My expert today is Chris Devin from Cross Country Mortgage, Inc. He has 17 years of experience in the mortgage lending industry, and hosts a talk show called Real Estate Talks Boston, which keeps people informed of the ever-changing market place. Chris lives on the South Shore with his family, so he is very savvy when it comes to all things local. We sat down one morning at a local coffee shop and I interviewed him about Pre-qualifications, and Pre-approvals. He was very well spoken and informative, so I am setting up this blog just as a written interview, keeping answers in Chris’s own words. This is how that went…
Lindsay: So Chris, let’s start with you telling me a little bit about yourself.
Chris: I have been in mortgage lending for just about 17 years. I started out in a big bank for my first five or six years at Chase [Bank], and basically found that there was another world out there. When you work with a bank you’re limited to what just that bank can offer, and I found correspondent direct lending, which is basically the best of both worlds. You have the banks and you have the brokers, and in the middle you have the direct correspondent lenders. So the banks are limited to their products, their rates, their underwriting guidelines. The brokers are strictly middlemen, they shop for the best rates, then they package up a customer’s deal, and then send it off to that specific bank. Then they lose control, basically calling into service centers for updates, etcetera. I consider us the best of both worlds in that with correspondent lending, we’re able to shop all the different lenders and institutions out there, but we do processing, underwriting, and closing all under our roof. It gives us more flexibility and is a more seamless experience for the client.
L: So instead of going to a big box store for shopping, where everything is kind of all under one roof together it’s more like going to a shopping center when you can pick and choose where you’d like to go.
L: Getting started with Pre-qualification vs Pre-approval, in your own words what is Pre-qualification?
C: Pre-qualification is if someone goes and applies at a lending institution and they’re just giving basic information, income just over the phone, assets just over the phone and maybe doing a credit pull. And I say maybe as it sometimes doesn’t even include a credit pull. The danger of that in today’s world is that there’s a lot of moving parts to people’s financial situations, so a
pre-qualification in the competitive market now, a lot of times is just going to get thrown out. A good listing agent is going to say “wait a second the lender doesn’t have what they need to get pre-approved for these people”. So the difference between the two in most cases is we’re giving the bank all of your information — a full application, two years employment history, two years income, etc. You’re doing a full credit report and you’re documenting that information by getting two years tax returns, two years of W-2s, the last two pay stubs, last two asset statements, and what people don’t realize is that the qualifications are tough to breakdown. The average person doesn’t understand that yes, they might be getting a bonus this year, but if they don’t have a two year track record, then they can’t use that income or commission; sometimes it changes monthly to quarterly. Say somebody changed jobs and their situation is better, but it’s heavy on the bonus or commission versus salary of their last position. So there’s a lot of moving parts that people don’t understand and is the kind of stuff that can put you in a bad position. Especially if you go to make an offer and you haven’t given the lender all of your information, when it comes down to underwriting time and you thought you were okay and you’re not, that’s where you have a problem. I think a lot of Internet lenders out there and big banks have a bad rap on the street because they just don’t do their homework upfront.
L: Then what is a pre-approval?
C: A pre-approval is giving all of your documentation, two years of tax returns, two years of W-2s, most recent pay stubs, Bank statements, retirement statements, and yes it’s more work but you’re putting yourself in a position where you know you’re rock-solid financially. When we give you your pre-approval, the agents on the South Shore and Boston know that it’s solid because they know that we do a full blown pre-approval. In today’s competitive market a good listing agent is going to call the lender and ask questions. If your lender can’t say they have all of your information, as well as that credit has been pulled, also the income has been verified, you’re offer is going to go to the bottom of the pile which makes it less of a top, competitive situation.
L: I know you spoke of how they differ, is there anything else you would like to express upon for other differences between them?
C: You know, I think the pre-qualification is almost something of the past because lending requirements have gotten tight over the years. People don’t want to have their credit pulled. Sometimes they’re nervous about giving information up because of what has happened in their past, yet there’s no way around it. It is going to come up at some point, the worst thing you can do is set yourself up for failure by hiding something and having it come out at the end — thinking you can beat the underwriting guy, when you can’t. So with the pre-approval, yes it’s more work upfront but you know you’re going to be in a solid scenario, and you’re going to know what your purchasing power is if you did your homework upfront.
L: Obviously you wouldn’t need both when going to look for a home.
C: Correct. My personal opinion is don’t even think about a pre-qualification. It really doesn’t do you any good. Yes, it might put you in the ballpark… maybe. But why not just know exactly what you’re purchasing power is, and just go through the full paperwork process?
L: So, there really is no advantage to having both.
C: Absolutely not.
L: Say someone does want to do the pre-qualification, and they’re thinking about starting their home search, would you suggest that they get it even before their search?
C: The pre-approval process should just be step one. Before you even get online, because today everyone wants to go on the Internet and look at Realtor.com, and Zillow, and Trulia. Yet, my recommendation would be to get with the lender and get fully pre-approved. Once you’re fully pre-approved if you haven’t connected with an agent yet, connect with a buyers agent, let them know what you’re looking for, and in what markets. They’re going to help expose you to real information in regards to what’s out there. The Internet is great, but what people don’t realize is that Zillow and Trulia are great, but really only 65-75% accurate. A much better reason for working with an agent is you’re going to get real information. Agents are given the inside scoop on the market that can’t be told on the Internet.
L: How long do you think it would take to get a full pre-approval?
C: It really depends on how organized the borrower is. If you’re thinking about getting pre-approved, collect your last two years’ tax returns, collect your last year’s W-2s, last two pay stubs, and last two bank statements. If you walk into a lender with all that stuff ready to go, you’re going to get pre-approved in 24 hours, maybe even less and you’ll be ready start your home search with confidence.
