3 Ways To Have Accurate Information On Potential Borrowers

A popular saying in business applies across industries: “Trust, but verify.” As a lender, you want the best for your clients, and you want to trust them. However, the excitement of a home search paired with the stress that often comes along with it can complicate matters. Numbers can be rounded up, dates can be generalized, and when combined, they can prove detrimental to a home purchase.

Root your client profile in well-researched and verified data that tabulates into solid applications that clear underwriting with ease. When you take the time to confirm your client-provided data, you can trim timelines and improve your office’s closure rate.

Plus, clean files can be more attractive when there’s market competition to contend with. A solid pre-approval gives your clients the advantage, meaning they’re more likely to ink a deal.

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1. Verify Income Sources And Employment History

The baseline for any borrower application requires providing proof of a means to pay back the loan. Your clients’ income is essential to understand when you determine what amount they qualify for. Overestimate this amount, and your clients may default, damaging your investment in their credibility.

Underestimation can also have challenging consequences, as borrowers should have a clear picture of what they qualify for. Even if they plan to borrow less than the maximum, this information can influence their search or down payment strategy.

First, you’ll need your clients to provide verification of income. Traditionally, this process requires collaborating with their employer to confirm key data points. This step can cause delays, as not every human resources team is staffed to handle external requests swiftly.

Consider using an income verification platform to streamline your process.

Next, you’ll also need to confirm employment history, especially if your borrower has recently changed employers. Account for industry shifts, using your office’s criteria of what’s acceptable. If there’s been a significant change in employment or income, you may need to get additional information from their employer.

Provide this information to potential borrowers early in the process, so they can make informed employment and income decisions.

2. Confirm Credit Scores

One’s credit score is a dynamic, near-constantly shifting tabulation of their financial habits at a snapshot in time. Add the variations between credit reporting agencies’ calculations, and a self-reported score may as well be a guess.

Your borrower’s credit score is a key factor in determining their creditworthiness. Without knowing this score early in the application process, you may be wasting your time. A great income and solid employment history aren’t enough to approve a loan.

If your borrower’s financial history shows long-term money mismanagement, they aren’t worth the risk.

Confirm your borrowers’ credit scores to see if they’re within range for the products they’re interested in. Depending on your office, they may need to meet a minimum score to qualify.

Other times, they may be able to access other products backed by the Federal Housing Administration and mortgage protection products.

While you’re reviewing their credit score data, take a look at their debt-to-income ratio. Their self-reported financial obligations may have missed seemingly minor commitments. Frequently, the monthly payments that easily come to mind are those like credit cards, student loans, and car loans.

However, short-term financing products like AfterPay and Affirm do show on credit reports and factor into debt-to-income ratios. Get a clear picture of your borrower’s financial commitments before moving their file forward.

3. Review Capital Claims

Now that you’ve confirmed your clients’ income, employment, and creditworthiness, you need to determine their funding sources. Generally fueled by personal savings, proceeds from their current home’s sale, or gift money, down payments need to be verified.

Request documentation from your clients’ checking and savings accounts, using your office’s parameters for historical data. Generally, getting a baseline of the normal balances they retain is achievable with a few months’ statements.

Review their transactions, looking for anything worthy of a red flag. Large deposits by either cash or check may raise eyebrows during underwriting, so get justification now. A wedding gift from a grandparent, a bonus, or a wildly successful garage sale can help fund a home purchase.

However, an unusual deposit can create concern without more information.

Reduce confusion by requesting proof of deposit from your borrowers, ensuring they have the funds needed to complete the transaction. If a monetary gift is being used to fund the down payment, your borrowers will need a gift letter.

Written by the gift-giver, it should specify the amount, your relationship, and that it is not a loan. Review the loan product rules for more information on gift rules, as some have limitations.

A Thorough Review Of Borrower Data Can Improve Quality Loan Closure Success Rates

A clean borrower profile is a thing of beauty in the lending industry. With complete data, verifiable income and employment, and clarity of where funding is sourced, your closure rate can soar.

Take care in fully vetting potential clients and gain an understanding of their total borrower profile. When you do, you’ll be able to provide accurate pre-approvals that your clients can confidently bring to the negotiating table.

There, they’ll strike a deal, you’ll close a quality loan, and the process can repeat for the next hopeful homebuyer.

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