27):
So you can build credibility andgain trust.
That's very important in thisindustry where the borrower is
probably going to be, completingthe largest financial
transaction of their life.
So you can rest assured thatcredibility.
And trust are going to be justas important as the interest
(07:52):
rate and other factorsassociated with the interest
rate.
So you can see how the preapproval is such.
An important tool.
So let's break it down into whatwe would be doing, right?
Um, first, you know, maybe it'sgoing to be an agency pre
(08:13):
approval.
Well, um, what are theconsiderations, to know if it's
going to be an agency preapproval?
Well, remember this agencyloans.
And when I'm talking aboutagency, we are talking about
conventional loans, Fannie andFreddie.
We're talking about FHA loans.
(08:34):
We're talking about USDA loans,and we're talking about VA
loans.
Now, all those, all those loantypes, besides each having
homogeneous guidelines, like wejust discussed in our
guidelines, training recently,they are all always full.
(08:55):
No alt doc.
On its own on agency.
We do have, some limited,instances where we can combine
asset utilization on a full dockloan on an older individual, I
believe 62 and older tosupplement their income, their
fixed income or W 2 income,salary, hourly, whatever income,
(09:16):
retirement income, whateverincome they may have.
and we can supplement that withasset utilization.
But other than that, That'sstill going to be a type of a
full doc, but other than that,you know, there's no other alt
doc type in agency.
So now the other consideration,if it's going to be agency,
(09:39):
obviously, if it's investmentproperty, your borrower is not
closing in an LLC, right?
Because if they want to close itin an LLC, that's non QMO, but
here now is your deal going tobe a U S automated underwriting.
Or is it going to be manualunderwriting?
Now, obviously, you won't knowuntil you run it through AUS and
(10:01):
see if you can't get theapproved eligible.
You may know if you got, you'restarting with a 500 credit score
FHA borrower, that it may end upbeing manual underwrite, but you
don't know until you set up thefile and submit it.
I just had a meeting today withone of the MLOs.
We're going over a filestructure.
Two separate agency loans andall, both discussions ended up
(10:24):
with, well, but have yousubmitted it yet to a U S to see
if you're going to get a oneyear finding or a two year
finding for the income, becauseif you get the one year finding
for the income, you're going toeliminate all of the issues that
you're having, because you'reonly going to be dealing with
the current year as opposed totwo years, right?
So again, a U S for manuallender, right?
(10:44):
If it's a U S.
You're talking about DU, whichis Fannie Mae's automated
underwriting system, or you'retalking about LP, which is
Freddie Mac's automatedunderwriting system.
You need to receive an approveeligible from DU or an accept
from LP in order to be, to beable to issue.
(11:06):
a pre approval letter.
Again, we're going back to, thisis not a pre qualification,
there is no such thing as a prequalification letter.
I mean, I don't know, again,that's what the paper and the
ink that it's written on.
The pre approval.
If it's, for example, the agencypre approval, you're going to
have, you're going to requirethe AUS approval.
And in order to get an AUSapproval, you need to set up a
(11:30):
complete loan application.
You need to review your creditdocs, income docs, asset docs.
Property docs, if there's aproperty, if it's a cash out or
maybe a purchase, TBD, but youhave some information, right?
Review, input the data into thesystem.
Typically, we're going to bedoing this as a TBD pre approval
(11:51):
initiative, unless it's asubmitted application already,
triggered application.
And then you're going to see ifyou get the approval that you
need.
Only then, after reviewing allof this stuff, remember this is
not on hearsay that's providedby the borrower, information,
you know, normally this is thatyou've reviewed documentation,
(12:13):
verified it by your review, thenthat's once the file gets
submitted to underwriting, it'sgoing to be verified by the
underwriter, and then you getyour loan commitment.
So again, to issue your approvalletter.
A US approval or accept.
remember that in a US any creditscore, trade line requirements
(12:35):
are determined by a US bydetermined by automated
underwriting, right?
You don't know if on an FHAapproval, you're gonna get the
approval that the 56.9% max, orif you're going to only get an
approval up to 53% because thesystem, the algorithm is gonna
(12:55):
review, assess the risk.
And then either issue or notissue the approval that you're
looking for.
So anything having to deal withtrade lines, any of that stuff,
credit score is only going tomatter.
Obviously you want to look at itto see if you fall within the
basic matrix for a manualunderwrite, but then you're
(13:17):
going to submit and maybe besurprised.
I've had a, on a conventionalloan with 20 percent down, I've
had a borrower with one opentrade line.
And one closed trade line with aco borrower with two open trade
lines and one closed trade lineget approval because they both
had high credit scores, 20percent down.
They both had substantialreserves.
(13:38):
The system loved it, approvedit, right?
So again, don't get too hung up.
On the minutiae until youactually submit to automated
underwriting your as you know,something that it should be 100
percent representation of thedocumentation that you reviewed
and see if you get your approvaleligible for DU or you accept
(13:59):
for LP.
Now, when you are looking,considering credit for this
agency loan, be aware of acouple of items here that throw
people off.
The first is.
Disputed accounts.
Now this happened to be thetopic of the session I had today
with the MLO, where I asked theMLO, have you submitted this to
(14:21):
automated underwriting to see onyour convention, on your
convention alone, if it willreview it and accept the fact
that it has a disputed accountand give you the approval and
let you know, yes, I reviewedit.
I see you have a disputedaccount, but we're okay with
that.
You've got the approvedeligible, or if it's going to
say, we noted, you had adisputed account due to the fact
(14:43):
that we can't properly assessthe account.
We can't issue this approvedeligible that you had is not
valid.
And you've got to downgrade yourfile to manual underwrite, which
then will not be possible on theconventional loan.
The FHA loan is going to be theopposite.
You know, on that one, it wasthe dispute is over a thousand
dollars.
You either can reduce it tounder a thousand or you can,
(15:06):
downgrade the loan to a manualunderwrite at manual
underwriting DTI max 43 on thetotal debt and not 56.
9 that could kill the loan.
The deal.
So remember how always look fordisputed accounts and then look
at the findings and see how ittreated the disputed accounts.
Don't you don't be surprised andget the findings and go disputed
(15:28):
accounts.
What is this?
Oh my God.
I didn't know.
And you may not have realizedthat you may have given the pre
approval letter because you'regoing to get the approved
eligible.
It's just going to tell you inthe findings that it's not valid
depending on the situation.
And then you don't want to bethat MLO that sent the pre
approval letter.
I didn't read that part of thesmall print.
And now applications submitted,appraisals ordered and paid for,
(15:52):
inspections ordered and paidfor, all these expenses, they
even got the moving truck ready,they bought all the stuff, and
now you tell them I'm sorry, butwe got an obstacle, and now it
may take a couple of weeksbecause now you got to undispute
the account to a rapid rescoreso that automated underwriting
picks it up, or Go down tomanual underwrite if it's FHA.
