Preparing Clients for a Positive Mortgage Process

IN THE EYES OF BUYERS, which comes first: the home search or the loan?

Buyers may begin their home search before they meet with a lender, thereby coming to Realtors® first with questions about improving their credit scores.

“You [Realtors®] are the first line of defense, and you need to be on alert to [offer] advice,” said Chanin Wisler, senior loan officer with First Washington Mortgage. “This is one of the best reasons to get somebody pre-approved and to a mortgage lender sooner rather than later.”

At the NVAR Small Broker Forum on April 24, titled “Building and Protecting Your Credit,” presenters shared important credit information and resources.

Realtors® can prepare clients by letting them know that variations in credit scores are common because scores can be calculated differently, said Mike McNamara, VP credit mortgage officer with Southern Trust Mortgage. The score a buyer pulls (a soft credit inquiry) may differ from the score a lender pulls (a hard credit inquiry), he said.

Wisler explained that credit reports are “snapshots in time,” showing an individual’s credit history at the moment the report is accessed. Credit card companies typically only report to credit bureaus once a month, so a report could show a balance that was already paid, she noted. Lenders pull reports from all three of the credit bureaus (Equifax, Experian and TransUnion), and there are often differences on these reports, which is how Wisler says they are able to determine which discrepancies can be fixed.

Wisler and McNamara shared a pie graph illustrating the general make-up of a credit score: payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent) and types of credit used (10 percent). According to McNamara, there are ways buyers can improve their credit scores without spending any money. Clients can transfer money to other accounts, check and dispute any errors, and be added as an authorized user on another account – to name a few. Buyers applying for a loan should keep their utilization ratio (the amount of total available credit used) at a “sweet spot” of 30 percent, Wisler said. She noted that although this will help buyers applying for a loan, it is generally good practice to pay your balance each month if you are not applying for a mortgage. This – among other reasons – is why Wisler said credit advice can be counterintuitive. 

Wisler also recommended that borrowers verify with their lender that the lender ran the report with Desktop Underwriting (DU). DU is an automated software that pulls in the client’s credit report and runs a “decision engine,” she said. The software will determine whether the applicant is “approved and eligible” for the specific type of loan. The alternative to DU is Manual Underwriting, which is left to the discretion of the underwriter and therefore not as reliable, Wisler said.

“This [DU] is really important and not a lot of people know about it,” she said.

Wisler and McNamara also said it’s important for Realtors® to send clients to a mortgage lender early in the homebuying process so there is time to smooth out any credit discrepancies.

“It’s really about giving the buyer the best experience possible – [and] the best loan they can get,” Wisler said.