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Chrisman's Corner: Borrowers Should Not Forget the Basics in Lending

It goes without saying that the reason for applying for a home loan is to have it approved by JMAC. But for some borrowers that is the most difficult step. Many JMAC brokers agree that the lack of preparation through the pre-qualification process is the primary cause of most delays, or problems, in the loan approval process. When being pre-qualified or pre-approved, there are some common areas of questioning that borrowers should be prepared for, regardless of whether or not it is a QM or a non-QM loan: income, assets, and credit.

The first area of questions involves a borrower’s income. Is there overtime pay, commissions, self-employment income, and if so, for how many years? The basic rule on counting overtime and other income for qualifying is that it must be of a constant and continuing nature and applicant must have received for the past two years.

The second area is regarding assets: does the borrower have enough money for a down payment, closing costs, and reserves? Asset documentation, actually deposit of funds documentation is the number one stumbling block to final loan approval and closing. Generally, JMAC’s brokers tell borrowers that any deposit that is not part of employment income will need to be documented. Gift funds, sale of a car, lottery winnings, whatever – any deposit in two months of a borrower’s bank statements prior to application will need explanation and documentation.

The third area is credit. Any issues with credit are usually discovered early in the loan process when the credit report is run, at which point, if there are problems, the lender may help the borrower resolve or rehabilitate their credit.

Every loan is different because every borrower is different and brings their own set of issues to the process. The three main components of mortgage approval for an applicant are income, credit and cash, one of the three is usually the limiting aspect of how much a borrower can qualify to purchase. Our brokers know that understanding what the potential problems and weaknesses are in qualifying are key to a successful and smooth loan process.