(16:13):
Now the same with collectionsand charge offs, you know, don't
be too dismayed until you run aU.
S.
It's not the first time thatI've had a primary residence
convention alone where borrowershad twenty, thirty thousand
dollars.
in charge offs, but due to thefact that it's a lower LTV loan,
(16:33):
I'm not saying 30 percent LTVeither, you know, in this case,
I'm thinking it may have beenlike 70 percent LTV.
And the system says, hey, yougot the collections or charge
offs.
We don't care.
Approval was issued with it.
No need to pay off the accounts.
You don't know until you run it.
So again, that's why all thatkind of stuff is determined by
(16:53):
AUS.
The same as max DTI determinedby AUS.
The same as asset verificationrequirements and reserves
determined by AUS.
It's going to tell you in thelast page, the reserves
required.
If you met the target, youdidn't meet the target.
If your deal says referringeligible, usually that's
because, the ineligible part isusually because you don't have
(17:15):
enough assets.
So keep an eye on that assets.
Remember now.
Need to be sourced and seasonand give special consideration
to gifts and how and explain tothe borrower how those gifts
need to be transferred from thedonor to the borrower for the
specific program so you can makesure you have the documentation
requirements to document thegift because just just because
(17:38):
you got to prove eligibledoesn't mean you don't have to
dot the i's and cross the t'sright so what's the source of
those large deposits look at thebank statements beforehand
because that shouldn't surpriseyou Right.
It's going to tell you X if theborrower makes, let's say 10,
000 a month, income, it may tellyou any deposits over 50 percent
(17:59):
of their monthly income need tobe sourced, you know, so you
know, it's in the findings.
Shouldn't surprise you when theunderwriter hits you with the,
that condition, cause they gotit from the findings.
Again, that would determine thensourcing and seasoning of funds
if needed based on the findingsand then gifts.
(18:20):
That's up to you being aproactive loan consultant and
making sure that your borrower,hopefully that gift hasn't been
given to them yet in cash.
And that, And if it was given incash, hopefully the donor
withdrew the exact amount of thegift that they gave from their
bank account.
So at least you can reconcilethat way, LOE, and cover that
(18:42):
base.
Another consideration on agencypre approval, borrower and
seller seizing on title.
On borrowers, if it's a cash outrefi, and on seller, you know,
they're purchasing a flip.
because if it's an FHA deal, forexample, you've got the 91 day
flip rule.
You can't get on contract untilnow under the 91st day after the
(19:05):
seller has owned the propertyand if there is a substantial
amount of capital gains on thesale, there may be, requirements
for additional valuationmethods, you, which usually on
an agency loan means secondappraisal.
Now we do manual underwriting.
(19:25):
well, manual underwriting is notapplicable for all agency loans,
only for applicable for FHAapplicable for VA, definitely
not applicable for conventional.
If it's manual underwriting,note that the maximum DTI, any
asset, requirements and creditscore requirements, trailer
(19:46):
requirements, all that kind ofstuff is determined by the
matrix.
So you just go online, do aquick search for Fannie Mae
matrix, Freddie Mac matrix.
And you're going to get thebasics FHA matrix.
You're going to get the basicsthat would be for a manual
underwrite.
And always remember an agencyloans, mortgage insurance.
PMI actually private mortgageinsurance is required above an
(20:11):
80 percent LTV unless the loanis a HELOC combo loan.
Then you got a number ofconfigurations 80 15 5, 80 10
10, 75 15 10, 70 25 depending onthe property type transaction
type.
We love these transactions forin Florida for our limited
(20:32):
review.
primary occupancy condo loans ata 90 percent CLTV.
We do those depending on theloan amount, purchase price
could be a 75 15, or we may haveto go higher on the LTV on the
HELOC to meet the minimumKeylock loan amount.
I think it's usually going to beat least 50, 000.
(20:54):
Keep that in mind.
So now on our non QM preapproval, please note the first
bullet, the first two bulletpoints, because every now and
then we get the query from anMLO.
Oh, I'm getting this error whenI'm trying to run DU on a DSCR
(21:14):
loan.
Okay, that's the first problembecause all, not just DSER, all
non QM loans are manuallyunderwritten.
Full doc, salaried hourly, fulldoc, self employed with tax
returns, bank statement, P& L,asset utilization, 1099, and
(21:39):
definitely DSER.
are all manually underwritten.
You pick the program.
That's the beautiful thing ofnon QM.
So when you're structuring yourpre approval and you're looking
at the tax returns and you seethat you have a, a, some like a
much lower, let's say 2022 than2023.
(22:01):
So you're like, wow, if I canuse, just use 2023, um, you
know, my bar is going to hit itout of the park.
They make 300, 000 in 2023, but2022, there was still business
was still recovering frompandemic.
So they made only 100, 000.
Well, You submit to LP or yousubmit to DU and see if any of
(22:22):
the two options give you the oneyou're finding.
LP, if the bar has been selfemployed at least five years,
that verbiage is built into thefindings document.
DU, it's just strictly up to thealgorithm.
If it likes the risk, it'll giveyou just the one your findings
and then you don't have to worryabout a lower 2022 compared to,
(22:42):
2023, you can get the maximum,benefit for income using just
the one year.
So, again, you would set yourfollow up accordingly.
With that one year income firstto hopefully try to get the one
year and if not readjust yourfile to the two year income.
But now we're talking about DU.
Now here we're talking about nonQM, which is no DU, where you
(23:05):
pick the program.
So you can't get the one yearfindings in, agency, but non QM,
you pick the one year tax returnoption and now your borrower
with only 10 percent down onthat primary deal qualifies for
(23:25):
their dream home.
So again, that's why non QM ismore, you as the MLO are the
filter.
You are the automatedunderwriting search engine
scouring the guidelines andmaking sure that you find the
best option for your borrower.
So again, always manuallyunderwritten.
AUS not applicable.
(23:46):
And this is bullet point numberthree.
I mean, it's so important incredibility, trust, and just,
you know, sustainability of yourcareer, right?
You can only issue the preapproval letter for this non QM
pre approval.
After a thorough review of alldocs, all loan parameters is
(24:07):
completed and confirmed with theguidelines.
That means you need to reviewall loan parameters and.
Any special circumstances likeseasoning on title, maybe your
bar has only been three months,six months, five, whatever it's
been, that's a special parameterdisputed account says special
parameter collections and chargeus where you may need to find a
(24:28):
program that says if theborrower has, let's say your bar
has 40, 000 in charge, but thisprogram says if your bar has
enough reserves after meetingthe down payment and closing
cost requirement, to cover thesecharge offs, then we can offset
them with that, and by youadding five percent of the
(24:50):
balance of that charge off,assuming it's a income, a DTI
related loan at DSER, adding 5percent of the balance to the
payment and making sure theborrower is still qualified.
That's one of the examples.
Another may not even say adding5 percent may just say if you
have the reserves to coverafter, you know, meeting the
other transaction expenses,you're good.
