Pre-Approvals, Bridge Loans, Jumbo loans
Hello. I wanted to do a video on a couple of important topics.
What constitutes valid pre-approvals?
One are pre-approvals. What constitutes a valid pre-approval? Quite simply, in the mortgage industry a pre-approval is only supposed to be issued if the loan has been underwritten by a real human underwriter. Not simply been reviewed by the loan officer, not simply run through the automated underwriting software. And this is important to know because a lot of pre-approvals that are floating around out there haven’t been through underwriting, real underwriting.
Why? Because a lot of times the clients will come to us, “Saturday morning I found a house, I wanna get pre-approved by noon.” Okay, well, you’re not going to get an underwriter at noon on a Saturday and the process really honestly takes a couple weeks. It’s got to go through loan processing. They sign loan disclosures, they supply documents, then a loan processor reviews it, asks for more documents most likely. Then it goes to the underwriter. And each phase is a queue. These aren’t instantaneous events. Then the underwriter underwrites it, probably asks for some things. You can see how it takes a couple weeks for a real pre-approval.
In our industry, the landscape is littered with fake pre-approvals. To me, it’s a really horrible problem. And I just think it’s important for realtors to know. Ask the question to lenders, “Has this been through real underwriting, a human underwriter?” Not automated underwriting, not your own opinion. I’m sure your opinion is a good one loan officer, has this really been underwritten. That’s important.
Bridge loans are available, but hard to qualify for
Another thing I wanted to touch on was bridge loans. Bridge loans are frequently thrown out to me by clients like, “Oh, I was talking to a friend or I was talking to my realtor and they said, “Just get a bridge loan.” It’s not that easy. You have a client that has a house to sell, which is a frequent occurrence. But wants to buy before selling or needs to buy before selling because the seller may not take a contingent offer.
Well, there’s a lot of debt to qualify for and bridge loans frequently don’t work out. So you’ve got the current mortgage the borrower has to carry in their debt ratios. And the bridge loan payment, which is like an equity loan payment. And then the new mortgage. So there’s three mortgages plus any other debt that they might have. We do bridge loans and I can tell you out of every 100 bridge loans I’m asked about, I might get 5 or 10 approved. So it’s infrequent that bridge loans really work. Certainly have your clients ask a lender, ask me, talk about it. But it’s just not as frequent that they work as you might think.
Jumbo loans are really complicated
Last, jumbo loans are really complicated and require some extra analysis. So they would require extra questions from you of your lender. There’s things that they do on jumbo loans that aren’t done on conforming loans. Did the lender check to see if there’s cash reserves? How are those cash reserves structured? Are they coming from a 401 [k] account, which sometimes is allowed and sometimes is not. Or do they have the cash reserves in liquid accounts, which sometimes is mandatory?
Do they have minimum trade line requirements? Some lenders require a minimum amount of active credit, like three or four pieces of current credit. I have people come to me for a jumbo loan, they’re like, “Yeah, I have one credit card I use and that’s it.” And that’s great and they think it’s great because they’ve got almost no debt. But Jumbo lenders really want to see that you can manage at least three or four pieces of credit. I do have some lender sources that don’t have minimum trade line requirements, but many do. That’s a question.
Residual income requirements. I could go on and on. Just know that on jumbo loans there are more questions to ask of a lender. And make sure that they’ve really done a thorough analysis by getting a real pre-approval from an underwriter. Or at least make sure that somebody’s gone through and asked all the extra questions that they ask on a jumbo loan that they don’t usually on a conforming loan.
Conclusion – Pre-Approvals, Bridge Loans, Jumbo loans
Feel free to check in with me with any questions on any clients or any questions at all. As we all know, the mortgage landscape has gotten really complicated and I’m happy to help. Thanks for watching.