You have recently completed your loan application and your loan representative tells you it is being submitted for underwriting. You don't hear anything for two days. "Did I leave anything out?" is a question that comes to mind. "Should I have declared that I co-signed for a loan three years ago, although I know it does not show on the credit report?" is another that comes to the fore. After the baby was born two years ago, you took six months off from work . . . you did not explain the gap in employment and now you wonder . . . "is it a material omission and will it affect my loan status?" What goes through our minds is fascinating when a determination about us appears to be totally out of our control. Once we submit the application for a real estate loan the ball is in someone else's court; someone we have never met and probably will never meet.
This someone is the underwriter for your lender, an underwriter for the investor that will buy your loan or an underwriter for the private insurance company that will insure that part of the 20% downpayment you don't have. If you have had these thoughts while going through the loan process, don't worry . . . you are not alone.
Recently I have completed loans for a vice president of a major California bank, a sales manager for a large wholesale real estate lender and an escrow officer. Each of these people is in the real estate loan business. They have knowledge of this business. They average over 15 years of real estate and/or real estate lending experience and they, too, were in the same position as most borrowers. A sense of relief was evident when I called to tell them their loans were approved. The sales manager and the vice president were purchasing homes. The escrow officer was refinancing. No matter what the transaction (purchase, refinance or equity loan) you are party to, that same sense of relief will be there when you know it is completed.
Last week's column reviewed some mechanics that you can use to prequalify yourself for your home loan. The prequalification process is important, but the numbers you put on a piece of paper do not explain who you are. Every loan I have submitted, even those that would be considered the easiest and cleanest, has a "cover letter" with the loan file. A cover letter tells the underwriter what the borrower(s) is about. It's the who, what, when and why of the loan file. It is your history and your goals that the underwriter wants to see. Your loan application, for the majority of loans, will show your credit history, your employment history, your residences and the loan for which you are applying. That is the skeleton of your loan file and should be strong and complete. There is a human touch to this business.
As mentioned, the person underwriting the loan application does not know you. He or she will look at the application and most lenders train their underwriters to look for the "red flags." What you, as a borrower, want to do is point out the potential "red flags" and bring them to light. Very little can be hidden in a loan file. The key in any application is disclosure . . . disclosure . . . disclosure. The application is a historical report and should be complete. Be certain your loan representative knows what has happened in the past and why it happened. Be certain that the loan representative paints a picture of you that will allow the underwriter to look at your file as a composite, with hopefully, the good outweighing the bad.
Now what can you do to take an active part in this process? You can paint your own picture. No matter what someone else writes about you, it does not have the strength that a self portrait has. Last week I was in escrow with a young couple who just refinanced their home for a savings of $412.00 per month. Naturally, they were very pleased. However, the husband had five job changes over the past two years. Two were for only three months. This is not what most lenders would consider stable employment. Yet, there were reasons. I know the reasons, but could I put the same emotion behind those reasons, so that someone reading my "cover letter" would understand the emotions of the borrower? Why take the chance? Why not ask the borrower to write the letter? Why not have the person explain the situation in his own words? That is the human aspect of this business. This develops the personal contact, a bridge of understanding, between two people who will never meet. Not only does this written explanation apply to employment, it applies to credit and any other aspect of the file that should be explained.
It will not necessarily change the grade of the loan file, particularly when it comes to a rate based on credit, but it can make a difference whether the loan is approved or declined. The loan application is a road map of a person's life. Be certain that the reasons for detours are explained. If you have had employment gaps, give a full explanation for those gaps. If you have derogatory credit, explain the circumstances. It probably will not change the interest rate you will pay, but it puts the file in a better light as the underwriter has those explanations while reviewing the file. It is easier to complete the puzzle of a loan with all the pieces. The more information in the file about you, particularly if your application is a questionable one, the more understanding the person reviewing it will be. The loan approval process is a judgment call. Include in your file any material that will say to the underwriter "I deserve this loan, I will repay this loan as agreed!"
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