That's the beautiful thing aboutnon QIM is that every guideline
(25:12):
is different and thosesuccessful loan officers are
those that Uncover every stone.
Don't leave any opportunities,and don't leave any money on the
table.
So again, only after a thoroughreview and reconciliation of the
guidelines.
Can you issue that pre approvalletter?
(25:33):
So credit, we just discussedsome of the parameters also
disputed accounts, right?
If there is a disputed account,it may say, you've got to bring
the balance down to 250.
If it's a 0 amount disputedaccount, you may not have to
touch it.
So really varied guideline toguideline.
Then you're going to consider anon QML.
We're going to, what income arewe going to go with?
We're going to go full doc, orwe're going to go alt doc, or
(25:56):
we're going to go DSCR, right?
That's our no income, that's ournon DTI program.
The DSCR is the ratio as opposedto the debt to income ratio,
debt to income ratio.
It is the debt service coverageratio.
And then we're going to alsoreconcile any asset parameters,
and then again property,borrower, seller, seasoning, and
(26:18):
title.
For the same reasons, right?
Flipping on non QM is definitelymore important.
Flipping.
when this property is beingresold, where you could end up
with a requirement for a secondappraisal CDAs.
Look at the guidelines.
Don't get caught off guard onthat 1 borrower seasoning on
title for cash out refines,right?
(26:40):
Using the market value for theLTV as opposed to purchase price
plus renovations.
That's that's the key.
That's for you as a consultantuncovering those hidden gems for
the borrowers.
Are going to make more moneygoing to close more loans and
going to have much moresatisfied borrowers and then on
our keep note very importanthere when structuring these
(27:01):
deals that are the DSCR preapprovals allow borrowers to
compete well against cash buyersall depend on how you set up the
pre approval and how youcommunicate it.
To the buyer's agent andhopefully also to the listing
agent to convey how strong yourbuyer is the offer, especially
the listing agents, becausethey're very proud of their
property, especially when youstart letting them know how the
(27:23):
property generates a greatmarket rent income analysis and
how you already compared that.
To the, P.
I.
T.
I.
And definitely we're at where,where we need to be for the loan
program.
And we're at a 1.
0 or 99 or under 0.
75, which we can do with 25percent down.
(27:44):
So, again, um, that is, key toproperly conveying.
All of the pre approval benefitsto all parties involved.
So, lastly here and talkingabout all parties involved, the
pre approval is not created in avacuum, right?
It's not just a loan officerinvolved with the pre approval.
(28:07):
You're also talking aboutborrowers.
and real estate agents involvedin the transaction and they all
have their specific duties wherethey can add to the transaction,
not have it fall apart so thatthe pre approval can actually be
a valid pre approval and then soeverything can proceed smoothly.
(28:28):
So borrower duties we're lookingat and again our pre approvals
are done via a loan application.
So when I thought about doing abig agent here.
for the loan necessarily beingsubmitted to underwriting.
First, we got to pre approve thebuyer or the borrower.
In this case, if it's a refi.
So we need a complete loanapplication.
(28:50):
It has to be as thorough aspossible.
And we definitely need to makesure that they avoid, and you
need to convey this message tothem before they submit.
The application hopefully is weneed to avoid undisclosed debts
and undisclosed liabilitiesbecause that could affect your
(29:10):
D, your DTI big time.
We need to avoid undisclosedproperties again could avoid,
could affect DTI, could affecteven you qualifying for the loan
due to having too many financeproperties of a certain type.
So again, and we want to avoidundisclosed Business losses.
(29:32):
If you're going full dock, ifit's a DTI loan.
Those are all things that aregoing to kill the deal.
And I mentioned this because itcomes up, uh, unfortunately all
too often where these,uh,factors could kill a full dock
DTI type loan.
By full dock, it could be bankstatement.
Let's say a DTI type loan.
(29:53):
Where you're either using taxreturns, pay stubs, bank
statements, whatever you'reusing to determine the debt to
income, any of those factorsthere could kill it and also
could raise alerts tounderwriters about is this fraud
and all of a sudden create awhole slew of additional
conditions for you.
Borrower needs to providerequested docs on a timely basis
(30:16):
and borrower definitely needs tonot open any new credit account.
And lastly, what are our realestate?
Agent duties.
Well, we agent needs to ensureborrowers submits a competitive
offer.
Both, you know, they got to dotheir market analysis, make sure
that the offers on point, notjust to try to get the property.
(30:37):
But then when they do get it,hopefully we're not too far off
target on what the appraisal isgoing to be.
So we're walking a fine linehere, right?
Then maybe appraisal comes inand then we can renegotiate.
If you know, if it's a purchaserenegotiate, hopefully.
So that's what we're talkingabout.
Contract negotiation, sellercontribution, try to get some
seller contribution.
(30:57):
If, if at all possible in theirmarket, that's definitely going
to aid the transaction.
Real estate agent also needs tomonitor.
for finance contingency andclosing date extensions nine.
I mean, I don't know, nine timesout of 10, probably I see where
(31:17):
we get an extension of theclosing date.
But what about the one thatreally affects us?
I mean, you know, totally frontand center is the financing
contingency.
Cause if they're approved andthe buyer then chooses not to
close.
Then that's on the buyer.
But I mean, if, if you, if thefinancing contingency is
(31:41):
extended or let's say theclosing contingent, you know,
closing date extension, closingdate is extended, but the
financing contingency is notextended.
And then it doesn't close forwhatever reason, even though
you're still within the closingdate extension period, if they
did not, um, extend thefinancing contingency.
(32:04):
Also, the borrower is in defaultand could lose their deposit,
right?
You got to read most of thecontract says that if you don't
extend by, you know, thisprovide an approval or extend it
by the, you know, expiration ofthe financing contingency
period, this contract thenreverts to a cash deal.
(32:26):
and any financing contingencyprotections are removed, which
means borrower could lose theirmoney, their deposit, if the
deal does not close.
So please make sure that you letour real estate agents know to
monitor that and obtainextensions for that as well.
(32:47):
Our agents also got tounderstand that a pre approval
is not a loan commitment.
They also ask us sometimes forsome funky type of pre approval
for like, like the, the fundswhere they verify funds
availability, pre approval kindof thing.
And then with that, they submitno financing contingency offers.
(33:08):
I mean, that's pretty dangerous.
You got to understand that, indoing that, putting a lot of
pressure on the borrower tolose, you know, and what happens
if they don't close.
They could lose their deposit,especially and if it's a
substantial deposit, you know,you're going to have a complaint
and that could affect people'slicenses.
(33:30):
Besides all the other facts thatyou didn't get to close the
deal, a bunch of, you know, Imean, a lot of negative things
can come out of that.
So again, remember all of thepointers we brought up about
building credibility and trustand a sustainable and low
career.
Make sure you communicate.