L: Are there costs involved with either pre-qualification or pre-approval?
L: There is not cost at all?
C: Some lenders do charge, but we do not.
L: Now is this something that absolutely has to be done in person?
C: No, with the world of technology that we live in, a lot of times it’s done online. The application is done online, documents can be uploaded right through our transfer safe system, and then we follow up with a phone conversation. If somebody wants to come in and sit down, we are more than happy to meet face-to-face as well.
L: I know you kind of touched on this throughout but what is truly involved in the pre-approval process?
C: Collecting documentation, giving a lender everything upfront. In regards to the application, you need to be ready to give people your personal information, date of birth, social security number, place of employment for the last two years, your income, and breaking that down. It’s not just what you make, it’s how you make it. So is it salary, is it bonuses, is it a commission base, is it hourly; all that stuff matters to the lender. So be ready to break that stuff down in regards to bank statements. The big thing is deposits, if you’re being gifted money from a family member, the gift has to be coming from a family member, that’s something you want to disclose to the lender right upfront. Also, if you have had any large deposits in the last 60 days, those will need to be explained as well. So it’s just understanding your overall situation and being ready to present it to the lender.
L: And what are some things that can affect your pre-approval negatively?
C: Bad credit. A lot of times people are afraid to pull credit, but it’s really important that they do it. I just recently had a situation where somebody lived in Maryland three years ago, they were renting and there was a bill from the electric company for $3.18. So, as little as $3.18 was on their credit as a collection account, and ruined their credit score. So it doesn’t matter, and people get caught on the amount, that amount does not matter if the bill hasn’t been paid. Even if you disagree with it, which often happens with cell phone companies, or cable companies, like not returning the cable box. or that they disagreed with the cell phone bill. You’ve got to get that stuff cleared out before you go into this process. We have resources like Key Credit Repair and other great local companies to help you untangle this stuff. However rather than be afraid to go down that path and see what it is, I truly recommend doing it upfront. Do not pull your credit on the Internet, if you’re thinking about purchasing a home anytime soon, you want to connect with the lender. Have it pulled by the mortgage company, because that’s going to give you real scores, and real credit. There’s over 14 different credit formulas out there, so when you go by something on the Internet you don’t know what formula they’re using. I have been doing this for the past 17 years, and have yet come across an Internet reporting agency that allows you to get lender accurate credit scores. People might be nervous, and intimidated, but the bottom line is go directly to the lender because then you know that’s the real report.
L: The is really some great advice! Now is there any guarantee with a pre-approval that you will get a home loan?
C: When you get the pre-approval process done and you get a full-blown pre-approval, you’re still not fully approved; it needs to be underwritten. However we put our buyers in a position that all they are subject to is appraisal and purchase and sales agreement. So for all intents and purposes you’re approved and those two factors obviously come into play when getting the final approval. But you’re getting yourself as close to closing as possible when getting our full-blown pre-approval. An important point that I want to make is that when you’re fully pre-approved and you’re going into a competitive situation, working with a lender like us, we can close in a few weeks. There’s a lot of large institutions out there that are having a hard time closing within 60 days, due to all the regulations that have been put into this industry. So, if you are able to get everything in regards to your personal financing out-of-the-way, you can make yourself an extremely competitive buyer by saying, “Listen I’m ready to go, all I need is a purchase and sales agreement and appraisal, and we can close in a few weeks.” Your chances of being put on top of that pile and having your offer accepted are pretty good.
L: Then, would you say going to a local lender is much more effective than going to one of the big banks?
C: I’m partial to the correspondent lender just because I think people deserve options, and when you go to a bank you’re limited to what those options are. What a lot of people don’t know is that because these banks are federally chartered, they think that they’re safe there, but those people wear multiple hats. They open checking accounts, they help people with CDs, they help people with mortgages, and what you’re dealing with, ultimately, is a service center. So they might be the Bank of America, and their colors are red white and blue, but it’s really not a safe spot, as crazy as that sounds, and the market will tell you that, if you do your research. So when you come into a local correspondent lender, like ourselves, not only are you dealing with a local team of people you know, but you’re also giving yourself options, and you can think of us as your personal shopper where we can shop over 38 different options.
L: That’s excellent! Is there anything else that you want to add, besides what we discussed with the questions?
C: My last point would be don’t be intimidated by the process and there are people to help. Also don’t think you can do it alone either. It is so important to gather your A-team upfront. You have your lender, your real estate agent, and your real estate attorney to help guide you through the process. That is going to put you in a good spot to make sure that the deal is maximized for what you were looking for.
L: All that information is really fantastic. I think it’s truly going help people figure out what’s going on, and how to navigate their way through the pre-approval process. I now know that a
pre-qualification isn’t something that’s needed any longer, and going straight for a full pre-approval is the best option. Well Chris, I really appreciate you taking the time today to speak with me and answer my questions about pre-qualifications and pre-approvals, you have been amazingly helpful and informative.
C: Lindsay, it was my pleasure. I’m always available to answer questions and help in any way I can. And I hope I have helped clear some things up for people so they have a better understanding of the process.
Well there you have it, my full interview with Chris Devins. If you have any other questions regarding pre-qualifications or pre-approvals feel free to contact me anytime. I’m also going to make Chris Devins’ contact information available to you. Anyone is more than welcome to contact him with any other questions regarding pre-approvals, lending, mortgages, or anything else having to do with home loans. He really is a wealth of information and an expert on the subject of lending. And he is always happy to help.