Prequalification — Arizona Style

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We are explaining the prequalification process — Arizona style. Desert Financial is local to the Valley, so we understand the homebuying process for Arizonans. In this webinar, you will learn about the importance of getting prequalified, what paperwork is needed to do so, and the best timeframe for completing this vital step in the homebuying process.

Transcript:

Welcome everyone! Desert Financial will be presenting a series of live webinars covering the Mortgage Loan Process with the goal to better serve the community and to bring additional value. My name is Sherry Olsen, and I am with the Real Estate Lending Department. I have been in loan origination and management for more than 25 years, and I sincerely hope to be a resource for you. During this first webinar today we will be discussing the pre-qualification process. I will take questions at the end of the webinar, but you can post your questions at any time by using the question and answer box. If possible, some answers will be provided during the webinar. I will also be referring to a few documents during the presentation that will be available for download to review later. Finally, this webinar is being recorded and will be posted for review on our Desert Financial website within 48 hours after this webinar.

Okay enough of the introductions. I am so pleased to be with you today and over the next approximately 30 minutes, we will cover the Pre-Qualification process and why it is so important for you to understand it.

My goal today is to answer the comment that is #1 on all surveys for Realtors, and Lenders from consumers seeking a mortgage to purchase or even refinance their home. #1 comment: “I want to understand the process.” Some of you may have purchased in another state, or a few years ago and need a quick refresher.

By the way, although this webinar will focus on pre-qualification for a home purchase, the loan approval process for credit, income, property value, and assets remains the same for a refinance in most cases, so enjoy the review.

I always start with great news – there is no cost to obtain a Pre-Qualification. But let’s discuss the details:

The home purchase process will involve three phases, the first being the pre-qualification process. Then the second phase is a period of decisions between the best mortgage program for your needs, and the specific property you are interested in, and finally, the third phase is the purchase. These three components will be crafted for each homebuyer based on your personal circumstances with your loan officer.

1st big step: Why Pre-qualification? Yes, you see it everywhere “get pre-qualified,” but you know that you pay your rent and bills on time and have funds saved. So, what is the big deal, and what is involved? I bought a home before… it should only take a few minutes.

Consider that one of the many values provided by Desert Financial is our commitment, for 80 years, to serve our Arizona members’ needs locally. With that in mind, we take every opportunity to make sure you understand the WHY behind the big deal called Pre-Qualification. To assist with that understanding let’s look at just a few lines in the Arizona Real Estate Purchase Contract. Line 69 under financing reads: Pre-Qualification: An AAR (which stands for Arizona Association of Realtors) Pre-Qualification Form is attached hereto and incorporated herein by reference.

Besides the Pre-qualification process absolutely being in you, “the buyer’s,” best interest, it is a requirement of the contract. Okay, so we now have learned that a Pre-Qualification form is required and is submitted with any offer you write on a home. A form; which is more than a brief chat with someone on the phone, or perhaps in person.

But what about you? Your purchase or refinance is about you. To accomplish meeting your needs and goals, we need time to listen to your story and collect your details. The key word may be time. You may be very busy with work, children, school, or you need to cut to the fast track and be in a home quickly. This can be accomplished, if you can set aside time to communicate with your loan officer and respond to requests quickly, we can expedite the process. So make note that the Pre-qualification form can be issued quickly if you can provide the necessary documentation.

To ensure we provide the best experience for you and close your loan on time, we ask numerous questions:

What is your current rent? Is that payment comfortable? Do you already have a Sales Price in mind? Do you have funds saved to purchase for down payment and closing costs, or are you using gift funds? Any additional funds for unexpected expenses? Is your current employment consistent, and how are you paid, weekly, or salary? Perhaps you have a side business? Do you have any concerns regarding your credit? These questions can appear invasive, but we are here to help.

Just like your doctor completes a thorough review of your health before discussing medical suggestions, we will discuss your unique situation, review the required documentation and then provide the best options for you.

To reduce stress and last minutes surprises we make every effort to cover all the details before you connect with a Realtor and start looking at homes. Together we will establish a timeframe for you to purchase a home, based on your needs and considering all loan options. This is your home purchase, and you are in control. We encourage you to start the process early. You may plan on buying next year, and would like the education today, or issues are discovered that may require you to wait. We have a relationship with you and a responsibility to assist you and provide resources if needed.

Moments ago we briefly looked at the contract, now let’s look at the actual AAR Pre-Qualification form to discover what it covers and consider how prepared you are to provide the necessary documents. We understand that most members are in a hurry to obtain this Pre-Qualification document, especially now that you know it is required with a purchase contract offer. A copy is included in the downloadable materials. The form starts out pretty basic with names but beginning with line 7 it is unique to you the buyer. Example: Marital status, relying on sale or lease of property, relying on seller assistance with closing costs. Perhaps you are considering a Down Payment Assistance Program which typically requires a Home Counseling class to be taken early in the process. This category ends with type of Loan Program, Occupancy type and Property type. You and the loan officer will have a focused conversation before the boxes are checked. This is your home purchase, and we value your loyalty to Desert Financial.

