A complete pre-approval

​Every several weeks I hear from a new client that had been pre-approved at their bank/credit union, but when they had an accepted offer, they were declined or told they needed to increase their down payment. This is usually because the pre-approval was based on discussions and not on documents (I may need to copyright that).
 
If a lender doesn’t underwrite the application up front, they wouldn’t know if the client is on probation, how they filed their taxes, or if they have outstanding collections. There are many types of documents that we review when underwriting a file: paystubs, letters of employment, T4’s, T1’s, NOA’s, 90 day history of down payment funds, and their credit application. We look at pay stubs, and make sure the year to date earnings are on track to hit what the job letter says. We review probationary periods, call the job letter to see what HR will say, and address any past collections or late payments.

How taxes are filed for commissioned employees, employees who work overtime, and the self-employed can have a significant impact on the pre-approval amount, so I ask the questions up front and review their tax documents before issuing a pre-approval. For example, a client may tell you that they make a $100,000 per year, but aren't aware that all of the write-offs and business expenses that reduce their taxable income to $55,000, means that their qualifying income for their mortgage application is now $55,000. The amount of house that you can buy with an income of $55,000 is drastically less than an income of $100,000 (e.g., 5% down and minimal debts lets say $240,000 compared to $420,000).
 
By reviewing everything up front ( make sure that we have taken out any of the guessing, and can confidently tell my client that they are pre-approved. I get all documents up front. I pull credit up front, I ask the “tough questions” up front. If they are paying spousal support/child support payments, I get those documents up front. I review the tax documents up front and coach clients on how to handle their current debts in order to maximize their purchasing potential. It may be more work up front,  but there will be no surprises, and the clients will have a concrete pre-approval. This will reduces the stress during the financing window because we will have the majority of the documents all ready to go.