Potential Issues When Prequalifying a Borrower
Has the borrower been late on a mortgage in the last 12 months?
If so, this is usually a deal killer. Ask for help.
Is the borrower’s credit score lower than 640?
If so, why - are they currently delinquent on accounts?
Are any of the borrower’s accounts currently in dispute?
If so, are they willing to get the dispute(s) removed (this will affect the credit score)?
Has the borrower had a bankruptcy or foreclosure?
If so, when? Does it fit the guideline timeframes?
Does the borrower have unpaid collection(s)?
If so, can it be excluded or must it be paid? Ask for help.
Is there a non-occupying borrower and/or unmarried borrower on the loan?
If so, is the second person listed on separate/secondary tab and not the primary screen?
Has the borrower opened any new accounts that are not reflected on the current report?
If so, does the have borrower have documentation, & is it reflected on the excluded debt worksheet?
Is the borrower’s new housing payment significantly higher than what is currently being paid (payment shock)?
If yes, what are the compensating factors?
Does the borrower receive alimony/child support/adoption stipend?
If so, can we prove it has been paid for last 12 months & can we prove it will continue for 3 years?
Does the borrower pay alimony/child support?
If so, is it listed on credit report and/or correct sections on the application?
Does the borrower have deferred student loans?
If so, what are the projected payments & have they been counted in the liability section of application?
Are we excluding ANY debts?
If so, why? Have they been paid by another person for the past 12 months, & can this be documented?
Is the borrower an authorized user on a “bad” account?
If so, are we having the borrower removed from the account by the primary owner & obtaining a credit supplement?
Is the property going to be a primary residence?
If not, research the parameters for a secondary residence/investment property.
Does this loan fit the program-specific loan amount limits?
If not, what other programs are options?
Has the person been in the same line of work for 2 years?
If not, is there a commonality between jobs and/or schooling?
Has the borrower been a full-time student in the last 2 years?
If so, is it being included as employment on the application? Are transcripts available?
Does the borrower have a second job/overtime/commission income?
If so, has it been consistent for 2 full years AND is not declining?
Does the borrower have 2106 expenses on most recent tax returns (unreimbursed business expenses)?
If so, have the deductions been subtracted from borrower’s income?
Is the borrower self-employed?
If so, did we use the Income Analysis sheet & has a second person reviewed the calculations?
Is the borrower a US citizen?
If not, does the borrower have a permanent residence card (green card)?
Are 401K funds being used as down payment?
Do we have a copy of terms of withdrawal and proof of deposit?
Are 401K funds being used as reserves?
If so, are we counting only 60% of the vested value & do we have terms of withdrawal?
Are all gift funds being used for down payment?
If so, can they be sourced & is a gift letter being obtained?
Does borrower use a shared bank account?
If so, a full access to funds letter from the party not on the loan is required.
Is there real estate owned/retained that does not have a mortgage or escrow account?
If so, taxes & insurance on properties with no mortgage or no escrows must be represented on 1003.
Is current house (with escrowed mortgage) being retained?
If so, are we counting the mortgage payment value as negative rent?
Is the borrower obtaining subordinate financing (ex: Conventional 80/15/5)?
If so, do we have documentation from the other lender?
Does borrower have 2 months reserves?
If not, why, and/or is credit score high enough to compensate for lack of reserve funds?
Has borrower been living rent free?
If so, has borrower shown ability to save?
Will the borrower be putting down earnest money?
If so, advise they use personal check (not cashier’s check, money order, or funds from someone else).
Is the borrower asking for anything extra in the contract offer (ex: fence to be put up, carpet allowance, or personal property)?
If so, ask for help.
Are we adding or removing anyone from the original contract offer?
If so, we must have a fully executed addendum to remove or add someone to the contract.
Is the borrower requesting seller paids on contract offer?
If so, is the amount they want in line with program specific guidelines? Has it been included on the 1003?
Is the seller listed on contract an entity (rather than a person)?
If so, have you verified it is not a FHA flip situation?