From the Desk of Don Draughn, Mortgage Professional

Website:  http://ahfmortgage.elliemae.net/ddraughn

In Part One of this series, we looked at how important it is to Find Out What is on Your Credit Report.  Once you know what is there, you can either move to the next step - obtaining mortgage pre-approval or working on any credit issues that may keep you from obtaining pre-approval.  This is very important to your success in purchasing your new home in today's "credit crunch" climate.

In this segment, we are going to look at the next step you should take once you know what is on your credit report and you have corrected any issues of derogatory items.  That next step is:

Obtain Mortgage Pre-Approval

Mortgage Pre-Approval is a term that is sometimes confused with Pre-Qualification.  The two terms are not the same.  In fact they are two completely different processes.  Pre-Qualification is simply taking a look at your total income and your total current credit obligations to determine how much house you can financially afford to buy.  This is something that can be done by a loan officer, a real estate agent or you can even do it yourself.  However, Pre-Qualification does not carry very much weight with home sellers or with most real estate agents.  What they really want to see is that you have been Pre-Approved!

Mortgage Pre-Approvalis a process that you have to go through that tells real estate agents and home sellers that a lending institution has not only looked at your total income and your total current credit obligations but has also looked at your credit report from all three major reporting agencies - TransUnion, Experian and Equifax.  The lender knows your credit history and has in theory agreed to loan you the funds needed to purchase your new home.  This is something that only a Loan Officer at your lender of choice can do for you.  Your loan officer needs to gather all of the information so he/she can look at your complete financial picture and put a pencil to paper to determine the absolute best mortgage program for your situation.  When I speak with a new client who wishes to be Pre-Approved, I go through several steps before I issue a Pre-Approval letter.  Lets look at those steps.

1.  Complete a FULL Uniform Residential Loan Application

The Uniform Residential Loan Application (also known as Form 1003) is a federally mandated application form that all lenders use.  It contains information ranging from your name, address, phone number, social security number and date of birth to a full income and asset disclosure.  If this form is not complete, the loan officer your are speaking with cannot give you a valid Pre-Approval.  This is particularly important in the area of asset disclosure because many loan programs will give you approval even if your debt-to-income ratios (DTI) is higher than allowed by guidelines if your liquid assets are substantial enough.

2.  Review Hard Copies of Recent Financial Information for All Borrowers

This information will include pay-stubs issued within the last 30 days, W-2 forms for at least the previous year and perhaps even the last two years and the two months of statements from all of your liquid asset accounts.  I must admit that I have not always done this but I have learned from the past that it needs to be done.  If you are self employed you will need to provide the last two years federal tax returns and in most cases a year-to-date Profit and Loss Statement for the current year.  Doing all of this enables your loan officer to document all aspects of your application so he/she knows your income can be verified.

3.  Obtain a Tri-Merge Credit Report for All Borrowers

Without a Tri-Merge Credit Report, your loan officer cannot give you a valid Pre-Approval.  This report provides all of the necessary credit information for the lender to make a decision on your mortgage application.  If your loan officer gives you a "Pre-Approval" without looking at your credit report, you need to find another loan officer at a new lender.  He/she is not giving you the type of service you need and deserve.  If you have taken the steps defined in Part One of this series you should have no worries regarding this step in the process.  For more information on credit see my blog post entitled "Increase Your Credit Score".

Once I or any other loan officer have taken you through these steps it will be determined if you can in fact be Pre-Approved and a Pre-Approval letter will be issued if it is warranted.  This Pre-Approval letter will tell you what mortgage program you have been pre-approved for, the maximum purchase price of that home based on the terms of your mortgage loan pre-approval, any contingencies the lender may have placed on your pre-approval and the maximum annual real estate tax amount is based on the terms of your pre-approval.  Once you have found a home you would like to purchase, this letter will tell all parties involved that you can in fact purchase the home and the sellers will be more apt to accept your offer over any others that do not have pre-approval.

The next segment in this series will be entitled "Select A Buyer's Agent".  I hope you will look for it and I hope it will help you in your quest to realize the American Dream of Home Ownership.

Don Draughn is a Professional Mortgage Consultant and a Sale Manager at Affordable Home Funding, Inc. located at 900 Perinton Hills Office Park, Suite 970, Fairport, NY, 14450.  His phone number is (585) 425-5811 or Toll Free (877) 223-0480 ext. 111.

REGISTERED MORTGAGE BROKER - N.Y.S. BANKING DEPARTMENT

Loans arranged with 3rd party providers.  Borrowers must qualify.