Well, with all parties of thetransaction, agents and
(33:51):
borrowers included, and thisshould all be a happy ending and
a closing.
So looking forward to helpingall of you structure your deals.
All right.
Thank you, Jose.
Let's see here.
I'll check out if we have anyquestions.
(34:14):
Does not look like we do.
Well, then, hopefully those,those MLOs that ask me every now
and then, Well, I just got therequest for a pre approval.
What do I do?
Hopefully they're not, hopefullythey're watching so that, and
they picked up on all thedetails.
Because, I mean, this is basicstuff that we're covering here.
(34:35):
and if you can't cover thesebasic points, Oh, okay.
Okay.
We got an interesting, I don'tknow if it's a commentary here
or if it's a question, but Ilove it.
and let me see.
I don't know where to start.
Jose, if we're not allowed toissue a simple prequalification,
(34:58):
I will lose that client.
Well, I'm not sure what clientis being referred to, because I
haven't, I can't recall thisbeing, brought up, but a simple
prequalification is worthless.
Why do you want it?
Now, if you're telling me in thenext comment there that you're
also a realtor, then I'm reallysurprised why you would accept a
(35:21):
simple prequalification.
I'm assuming what you mean asimple prequalification is where
you just talk to somebody andbased on information that they
represent, you guarantee themthe outcome and you put an offer
in writing and deposits made.
on information representedverbally.
That's basically hearsay andthat's very dangerous and that's
(35:44):
a borderline fiduciary, lack offiduciary responsibility to your
borrower to protect theirprivacy.
Interests, right?
That's what our license is allabout.
If you fail in that duty, youcould lose your license when
they complain to the powers thatbe the different agency
(36:07):
regulators out there.
They're going to come back,analyze the situation.
But that's that's that's the,um, I guess.
Worst case scenario.
But there is no best casescenario here because what it
means is that, you know, you'renot putting out a thorough
product.
It should not take you more thanmaximum maximum more than 24
(36:31):
hours.
And that's maximum.
Assuming there was a delay.
In the bar providing youdocumentation for you to be able
to provide a pre approval,right?
I mean, you gather docs, they,they, they complete an
application, which could takethem 10 minutes.
They may not know what they makein income.
That's okay.
We need just our basicinformation, employer, all that
(36:52):
kind of stuff.
You gather docs, you look at theincome, right?
You put the income in theapplication.
You, the credit report hasalready been pulled for you.
You have assets, right?
Hopefully they gave you twomonths bank statements or else
they may have just put on theapplication what it was, but you
got assets, you got income.
You got credit run.
Do you five seconds later, 10seconds later, 50 seconds later,
(37:15):
you got either approve eligibleor not.
I mean, how hard is that?
That doesn't take that muchlonger and it builds credibility
and builds trust.
A simple pre approval letter.
prequalification letter doesjust the opposite.
It can erode trust, erodecredibility.
If you're a MLO and you're notthe realtor and you gave this
(37:39):
preapproval letter, and now therealtor says, Hey man.
I wrote offers.
I did all this work and now thisthis buyer slash your borrower.
My buyer is blowing up my phonebecause they're about to lose
their deposit and I'm not goingto go down alone for this.
So, I mean, this could go intoso many levels.
Um, so, and again, your nextcomment says, listing agents
(38:02):
will not even show you the housewithout a pre approval.
Yes, without a pre approval.
So, the borrower gets preapproved up front in the
process.
Why would you want to showproperties?
To a buyer that you haven't preapproved yet.
That was one of the first bulletpoints that we touched.
So I'm, I'm glad you brought upall of these points and I hope
(38:23):
that you ingest them well.
And, it should help you doubleyour income and your
productivity as a realtor.
If you're going to get all thoseloans, right?
All right.
I don't see any more actualquestions, so I think we'll go
ahead and wrap it up.
(38:44):
But again, great.
Back to the basics traininghere.
Remember, we do this everyTuesday, Wednesday, and Thursday
evening at 7 p.
m.
Eastern, where we go through newloan topics.
We'll be back tomorrow with anew topic.
We appreciate everybody tuningin, and we'll see you tomorrow,
7 p.
m.
Eastern, for the next episode ofthe Loan Officer Training Series
with the Mortgage Calculator.
All right.
(00:00):
So welcome everyone.
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
president Nick Hiersche and oursales manager Jose Gonzalez.
We are a lender that specializesin non QM loans.
And what we do every Tuesday,Wednesday, and Thursday evening
at 7 p.
m.
Eastern on this show is gothrough a new loan officer
training topic.
And tonight we're going to betalking about something very
basic, but very important, whichis how to properly complete a
(00:22):
purchase pre approval.
So Jose has been doing purchasepre approvals for 28 years.
I'll let him take over and let'sget into it.
Good evening everybody.
Thank you for joining us fortonight's training.
Today, tonight's training is,going back to the basics, but,
(00:44):
always in times of, increasedactivity and and volatility.
It is always a strongrecommendation to get back to
the basics.
Make sure you're covering allyour bases, dotting all of your
I's, crossing all of your T's,and as always being the ultimate
loan consultant, which is whatwe strive to be at the Mortgage
(01:06):
Calculator.
So tonight's training is on howto properly complete a purchase
pre approval.
So we're adding a couple of,interesting twists to this as I
always like to do, so that wecan always add value to the
transaction and ensure that,everybody's expectations are
(01:29):
exceeded and you receive manyreferrals and have a
sustainable.
MLO career.
So let's jump right into how toproperly complete a purchase pre
approval.
So let's define a little bitwhat we mean by a pre approval,
(01:50):
right?
A pre approval for a real estateloan is a preliminary evaluation
of a potential borrower todetermine which program options
they qualify.
Now, You know how we do our preapprovals here very thorough,
right?
As you can see there in thebottom in red It is not a
(02:14):
prequalification, but a creditand income approval.
The purchase preapproval is thefirst step on the path to home
ownerships.
Now be aware of certain criticalpoints here.
First, very important point toconsider regarding purchase pre
(02:37):
approvals is that general, isthat listing agents generally
require that an offer, any offerto be submitted on a property
that they're going to receive beaccompanied by a loan pre
approval.
If your offer is not accompaniedby a pre approval, there's a
good probability that it is notgoing to be reviewed.
(02:59):
It is just going to sit thereuntil the pre approval is
received.
Right.
What, what good is it to have agun if you don't have any
bullets?
I mean, the pre approval is thatimportant in this whole process.
now also note the following.
To be able to present the offer,you have to be able to look at
(03:22):
properties, right?
And buyer's agents, at leastgood and successful buyer's
agents, generally require abuyer be pre approved before
showing the offer.
Any properties to that buyer.
You're not going to go showsomebody, show me some homes,
three bedrooms, two baths andsuch and such neighborhood.
And you go and you show themproperties.
(03:44):
And then lo and behold, they,they don't have any money.