The next set of boxes are confirming that you and your loan officer had a discussion and reviewed your information. As a reminder, the Prequalification Form is often referred to as “PQF”. Notice that the PQF or Pre-qualification Form—does include a proposed total payment based on the loan amount that has been determined through those conversations with the loan officer. This is clearly an estimate including proposed property taxes, hazard insurance, home owner’s association fees, if they apply, and even mortgage insurance if appropriate. The credit union is making every effort to be completely transparent and provide all the details. We will adjust figures as you zero in on specific properties to help your budgeting.

As a side note there will be a vocabulary list in the download to help you understand some of the jargon that we lenders may use.

By now some of you may be thinking, why does this process appear so drawn out? I need to find a home and move in soon. I have been looking on the internet for houses for some time, and I can click on links that offer a PQF (Pre-qualification) in just minutes, as well as have a Realtor showing me a home possibly before we end this webinar. Well, with technology available today, that may happen, but it does not mean you have accurate information and that your loan will close on time. You may have monies invested for Earnest Money Deposit, Home Inspections, and Appraisals without confidence that you will be approved and can close your loan with the terms and conditions that meet your desires and needs. As our credit union member we are committed to maintaining our relationship. Note, that once you have an accepted offer you will have many tasks with specific time frame requirements regarding the property, so again, as your lender we want our critical tasks regarding the financing covered upfront as much as possible before you get very busy with tasks regarding the property and your contract.

Here is another point to consider – not all Pre-qualifications are equal even if boxes are checked. Recently the Mortgage Bankers Association released data for the first quarter of 2018. They reported that in the first quarter 2018, only 70% of loans that were in processing closed. Desert Financial “has your back” and our percentage of loans that close once in processing is considerably higher.

This is where I suggest you pause for a moment, and consider your preferred communication style. Do you prefer an appointment at one of our branches so you can meet face to face with a loan officer to review everything together? Perhaps, you have previous mortgage experience, or you are comfortable handling this process completely over the phone, without a face to face meeting. It is your preference!

Let’s return to the PQF form and line 24 — Initial documentation received. This is where your commitment makes all the difference with the timing of your PQF. Most of you have probably heard that there is a shortage of inventory of homes to pick from in many areas or certain price points. How does that affect you? Well if I was the seller, I would focus on the best possible offers on my house so I would look carefully at the Pre-Qualification Form to see if the buyer has provided all of the requested information. Our market in Arizona has been experiencing an inventory shortage for some time, so we want the seller to seriously consider your offer.

To obtain a thoroughly completed PQF, you need to provide any documents that the loan officer requests from you very promptly.

Consider — your response time for those documents. Desert Financial does issue PQF’s the same day in many cases, when a member emails everything requested over to the loan officer quickly or hands them over directly to a loan officer in one of the branches. Sometimes it takes you a day or two to find paperwork, and we understand. You actually are controlling the timing and thoroughness of the PQF. We will issue the PQF without all of the documents or boxes checked, but again we are preparing you and educating you regarding current market conditions. Are you prepared to move forward and order inspections and appraisals with the incurred upfront costs if your offer is accepted without all of the boxes being checked?

We spent a great deal of time on the PQF form since that is why you call a lender — “to be pre-qualified”. This form is the foundation for the rest of the loan process.

Hopefully you now understand that the process can occur quickly in the same day, or longer depending on your access to necessary documentation.

So we can now move on to the next hot topic that consumers are extremely curious about and that, of course, is credit.

In fact, members often ask about credit score requirements before they ask about the pre-qualification process since they realize that credit issues can prevent or alter timeframes for a purchase or refinance. We will briefly unpack credit score factors to build an understanding of how credit scores are developed.

As a lender, we will pull what is called a Tri-Merge Credit Report for everyone on the loan (in most cases) from the three major credit agencies. Your loan officer will review and discuss your scores with you.

The slide on the screen reflects the make-up of credit score factors. 35% of your score is based on timely payments. Simply put, it means making your payments on time. Amount owed represents 30% of your credit score. This is referred to as credit utilization, or what percentage of your credit card maximum available limit are you using. If you have a $5,000 limit, and your current balance is $4,000 you are getting close to maxing out the line which affects your score. Next up is the Length of History with 15% factored into your score. How long have you had your various credit cards? Even if you currently have a zero balance on your credit card, it is great to have a 10 year history. Moving to the new credit category 10% of your credit score is drawn from your efforts to obtain new credit. Finally the type of account, whether it is an installment loan or a revolving credit card, will carry a 10% factor in your overall credit score determination.

