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Mortgage qualification is the process a loan officer takes to determine whether a borrower will be able to obtain a requested loan quantum based on information provided by borrower during discussion.
Assessment and results of mortgage qualification is based on information declared by borrowers. Upon the actual application when required documentation is submitted, the information provided by the borrower would be verified.
A banker would use qualification rates to serve as basis to generate the potential approved loan quantum. This rate might not be the same as the actual interest rate which would be stated in the actual mortgage loan contract.
Qualification ratios are also used during this phase which can be different from the actual underwriting process when a proper loan application with required documentation submitted.
Do not make the grave mistake of assuming a loan qualification is the same as a loan approval or approval in principle.
There are various reasons why housing loans can be qualified but not approved later:
- Home buyer or co-borrower has bad credit
- Buyer unable to provide proper documentation to verify income claims
- Borrower carrying more debt than declared
- Employment status has changed between the date of qualification to the date of application
This is why a borrower should be as frank and candid as possible should they choose to seek qualification rather than approval before buying a house.
Sometimes, information that are critical to lenders might not be deemed as important to borrowers.
They then leave out or misrepresent material information during qualification.
When the application is submitted and a credit analyst finds that information don’t match up from due diligence checks, the loan can be declined or alternative documents can be requested.
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