They thought they could, youknow, they heard how these
things could be done, but theyhave no idea.
but they didn't realize itwasn't going to be possible with
their 500 credit score.
Right.
So, you know, just obviouslythat's an extreme example, but
we want to prevent that for allparties involved.
Right.
Why, Create unrealisticexpectations for your borrower,
(04:08):
right?
All of our expectations have tobe based in reality and that has
to be assisted by the loanconsultant from the mortgage
calculator.
Pre approvals also allow forbudgeting and financial
planning, right?
How are you going to know howmuch you need to save or if you
have enough or, or if you'regoing to be able to, even though
(04:32):
technically you qualify, ifyou're going to be able to live.
So again, the pre approvaldetailed one, very important.
And also, being pre approvedallows for a more focused and
efficient process.
And this is key because thisresults in higher success and
(04:54):
satisfaction for all.
All involved parties, right?
The buyer slash borrower, ourborrower in this case, the
seller, the real estate agent,title company, insurance agents,
right?
They're going to say, wow, Jose.
He's the next best thing toslice bread and they're going to
send referrals.
(05:15):
Matter of fact, I just receiveda referral today from Texas on a
deal where I did not, get thedeal.
Eventually I did not get toclose the deal because the bar
came to me after he had alreadyapplied with somebody else
submitted, almost ready toclose.
Then they decided they wanted toclose an LLC and the other
company couldn't get it.
(05:36):
We didn't close it because theydidn't give him the extension.
But I did such a thorough job ingetting it ready to close.
Should the, in my communicationwith the, his real estate agent
at the developer and with theborrower and with the title
company and everybody involved,they were so impressed with how
(05:58):
I handled that scenario comparedto how the other company was
handling the scenario.
That they referred me today dealand not that other company that
gave them a big headache.
So that's, that's the kind ofstuff that we're talking about,
about the sustainable MLOcareer, steady stream of
referrals.
That's what you're going to get.
If everybody, if you exceedeverybody's expectations, that's
(06:20):
the end results.
Steady stream of referrals and asustainable MLO career.
So you could see how gettingoff.
On the correct trajectory and,and, and following the correct
steps in the process is a win,win, win situation for all
involved parties, especially youas the MLO, right?
(06:42):
Increase profits, right?
Less waste of time, less moreefficient operation.
All the things that we'rementioning about.
That, that we're mentioning thatis basically music to
everybody's ears.
So again, the pre approvalremember is not a pre
qualification.
Pre qualifications really areworth the ink on the paper that
(07:05):
is written on.
That's about it.
A pre qualification isessentially maybe their first
initial conversation you havewith them.
Very brief.
Yeah, I think that can be done.
Now let's do the actual preapproval, right?
This is where you review credit.
Income, if there's already aproperty, you reviewed property,
always striving to be theultimate loan consultant.
(07:27):
So you can build credibility andgain trust.
That's very important in thisindustry where the borrower is
probably going to be, completingthe largest financial
transaction of their life.
So you can rest assured thatcredibility.
And trust are going to be justas important as the interest
(07:52):
rate and other factorsassociated with the interest
rate.
So you can see how the preapproval is such.
An important tool.
So let's break it down into whatwe would be doing, right?
Um, first, you know, maybe it'sgoing to be an agency pre
(08:13):
approval.
Well, um, what are theconsiderations, to know if it's
going to be an agency preapproval?
Well, remember this agencyloans.
And when I'm talking aboutagency, we are talking about
conventional loans, Fannie andFreddie.
We're talking about FHA loans.
(08:34):
We're talking about USDA loans,and we're talking about VA
loans.
Now, all those, all those loantypes, besides each having
homogeneous guidelines, like wejust discussed in our
guidelines, training recently,they are all always full.
(08:55):
No alt doc.
On its own on agency.
We do have, some limited,instances where we can combine
asset utilization on a full dockloan on an older individual, I
believe 62 and older tosupplement their income, their
fixed income or W 2 income,salary, hourly, whatever income,
(09:16):
retirement income, whateverincome they may have.
and we can supplement that withasset utilization.
But other than that, That'sstill going to be a type of a
full doc, but other than that,you know, there's no other alt
doc type in agency.
So now the other consideration,if it's going to be agency,
(09:39):
obviously, if it's investmentproperty, your borrower is not
closing in an LLC, right?
Because if they want to close itin an LLC, that's non QMO, but
here now is your deal going tobe a U S automated underwriting.
Or is it going to be manualunderwriting?
Now, obviously, you won't knowuntil you run it through AUS and
(10:01):
see if you can't get theapproved eligible.
You may know if you got, you'restarting with a 500 credit score
FHA borrower, that it may end upbeing manual underwrite, but you
don't know until you set up thefile and submit it.
I just had a meeting today withone of the MLOs.
We're going over a filestructure.
Two separate agency loans andall, both discussions ended up
(10:24):
with, well, but have yousubmitted it yet to a U S to see
if you're going to get a oneyear finding or a two year
finding for the income, becauseif you get the one year finding
for the income, you're going toeliminate all of the issues that
you're having, because you'reonly going to be dealing with
the current year as opposed totwo years, right?
So again, a U S for manuallender, right?
(10:44):
If it's a U S.
You're talking about DU, whichis Fannie Mae's automated
underwriting system, or you'retalking about LP, which is
Freddie Mac's automatedunderwriting system.
You need to receive an approveeligible from DU or an accept
from LP in order to be, to beable to issue.
(11:06):
a pre approval letter.
Again, we're going back to, thisis not a pre qualification,
there is no such thing as a prequalification letter.
I mean, I don't know, again,that's what the paper and the
ink that it's written on.
The pre approval.
If it's, for example, the agencypre approval, you're going to
have, you're going to requirethe AUS approval.
And in order to get an AUSapproval, you need to set up a
(11:30):
complete loan application.
You need to review your creditdocs, income docs, asset docs.
Property docs, if there's aproperty, if it's a cash out or
maybe a purchase, TBD, but youhave some information, right?
Review, input the data into thesystem.
Typically, we're going to bedoing this as a TBD pre approval
(11:51):
initiative, unless it's asubmitted application already,
triggered application.
And then you're going to see ifyou get the approval that you
need.
Only then, after reviewing allof this stuff, remember this is
not on hearsay that's providedby the borrower, information,
you know, normally this is thatyou've reviewed documentation,
(12:13):
verified it by your review, thenthat's once the file gets
submitted to underwriting, it'sgoing to be verified by the
underwriter, and then you getyour loan commitment.
So again, to issue your approvalletter.
A US approval or accept.
remember that in a US any creditscore, trade line requirements
(12:35):
are determined by a US bydetermined by automated
underwriting, right?
You don't know if on an FHAapproval, you're gonna get the
approval that the 56.9% max, orif you're going to only get an
approval up to 53% because thesystem, the algorithm is gonna
(12:55):
review, assess the risk.
And then either issue or notissue the approval that you're
looking for.
