Mortgage loan prequalification guide

September 08, 2016
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As a real estate broker, it is your goal to pair each of your clients with one of your property listings. This goes beyond ensuring that your prospects fall in love with a home. You need to be able to find them a residence that suits their tastes, needs, and financial reality.

To help you with this task, we’re sharing a Prequalification Sheet that allows you to calculate the parameters of eligibility. It includes a section with two parameters. The first one is destined to dwelling-related expenses. The second one should include the sum of property expenses and the client’s debts.

Prequalification elements

Following is a list of the most important elements to be considered during a mortgage loan prequalification process. Go over it with each one of your prospects. That way, you will be able to determine, early in the process, if they comply with the parameters of eligibility or if they should look for another property that is better suited to their financial reality.

Sources of income:

Interview your client regarding all of the income he receives, since it impacts the approval and costs of a mortgage loan. Here is a summary of possible sources of income:

Employment

Income, its source and the frequency with which payments are received are three important aspects to determine if a client will be able to pay back the mortgage loan. Some prospects are self-employed or own their own business; others are salaried workers. In the case of salaried workers, it is easier to validate income because it is generally documented in a W-2 form and in their tax return documents.

On the other hand, those who are self-employed, aside from tax return documents and their corresponding attachments, must show evidence of their percentage of participation in the business.

Remember to also ask about other payments such as Christmas and performance bonuses and any other additional compensation.   Each bonus should be considered as a monthly payment. For example, if during the past two years the applicant received a Christmas bonus of $1,000, divide that amount by 12 and add it to the monthly income.

Rentals

Find out if the client declared rental income in his tax return. For prequalification purposes, only declared income can be considered. Remember, there must be continuity in this income, as well as evidence of rent payments made.

Pensions

  • Child support: The party that has custody of a minor may voluntarily use child support income to qualify for a mortgage loan. The client must show a certification from the Child Support Administration (ASUME, for its Spanish acronym).
  • Retirement: Applicants that are not employed but have a retirement income may qualify for a mortgage loan. The continuity of this income will be documented and the applicable retention or net payment will be calculated.
  • Disability and others: The bank will evaluate the benefit to determine if it may be considered as income.

Securities

Dividends from bonds or interest accrued from investments may be included as income. It is important to assert the continuity and stability of said income.

Debts and obligations

The following debts may impact a client’s qualification:

  • Credit cards and loans (auto, personal and student)
  • Loans with the Commonwealth of Puerto Rico’s Retirement System Administration (AEELA, for its Spanish acronym)
  • Child support

 Calculate the possible monthly payment

Below, we list the elements that will help you determine an approximate monthly payment:

  • Principal and interest – Access the Popular mortgage loan calculator to determine an approximate value.
  • Mortgage insurance – Provide your client with orientation regarding the options that may apply, according to the type of loan.
  • Disaster insurance – Property insurance policies are included in the mortgage loan procedures. However, there are other types of insurance, such as flood, that should be acquired separately. A property located in a flood zone should be insured with a policy for these purposes.

An important aspect for your client to know is the homeowners association monthly fee. Although it is paid separately from the mortgage, in could affect payment capacity. Inform your client regarding the payment amount early on to avoid any setbacks.

For additional information about parameters of eligibility, consult with one of our mortgage experts at Conexión Popular:

Metro: 787-707-1720

North: 787-288-8505

West: 787-806-1170

South: 787-812-7730

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