If you’re thinking about buying a home, prequalification is an vital step in the process. We interviewed Sr. Mortgage Advisor Tom Pessemier (MLO 117989/NMLS 117989) for insights on how to get prequalified.
In the video, Tom talks about
- Documentation and information you need for a prequalification
- When a first time home buyer should get prequalified
- Prequalification for different types of loans like FHA, USDA, and VA
- Getting prequalified for certain types of properties like single family residences, condos, and multi-unit homes
Get your questions about prequalification answered here.
Tim Lucas: Hi My name is Tim Lucas from mymortgageinsider.com. Today I’m back with Tom Pessemier, a senior mortgage advisor with Mortgages Advisory Group in Bellevue. Last time we’ve talked about first time home buyers and the financial aspects of what first time home buyers can expect.
This time we’re going to talk about the prequalification process. So, my first question would be – when a first time home buyer should get prequalified – is it before they start looking for a house, after they’ve done some online searches or is it after going out with a real estate agent and actually found the real home they want?
Tom Pessemier: That’s a great question Tim. I really would kind of go back to the real estate agent scene work and most of the real professional real estate agents are going to tell their clients really before we go out and start kicking tires, let’s really have a good look at your financial information.”
As a licensed loaner originator, the clients’ privacy is real important too – so I’ve had clients in the past that have gone, “Is my realtor going to find out that I’ve just got these horrible marks on my credit?” And the answer really should be, “No.” The real important information gets communicated back. But, it’s always good to have your information looked at by a professional loan officer before you go out and start working around.
Tim Lucas: Yeah, because you don’t want to get your heart set out on something that being to qualify for it.
Tom Pessemier: Exactly.
Tim Lucas: What documentation or information should the first time home buyer have on-hand when they do that initial call to the loan officer to get prequalified?
Tom Pessemier: Great question Tim. Basically, most of the time when I do an initial consultation where the client it’s over the phone – some people like to meet in person but it really doesn’t have to be a big formal process.
In most cases, if the client’s structure is very straight forward, in terms of a couple of W2 jobs – we’ll need living history over the past couple of years of addresses that they’ve lived at, employment information over the past couple of years. One thing that some of the guys that I interviewed will forget sometimes like their wife’s birthday which is a big no-no right?
Tim Lucas: Yeah, it’s bad news.
Tom Pessemier: You don’t want to do that. So, the wife’s birthday is their security number or the husband is the one we’re personally we’re working with.
It’s just income and asset information – and it’s always helpful to know also if somebody’s income is structured in less than just a straight forward hourly or salary type situation. What are their bonuses or over time or commission type income is broken out to. So, having a year to date pay stub is really helpful and knowing when at least roughly month a year when they started working at their current job because sometimes different loan problems will disallow different pieces of that income.
If they have less than for example two years on the job or two years of consistent income of anything other than that bonus income. Not always been in some cases that can be an issue. So, you always want to know that stuff upfront.
Tim Lucas: Okay, so once a person – let’s say somebody calls you and they do get prequalified, you choose a loan program for them – does that prequalification qualify them for any loan type? Is there one specific loan type that you’re prequalifying them for?
Tom Pessemier: Well, it really depends on the borrower. I was like to kind of get that 500-foot level up front. It’s one of the very first questions I ask people is; “Do you have any idea for a loan program that you’d like to apply for?”
And if not, then I’ll ask them some more in-depth questions such as: “Do you have any military experience? What area are you looking to buy in because that maybe a situation they might be a great candidate for a USDA Loan which is a zero down program. The rates are subsidized by the government, so they’re nice and low for either one of those programs.
What I will do is once I have somebody’s criteria down – I’ve got their application in my system, I’ll go through and analyze for what’s going to be the best program for what they’re looking to accomplish. I usually try to streamline that for them rather than overwhelming them with too many details and too many options – because often it’s a case of, “This is just an absolute no-brainer. This is the program. It’s going to be the best thing for them.”
Tim Lucas: Right, and that’s for your knowledge as a loan officer comes in to play – where you just say, “This is either the one loan program that you qualify for, this is probably the best one.” That’s where they rely on you to do that for them.
Tom Pessemier: Right.
Tim Lucas: So, once somebody is qualified, they say to you, “I want to buy a single family residence and then you prequalify them for that – is that mean that they’re also prequalify for sale like a two-unit home or a condo or something other than a single family residence, just a one unit home?
Tom Pessemier: That’s a really good question. I actually get that one quite often. In the prequalification or the preapproval – if we go to that step, which is running credit and running them through an automated underwriting engine – or say when we go to that step is really going to be based along their Debt-to-Income Ratio in most cases.
The Debt Income Ratio can be impacted by a number of things. One if you’re buying in a condominium or a town home scenario, you’re going to have a home owner’s association dues. Even though that’s going to offset a number of your monthly expenses that you’ll have as a single family homeowner such as: water, cable, power stuff like that – those don’t go in effect for your calculation in your Debt Income Ratio. But the homeowner’s association dues do.
So, it’s absolutely a big factor on calculating those out. There are some programs if you are buying a multi unit situation where you can buy four units as a single fare residential loan. Anything over that is considered commercial. There are some programs that will allow you to use some rental income if you’re going to, say, occupy one of the units and rent out the other three – or if you’re just going to buy it as an investment property, there are different ways of the incomes calculated.
So, it’s again really important to have a conversation with the knowledge of a loan officer will help you to drill down to what it is that’s going to be used and what can’t be used to help you qualify for that out.”
Tim Lucas: Great, so any final words of wisdom for those first time home buyers out there looking to get prequalified?
Tom Pessemier: Well, again Tim you know the last time, I think just really having a good open honest conversation. Like going to the doctor, I just want to make sure you get everything out on the table. Every now and then I’ll be interviewing somebody. By the way Tom is this something that really something that we have the conversation about – often is just they get it off their minds. They feel okay, that they want to open things up to make sure that everything’s great.
It’s always good to make sure that you get those questions that are just burning in your mind out of the way as early in the process as possible because often, those things that you worried about really aren’t going to be an issue at the end of the day. So, just having that conversation as early as possible I think is really kind of the biggest thing that I could encourage people to do.
Tim Lucas: Right, and just the full disclosure of getting the home loan because a lot of times, there might be something didn’t mention or maybe didn’t know that was very important that comes out at the end like, “ I didn’t know about that.” Do you know what I mean? So, you do want to avoid those issues.
Well, thanks a lot Tom for being with us today. Check out more about Tom at pessemierfinancial.com. I’ll put his website link down the YouTube description here. Also, check out mymortgageinsider.com for the latest real estate and mortgage news.