So anything having to deal withtrade lines, any of that stuff,
credit score is only going tomatter.
Obviously you want to look at itto see if you fall within the
basic matrix for a manualunderwrite, but then you're
(13:17):
going to submit and maybe besurprised.
I've had a, on a conventionalloan with 20 percent down, I've
had a borrower with one opentrade line.
And one closed trade line with aco borrower with two open trade
lines and one closed trade lineget approval because they both
had high credit scores, 20percent down.
They both had substantialreserves.
(13:38):
The system loved it, approvedit, right?
So again, don't get too hung up.
On the minutiae until youactually submit to automated
underwriting your as you know,something that it should be 100
percent representation of thedocumentation that you reviewed
and see if you get your approvaleligible for DU or you accept
(13:59):
for LP.
Now, when you are looking,considering credit for this
agency loan, be aware of acouple of items here that throw
people off.
The first is.
Disputed accounts.
Now this happened to be thetopic of the session I had today
with the MLO, where I asked theMLO, have you submitted this to
(14:21):
automated underwriting to see onyour convention, on your
convention alone, if it willreview it and accept the fact
that it has a disputed accountand give you the approval and
let you know, yes, I reviewedit.
I see you have a disputedaccount, but we're okay with
that.
You've got the approvedeligible, or if it's going to
say, we noted, you had adisputed account due to the fact
(14:43):
that we can't properly assessthe account.
We can't issue this approvedeligible that you had is not
valid.
And you've got to downgrade yourfile to manual underwrite, which
then will not be possible on theconventional loan.
The FHA loan is going to be theopposite.
You know, on that one, it wasthe dispute is over a thousand
dollars.
You either can reduce it tounder a thousand or you can,
(15:06):
downgrade the loan to a manualunderwrite at manual
underwriting DTI max 43 on thetotal debt and not 56.
9 that could kill the loan.
The deal.
So remember how always look fordisputed accounts and then look
at the findings and see how ittreated the disputed accounts.
Don't you don't be surprised andget the findings and go disputed
(15:28):
accounts.
What is this?
Oh my God.
I didn't know.
And you may not have realizedthat you may have given the pre
approval letter because you'regoing to get the approved
eligible.
It's just going to tell you inthe findings that it's not valid
depending on the situation.
And then you don't want to bethat MLO that sent the pre
approval letter.
I didn't read that part of thesmall print.
And now applications submitted,appraisals ordered and paid for,
(15:52):
inspections ordered and paidfor, all these expenses, they
even got the moving truck ready,they bought all the stuff, and
now you tell them I'm sorry, butwe got an obstacle, and now it
may take a couple of weeksbecause now you got to undispute
the account to a rapid rescoreso that automated underwriting
picks it up, or Go down tomanual underwrite if it's FHA.
(16:13):
Now the same with collectionsand charge offs, you know, don't
be too dismayed until you run aU.
S.
It's not the first time thatI've had a primary residence
convention alone where borrowershad twenty, thirty thousand
dollars.
in charge offs, but due to thefact that it's a lower LTV loan,
(16:33):
I'm not saying 30 percent LTVeither, you know, in this case,
I'm thinking it may have beenlike 70 percent LTV.
And the system says, hey, yougot the collections or charge
offs.
We don't care.
Approval was issued with it.
No need to pay off the accounts.
You don't know until you run it.
So again, that's why all thatkind of stuff is determined by
(16:53):
AUS.
The same as max DTI determinedby AUS.
The same as asset verificationrequirements and reserves
determined by AUS.
It's going to tell you in thelast page, the reserves
required.
If you met the target, youdidn't meet the target.
If your deal says referringeligible, usually that's
because, the ineligible part isusually because you don't have
(17:15):
enough assets.
So keep an eye on that assets.
Remember now.
Need to be sourced and seasonand give special consideration
to gifts and how and explain tothe borrower how those gifts
need to be transferred from thedonor to the borrower for the
specific program so you can makesure you have the documentation
requirements to document thegift because just just because
(17:38):
you got to prove eligibledoesn't mean you don't have to
dot the i's and cross the t'sright so what's the source of
those large deposits look at thebank statements beforehand
because that shouldn't surpriseyou Right.
It's going to tell you X if theborrower makes, let's say 10,
000 a month, income, it may tellyou any deposits over 50 percent
(17:59):
of their monthly income need tobe sourced, you know, so you
know, it's in the findings.
Shouldn't surprise you when theunderwriter hits you with the,
that condition, cause they gotit from the findings.
Again, that would determine thensourcing and seasoning of funds
if needed based on the findingsand then gifts.
(18:20):
That's up to you being aproactive loan consultant and
making sure that your borrower,hopefully that gift hasn't been
given to them yet in cash.
And that, And if it was given incash, hopefully the donor
withdrew the exact amount of thegift that they gave from their
bank account.
So at least you can reconcilethat way, LOE, and cover that
(18:42):
base.
Another consideration on agencypre approval, borrower and
seller seizing on title.
On borrowers, if it's a cash outrefi, and on seller, you know,
they're purchasing a flip.
because if it's an FHA deal, forexample, you've got the 91 day
flip rule.
You can't get on contract untilnow under the 91st day after the
(19:05):
seller has owned the propertyand if there is a substantial
amount of capital gains on thesale, there may be, requirements
for additional valuationmethods, you, which usually on
an agency loan means secondappraisal.
Now we do manual underwriting.
(19:25):
well, manual underwriting is notapplicable for all agency loans,
only for applicable for FHAapplicable for VA, definitely
not applicable for conventional.
If it's manual underwriting,note that the maximum DTI, any
asset, requirements and creditscore requirements, trailer
(19:46):
requirements, all that kind ofstuff is determined by the
matrix.
So you just go online, do aquick search for Fannie Mae
matrix, Freddie Mac matrix.
And you're going to get thebasics FHA matrix.
You're going to get the basicsthat would be for a manual
underwrite.
And always remember an agencyloans, mortgage insurance.
PMI actually private mortgageinsurance is required above an
(20:11):
80 percent LTV unless the loanis a HELOC combo loan.
Then you got a number ofconfigurations 80 15 5, 80 10
10, 75 15 10, 70 25 depending onthe property type transaction
type.
We love these transactions forin Florida for our limited
(20:32):
review.
primary occupancy condo loans ata 90 percent CLTV.
We do those depending on theloan amount, purchase price
could be a 75 15, or we may haveto go higher on the LTV on the
HELOC to meet the minimumKeylock loan amount.
I think it's usually going to beat least 50, 000.
(20:54):
Keep that in mind.
So now on our non QM preapproval, please note the first
bullet, the first two bulletpoints, because every now and
then we get the query from anMLO.
Oh, I'm getting this error whenI'm trying to run DU on a DSCR
(21:14):
loan.
Okay, that's the first problembecause all, not just DSER, all
non QM loans are manuallyunderwritten.
