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by Mark Greene, Contributor
FORBES – Personal Finance
You should and you can know exactly where you stand with your mortgage getting chances as soon as you apply.
Here’s how:
If you serve up your complete, accurate and acceptable borrower profile to your lender, you will get credit approval (subject to verification) on day one. That’s it. Algorithms approve loans so if you tell the truth and submit the corroborating paperwork, homeownership is within your grasp.
Your preliminary inquiry about obtaining your mortgage financing will lead to the creation of your virtual mortgage application. The information you provide for your virtual mortgage application is then fortified with your electronic submission of supporting income and asset docs. Your mortgage destiny (albeit subject to integrity review of the information you provide and an appraisal) will then be instantaneously decisioned using mortgage underwriting software.
That’s it, that’s is how it works, it is the magic of the world wide interweb and some pretty fancy mortgage approval software.
There are only two parts to every mortgage application; the first part is the credit package, the second part is the collateral. The credit package is you, your credit, employment, income, assets, your mortgage-ability so to speak. The collateral is of course, the house you are buying (or refinancing).
Mortgage loan approval, like everything else today is electronic. If you provide accurate, verifiable information about what you do for a living, how much money you make, how you get paid, how much you have for a down payment and closing costs and where that money is, and of course your credit wherewithal, then a decision on your mortgage getting prowess is a keystroke.
The vast majority of mortgage applications are decisioned with an algorithm, not a human being. Underwriting engines process, digest and decision virtual loan files in moments using the employment, income, asset and credit information disclosed by you; the borrower. If the information provided is accurate and can be supported with all of the required documentation, then the rest of the approval process is just a paper chase.
Fannie Mae calls its underwriting engine; Desktop Underwriter (DU) and the Freddie Mac version is called Loan Prospector (LP). All loans traded in these secondary markets are approved using one of these underwriting engines. Lenders that make loans that are not sold to Fannie or Freddie generally use the same decisioning mechanics, tools and guidelines.
The collateral is the house you are buying and an appraised will be done to determine market value, general condition and any potential major defects. The house you are buying is the lender’s protection in the event of catastrophic events that could befall you the borrower and render you unable to pay back your mortgage loan. They want to know if the house is worth what you are paying for it (or lending against) and if it is salable should catastrophic financial misfortune visit you.
So that day-one-algorithm-approved mortgage will still need lots of pieces of paper (which will be reviewed by an actual human being called an underwriter), to confirm the integrity of the information you provide. And in most cases the appraisal still needs to be done because the value and the condition of the house you are buying or refinancing also needs to be confirmed.
But if you tell all to your mortgage lender and provide income, asset and credit documents upfront for review prior to formal application, you eliminate the uncertainty drama. Your approval will hold up to verification scrutiny.
Unless for some reason you decide not to disclose something in the hopes that the lender won’t ever find out. This is a perilous strategy because your lender will find out whatever it is you hope they will miss. Lenders deploy an arsenal of find-out-everything tools that can detect even the slightest financial or credit misdeed.
If you did it, own it, disclose it and tell all. Don’t leave anything out, open the closet and let all your borrower profile skeletons be known and let the lender sort everything out for you, that’s what they do. Or at least that’s what they should do.
There is one big BUT in all of this. Your borrower profile may have a show stopping issue that will thwart your mortgage approval. Maybe you have a significant past credit event like bankruptcy or a short sale or dare I say a foreclosure! The way you get paid, how long you are on your job or where the money for the down payment is coming from may be outside approvable underwriting guidelines. Algorithms and fancy software can also decline mortgage loans.
Fear not. If your mortgage loan decisioning result on day one is not an instantaneous approval, your mortgage rep may still be able to help you navigate your way to success. It may involve cleaning up existing barriers to approval and it may take a little longer, but it can be done. And even if you can’t get mortgage approval, if your result is a decline, you should and you can know exactly where you stand with your mortgage getting chances on the very first day you apply.
