Step 1. Review Credit Report, Pre-qualify.

Doing it right the first time is the Short Cut!

Step one is reviewing a couple of the basics in the mortgage process, credit, income and expenses.  It is often referred to as Pre-qualifying, or being Pre-qualified.

Pre-qualified is not the same thing as being Pre-approved.  Pre-qualified is mostly a verbal process, Pre-approved requires support documents and a preliminary underwriting process.  Pre-qualified is Step 1, Pre-approved is Step 3.

 

Important!

There are five parts to the Pre-qual process:

  1. Credit Report
  2. Income
  3. Assets
  4. Selecting the Type of Mortgage
  5. Calculations

Part 1 of Step 1 is the credit report.  You need access to a tri-merged credit report that all mortgage lenders are required to use.  The free reports or the online credit monitoring services are NOT good enough; you need an actual credit report from a lender.

Tri-merged mortgage credit reports contain a lot more information than a simple in-file credit report. 

“I just bought a car and they said my credit report was great!”  That was an in-file credit report, probably from only one credit repository.  The tri-merged version goes a lot deeper, and pulls information from all three repositories.  You need to see the same things the lender is going to review.

Once the loan officer has a copy of your credit report it can be reviewed to make sure it exceeds the minimum requirements.  Most Home Buyers are under the impression that only the credit scores are important.  WRONG! 

Every section of the credit report must be reviewed must be reviewed.  I use a checklist, you probably have already guessed. 

If there are problems on the credit report the must be addressed before moving forward.  It is important to remember two things if your credit report needs work:

  1. Use only legal credit repair methods
  2. Aim high, not at the minimum thresholds

Credit Repair is almost always a form of mortgage fraud but it shouldn’t be.  There are many legal things you can do to help hit the mortgage credit requirements.   

Part 2 in the Pre-qual process is income.  The loan officer must calculate your monthly income.

Part 3 is assets.  The purpose of this section is to outline how or where the money will come from required to close the deal.  The Pre-qual process is a planning stage, assumptions can be made regarding assets. For example, having the seller pay the closing costs is a frequent assumption for a first-time home buyer.  Part 3 checks the cash required to close the deal against what is available. 

Part 4 is selecting the type of mortgage desired from the ones available.  The first three parts of this section narrow down the type of mortgages that is available.  For example, the amount of money available for down payment will impact the type of mortgage that can be used.  Some mortgages require less down payment than others.

Part 5 ties it all together.  Using the information from the first 4 sections the loan officer makes a few estimates to see how much of a loan the borrower can afford.  The objective is to determine a maximum sale price, loan amount and monthly payment based on the supplied information.  

This final stage in the Pre-qual process is where working with an experienced loan officer is important.  Well, having an experienced loan officer throughout the mortgage process is important, but especially in the very beginning.  In order for the LO to be able to filter down to the right numbers a deep understanding of the underwriting guidelines is required.

Want to start the Pre-qualification process? The best way to get started is to fill in the basic information online, we have a secure server in-house so your information is secure from day one.  Take a few minutes, fill in all of the questions, the system notifies me when you send it, then we will review the credit report together.  Use my online application for Home Buyers in Kentucky.

The application link is under my picture.

Once you are Pre-qualifed it is time to move on to Step 2.  

Credit Reports

 Understanding Credit Reports This section covers everything you need to know about your credit report and the role it plays in the mortgage application process.  I have personally reviewed more than ten thousand credit reports over the years and have learned a lot about these bad boys. The section is divided in to many pages …

View page »