Full doc, salaried hourly, fulldoc, self employed with tax
returns, bank statement, P& L,asset utilization, 1099, and
(21:39):
definitely DSER.
are all manually underwritten.
You pick the program.
That's the beautiful thing ofnon QM.
So when you're structuring yourpre approval and you're looking
at the tax returns and you seethat you have a, a, some like a
much lower, let's say 2022 than2023.
(22:01):
So you're like, wow, if I canuse, just use 2023, um, you
know, my bar is going to hit itout of the park.
They make 300, 000 in 2023, but2022, there was still business
was still recovering frompandemic.
So they made only 100, 000.
Well, You submit to LP or yousubmit to DU and see if any of
(22:22):
the two options give you the oneyou're finding.
LP, if the bar has been selfemployed at least five years,
that verbiage is built into thefindings document.
DU, it's just strictly up to thealgorithm.
If it likes the risk, it'll giveyou just the one your findings
and then you don't have to worryabout a lower 2022 compared to,
(22:42):
2023, you can get the maximum,benefit for income using just
the one year.
So, again, you would set yourfollow up accordingly.
With that one year income firstto hopefully try to get the one
year and if not readjust yourfile to the two year income.
But now we're talking about DU.
Now here we're talking about nonQM, which is no DU, where you
(23:05):
pick the program.
So you can't get the one yearfindings in, agency, but non QM,
you pick the one year tax returnoption and now your borrower
with only 10 percent down onthat primary deal qualifies for
(23:25):
their dream home.
So again, that's why non QM ismore, you as the MLO are the
filter.
You are the automatedunderwriting search engine
scouring the guidelines andmaking sure that you find the
best option for your borrower.
So again, always manuallyunderwritten.
AUS not applicable.
(23:46):
And this is bullet point numberthree.
I mean, it's so important incredibility, trust, and just,
you know, sustainability of yourcareer, right?
You can only issue the preapproval letter for this non QM
pre approval.
After a thorough review of alldocs, all loan parameters is
(24:07):
completed and confirmed with theguidelines.
That means you need to reviewall loan parameters and.
Any special circumstances likeseasoning on title, maybe your
bar has only been three months,six months, five, whatever it's
been, that's a special parameterdisputed account says special
parameter collections and chargeus where you may need to find a
(24:28):
program that says if theborrower has, let's say your bar
has 40, 000 in charge, but thisprogram says if your bar has
enough reserves after meetingthe down payment and closing
cost requirement, to cover thesecharge offs, then we can offset
them with that, and by youadding five percent of the
(24:50):
balance of that charge off,assuming it's a income, a DTI
related loan at DSER, adding 5percent of the balance to the
payment and making sure theborrower is still qualified.
That's one of the examples.
Another may not even say adding5 percent may just say if you
have the reserves to coverafter, you know, meeting the
other transaction expenses,you're good.
That's the beautiful thing aboutnon QIM is that every guideline
(25:12):
is different and thosesuccessful loan officers are
those that Uncover every stone.
Don't leave any opportunities,and don't leave any money on the
table.
So again, only after a thoroughreview and reconciliation of the
guidelines.
Can you issue that pre approvalletter?
(25:33):
So credit, we just discussedsome of the parameters also
disputed accounts, right?
If there is a disputed account,it may say, you've got to bring
the balance down to 250.
If it's a 0 amount disputedaccount, you may not have to
touch it.
So really varied guideline toguideline.
Then you're going to consider anon QML.
We're going to, what income arewe going to go with?
We're going to go full doc, orwe're going to go alt doc, or
(25:56):
we're going to go DSCR, right?
That's our no income, that's ournon DTI program.
The DSCR is the ratio as opposedto the debt to income ratio,
debt to income ratio.
It is the debt service coverageratio.
And then we're going to alsoreconcile any asset parameters,
and then again property,borrower, seller, seasoning, and
(26:18):
title.
For the same reasons, right?
Flipping on non QM is definitelymore important.
Flipping.
when this property is beingresold, where you could end up
with a requirement for a secondappraisal CDAs.
Look at the guidelines.
Don't get caught off guard onthat 1 borrower seasoning on
title for cash out refines,right?
(26:40):
Using the market value for theLTV as opposed to purchase price
plus renovations.
That's that's the key.
That's for you as a consultantuncovering those hidden gems for
the borrowers.
Are going to make more moneygoing to close more loans and
going to have much moresatisfied borrowers and then on
our keep note very importanthere when structuring these
(27:01):
deals that are the DSCR preapprovals allow borrowers to
compete well against cash buyersall depend on how you set up the
pre approval and how youcommunicate it.
To the buyer's agent andhopefully also to the listing
agent to convey how strong yourbuyer is the offer, especially
the listing agents, becausethey're very proud of their
property, especially when youstart letting them know how the
(27:23):
property generates a greatmarket rent income analysis and
how you already compared that.
To the, P.
I.
T.
I.
And definitely we're at where,where we need to be for the loan
program.
And we're at a 1.
0 or 99 or under 0.
75, which we can do with 25percent down.
(27:44):
So, again, um, that is, key toproperly conveying.
All of the pre approval benefitsto all parties involved.
So, lastly here and talkingabout all parties involved, the
pre approval is not created in avacuum, right?
It's not just a loan officerinvolved with the pre approval.
(28:07):
You're also talking aboutborrowers.
and real estate agents involvedin the transaction and they all
have their specific duties wherethey can add to the transaction,
not have it fall apart so thatthe pre approval can actually be
a valid pre approval and then soeverything can proceed smoothly.
(28:28):
So borrower duties we're lookingat and again our pre approvals
are done via a loan application.
So when I thought about doing abig agent here.
for the loan necessarily beingsubmitted to underwriting.
First, we got to pre approve thebuyer or the borrower.
In this case, if it's a refi.
So we need a complete loanapplication.
(28:50):
It has to be as thorough aspossible.
And we definitely need to makesure that they avoid, and you
need to convey this message tothem before they submit.
The application hopefully is weneed to avoid undisclosed debts
and undisclosed liabilitiesbecause that could affect your
(29:10):
D, your DTI big time.
We need to avoid undisclosedproperties again could avoid,
could affect DTI, could affecteven you qualifying for the loan
due to having too many financeproperties of a certain type.
So again, and we want to avoidundisclosed Business losses.
(29:32):
If you're going full dock, ifit's a DTI loan.
Those are all things that aregoing to kill the deal.
And I mentioned this because itcomes up, uh, unfortunately all
too often where these,uh,factors could kill a full dock
DTI type loan.
By full dock, it could be bankstatement.
Let's say a DTI type loan.
(29:53):
Where you're either using taxreturns, pay stubs, bank
statements, whatever you'reusing to determine the debt to
income, any of those factorsthere could kill it and also
could raise alerts tounderwriters about is this fraud
and all of a sudden create awhole slew of additional
conditions for you.
Borrower needs to providerequested docs on a timely basis
(30:16):
and borrower definitely needs tonot open any new credit account.
