For normal conventional loans (loan sizes from $50,000 – $1,000,000) for borrowers with average to above average credit that can document their income, qualification is generally an automated process. We take a standard loan application over the phone or via the internet, pull your credit and the file is then uploaded to one of two agencies; Fannie Mae or Freddie Mac (Fannie and Freddie as they are known in the industry).
Fannie and Freddie set the guidelines for what constitutes a “saleable loan”. In other words, if it meets their guidelines the lenders who originate the loans can sell the loan to virtually anyone on the secondary mortgage market. They have automated approval systems that give us the ability to give the customer instant approvals. These systems are looking at your overall profile (debt to income ratio, job history, assets, credit, how much of a down payment you’re making etc…) to predict the statistical probability that you will default on the mortgage. If you pass the test, it renders an instant approval. Just remember that it is a “garbage in, garbage out” proposition.
For example, let’s assume that you have worked for your employer for 5 years and were always paid on a base salary. Six months ago they gave you a “promotion” that restructures your pay to a much smaller base plus commission with “promises” of a lot better pay ultimately. Fannie and Freddie guidelines want to see a 2 year track record of commission income. So if you tell us you make $50,000 and that you are paid on commission and we mistakenly “assume” that you were always paid on commission then we might have a problem.
If you have less than perfect credit or you are not able to get an approval through Fannie or Freddie, then there are plenty of other options. These approvals range from automated systems that are proprietary to individual lenders to having to prepare an entire application package to be presented to the lenders underwriters for approval. This generally can take anywhere from 3- 5 days and is advisable if this is your only alternative. Do this upfront so you don’t waste your time if the rate that you are being offered is not going to be acceptable or a smart financial move.