So what score is acceptable? Unfortunately, each loan program may have different credit score guidelines, so, again, I continue to refer to the importance of a consultation with your loan officer.

Credit scores run from 300-850, and our webinar today will not allow time to cover all of the details, but our earlier factors of “paying on time”, and “avoiding maximum usage of available credit” are key factors in determining your score. If your credit history includes a recent bankruptcy, short sale, or foreclosure your scores will be affected, and there are required waiting periods after major credit disruptions. Again, our role as your lender is to review your unique situation with you and create the plan ending with home ownership.

If you need additional time to correct something on your credit report, we are your advocate.

It is critical to remember that if you are beginning the process of purchasing a home, consider that you are living in a fish bowl. Do not change anything about your credit, no large purchases, or new accounts or even closing or moving your balances around until you have had your consultation. Typically we will update your credit report after 90 days.

Talk to your loan officer before you consider any changes, and remember that shortly before closing we will re-verify your employment, income, credit and assets to ensure that all have remained basically the same. Think of the fish bowl.

Wow, we have reviewed the Pre-Qualification process and credit, and the remaining additional big ticket item would be funds needed to close. How much for down payment, and what are closing costs? Once again total funds needed to close will be tied to the loan program that best meets your situation. There are programs with 3% down, and others with grant money providing the down payment and possibly funds for closing costs. The process of determining which loan program you qualify for is another major reason to prepare upfront before you start actually looking at homes.

Gift money is often provided by family members, but we still need to collect proper documentation. Some programs have income limits and geographical requirements to consider. As you may recall the Pre-qualification form included the question regarding needing assistance from the seller to help with closing costs. Discussion of all of these topics will occur.

I sincerely hope you are not overwhelmed at this point. Future webinars will discuss specific loan programs in more details, and if you have questions at this time I encourage you to submit them for discussion in our Q&A which will begin shortly.

Everywhere you look another media outlet is telling you to purchase NOW as sales prices and interest rates are rising, as well as an aggressive push for you to click on a link to locate data on a home for sale. Be aware that you will not receive much information before you are required to share your personal contact information. This will start an ongoing number of calls and emails from a variety of related industries.

Desert Financial has access to a private home search app that contains 100% of MLS listings. You can shop for homes just like a Realtor. HomeScout is an app available for you by following the instructions that you see on the screen. You simply download HOMESCOUT from the App Store or Google Play and use the personal code: Desert Financial VIP. Make sure you download HomeScout. If you have any questions or challenges with the app, let us know, and we will assist you. NOTE that the code will now be added to the chat box so you can write it down. Desert Financial VIP is the code for the HomeScout app.

As a wrap-up to this first Pre-Qualification webinar let’s review our goal of explaining the “WHY” regarding Pre-Qualification process followed by How and When.

Why—the AZ Purchase Contract calls for the Pre-qualification form to be submitted with the Purchase Contract. Remember there is no charge or obligation to obtain a Pre-qualification. This is a service we offer you.

How—based on your preference schedule an appointment to meet in person with a loan officer in a branch or reach out to our loan officers that will handle everything over the phone and through email.

In preparation, for that initial conversation we have added a Needs List to the downloadable materials. But typical information and documents include: Residency, employment, W2’s, 1099’s, Pension or Awards letters, Bank Statements, Paystubs, and possibly 2 years of Federal Tax Returns, if deemed necessary.

Your needs list is unique to you, but the basics of income, assets, and credit remain the same for everyone.

Perhaps you are ready to purchase a home in the very near future and cannot wait for upcoming Webinars. That is great news, and we will be ready to assist you after this webinar.

When—you can start shortly, by making a call. If you are looking to meet at a branch location let the person taking your call know your preference, and they will attempt to connect you with a branch. If you are comfortable you can also handle your prequalification completely over the phone. Remember you control how complete the Pre-Qualification form will be, and how fast we can provide one to you.

As a final comment, in the downloaded materials I included a document called the Buyer Attachment. This is another AAR (Arizona Association of Realtors) document which points out important tasks will become your responsibility when your offer is accepted. Desert Financial again wants you prepared, so please review this list, so you are educated and prepared when you start working with a Realtor. When you speak with your loan officer be sure to ask them about our Broker Program and how it may provide you with $500 towards closing costs. The Broker Program will be covered in a future webinar, but information is available with your loan officer today.

It is time to check for any questions from our Webinar today.

Q&A

I hope you remember to download the documents that we discussed today. These are all great resource tools for you.

It appears we have used our time for today. Our next Webinar will be offered on October 10th at 11:00, and the topic will be loan programs.

The phone lines are open to answer your questions or start the pre-qualification process with no cost or obligation at 602-433-HOME (602-433-4663). The number is also showing in the Chat Box for your convenience.

This is your host Sherry Olsen thanking you for your participation, and I look forward to you joining our next webinar.

If you would like to contact me my information is provided on your screen.

The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.