And lastly, what are our realestate?
Agent duties.
Well, we agent needs to ensureborrowers submits a competitive
offer.
Both, you know, they got to dotheir market analysis, make sure
that the offers on point, notjust to try to get the property.
(30:37):
But then when they do get it,hopefully we're not too far off
target on what the appraisal isgoing to be.
So we're walking a fine linehere, right?
Then maybe appraisal comes inand then we can renegotiate.
If you know, if it's a purchaserenegotiate, hopefully.
So that's what we're talkingabout.
Contract negotiation, sellercontribution, try to get some
seller contribution.
(30:57):
If, if at all possible in theirmarket, that's definitely going
to aid the transaction.
Real estate agent also needs tomonitor.
for finance contingency andclosing date extensions nine.
I mean, I don't know, nine timesout of 10, probably I see where
(31:17):
we get an extension of theclosing date.
But what about the one thatreally affects us?
I mean, you know, totally frontand center is the financing
contingency.
Cause if they're approved andthe buyer then chooses not to
close.
Then that's on the buyer.
But I mean, if, if you, if thefinancing contingency is
(31:41):
extended or let's say theclosing contingent, you know,
closing date extension, closingdate is extended, but the
financing contingency is notextended.
And then it doesn't close forwhatever reason, even though
you're still within the closingdate extension period, if they
did not, um, extend thefinancing contingency.
(32:04):
Also, the borrower is in defaultand could lose their deposit,
right?
You got to read most of thecontract says that if you don't
extend by, you know, thisprovide an approval or extend it
by the, you know, expiration ofthe financing contingency
period, this contract thenreverts to a cash deal.
(32:26):
and any financing contingencyprotections are removed, which
means borrower could lose theirmoney, their deposit, if the
deal does not close.
So please make sure that you letour real estate agents know to
monitor that and obtainextensions for that as well.
(32:47):
Our agents also got tounderstand that a pre approval
is not a loan commitment.
They also ask us sometimes forsome funky type of pre approval
for like, like the, the fundswhere they verify funds
availability, pre approval kindof thing.
And then with that, they submitno financing contingency offers.
(33:08):
I mean, that's pretty dangerous.
You got to understand that, indoing that, putting a lot of
pressure on the borrower tolose, you know, and what happens
if they don't close.
They could lose their deposit,especially and if it's a
substantial deposit, you know,you're going to have a complaint
and that could affect people'slicenses.
(33:30):
Besides all the other facts thatyou didn't get to close the
deal, a bunch of, you know, Imean, a lot of negative things
can come out of that.
So again, remember all of thepointers we brought up about
building credibility and trustand a sustainable and low
career.
Make sure you communicate.
Well, with all parties of thetransaction, agents and
(33:51):
borrowers included, and thisshould all be a happy ending and
a closing.
So looking forward to helpingall of you structure your deals.
All right.
Thank you, Jose.
Let's see here.
I'll check out if we have anyquestions.
(34:14):
Does not look like we do.
Well, then, hopefully those,those MLOs that ask me every now
and then, Well, I just got therequest for a pre approval.
What do I do?
Hopefully they're not, hopefullythey're watching so that, and
they picked up on all thedetails.
Because, I mean, this is basicstuff that we're covering here.
(34:35):
and if you can't cover thesebasic points, Oh, okay.
Okay.
We got an interesting, I don'tknow if it's a commentary here
or if it's a question, but Ilove it.
and let me see.
I don't know where to start.
Jose, if we're not allowed toissue a simple prequalification,
(34:58):
I will lose that client.
Well, I'm not sure what clientis being referred to, because I
haven't, I can't recall thisbeing, brought up, but a simple
prequalification is worthless.
Why do you want it?
Now, if you're telling me in thenext comment there that you're
also a realtor, then I'm reallysurprised why you would accept a
(35:21):
simple prequalification.
I'm assuming what you mean asimple prequalification is where
you just talk to somebody andbased on information that they
represent, you guarantee themthe outcome and you put an offer
in writing and deposits made.
on information representedverbally.
That's basically hearsay andthat's very dangerous and that's
(35:44):
a borderline fiduciary, lack offiduciary responsibility to your
borrower to protect theirprivacy.
Interests, right?
That's what our license is allabout.
If you fail in that duty, youcould lose your license when
they complain to the powers thatbe the different agency
(36:07):
regulators out there.
They're going to come back,analyze the situation.
But that's that's that's the,um, I guess.
Worst case scenario.
But there is no best casescenario here because what it
means is that, you know, you'renot putting out a thorough
product.
It should not take you more thanmaximum maximum more than 24
(36:31):
hours.
And that's maximum.
Assuming there was a delay.
In the bar providing youdocumentation for you to be able
to provide a pre approval,right?
I mean, you gather docs, they,they, they complete an
application, which could takethem 10 minutes.
They may not know what they makein income.
That's okay.
We need just our basicinformation, employer, all that
(36:52):
kind of stuff.
You gather docs, you look at theincome, right?
You put the income in theapplication.
You, the credit report hasalready been pulled for you.
You have assets, right?
Hopefully they gave you twomonths bank statements or else
they may have just put on theapplication what it was, but you
got assets, you got income.
You got credit run.
Do you five seconds later, 10seconds later, 50 seconds later,
(37:15):
you got either approve eligibleor not.
I mean, how hard is that?
That doesn't take that muchlonger and it builds credibility
and builds trust.
A simple pre approval letter.
prequalification letter doesjust the opposite.
It can erode trust, erodecredibility.
If you're a MLO and you're notthe realtor and you gave this
(37:39):
preapproval letter, and now therealtor says, Hey man.
I wrote offers.
I did all this work and now thisthis buyer slash your borrower.
My buyer is blowing up my phonebecause they're about to lose
their deposit and I'm not goingto go down alone for this.
So, I mean, this could go intoso many levels.
Um, so, and again, your nextcomment says, listing agents
(38:02):
will not even show you the housewithout a pre approval.
Yes, without a pre approval.
So, the borrower gets preapproved up front in the
process.
Why would you want to showproperties?
To a buyer that you haven't preapproved yet.
That was one of the first bulletpoints that we touched.
So I'm, I'm glad you brought upall of these points and I hope
(38:23):
that you ingest them well.
And, it should help you doubleyour income and your
productivity as a realtor.
If you're going to get all thoseloans, right?
All right.
I don't see any more actualquestions, so I think we'll go
ahead and wrap it up.
(38:44):
But again, great.
Back to the basics traininghere.
Remember, we do this everyTuesday, Wednesday, and Thursday
evening at 7 p.
m.
Eastern, where we go through newloan topics.
We'll be back tomorrow with anew topic.
We appreciate everybody tuningin, and we'll see you tomorrow,
7 p.
m.
Eastern, for the next episode ofthe Loan Officer Training Series
with the Mortgage Calculator.
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