Conditional Loan Approval (Do or Die)

I’m Phoenix real estate agent John Cunningham with eXp Realty (480) 442-3501 and today I’m joined by my co host Taum Hemmingsen of Marketline Mortgage (480) 967-8286. Taum is the guy that I recommend to all my clients and my family whenever anybody needs to get a loan to buy a home or they want to refinance. He’s the owner of market line mortgage and he and I have been serving clients together as a team for over a decade now. In other words, you’re in great hands when you work with Taum.

​Taum, I was wondering if we could start with the simple question and answer to this question below.

Conditional loan approval is when you submit that application. We gather all of your income and asset documentation and we turn that into the lender or to the underwriter. Upon that submission, what we are wanting to see come back is what they would call a conditional loan approval.

That means that the underwriter has looked at your income and asset documentation. They reviewed your application and they’re saying, I want to give you that loan. I do have a couple of questions, AKA conditions, to substantiate that approval and could I get that additional documentation to get you through the process to a close loan approval. The Pre-Approval Timeline is as stable as the buyer making an application. It can go quickly or seem to get stuck in the mud at times. Lets take a closer look at the pre-approval timeline.

A couple of things are coming to my mind right away that have happened in the past. You’ve seen them, I’ve seen them and I just kind of wonder for your sake, if you could talk about what happens if somebody has some additional income. Let’s say it’s a construction worker who is constantly doing side jobs.

How’s that piece get handled?

We do have it a lot. Hopefully what we’re going to see is that contractor or somebody that has some self-employment on the side business is that they’re reporting that on their tax returns.

You will find that an underwriter in general is going to look for the last two years tax returns to support that additional income. So hopefully we can go to your schedule, if you have a separate business return, we’ll look at those returns and then we can give you credit for both sorts of income.

I’m thinking about a client that you and I recently shared. Robert recently bought a home and he’s got a big time, great paying sales job. But with his company he has moved from full time employee to. Somebody who is on a sales commission basis. Bruce received some bonuses and on complicated things. We were able to get the transaction done. He was able to buy the house. If you remember this time, I’m sure you do. But tell me about how that’s hammered. Just because somebody has got great income doesn’t automatically mean that it’s going to be counted. How is that handled? And how did it go?

Talking About Income?

​Definitely a sticky situation. It’s one of those if you are a potential buyer, if you’re thinking about buying a home to, be able to secure that financing prior to making that transition into a full commission job or a heavily weighted into commission job.

Would save you a lot of trouble, a lot of lost sleep maybe. But we would go back to that employer and start working through probably through like a written verification of employment versus using pay stubs.

To see if we can’t support enough base income within that new job to help them qualify without that commission income. Cause you’ll find that heavily weighted commission, brand new in commission.

I remember this guy actually, even though he had been at the company for quite some time. Anyone listening to this would recognize the company name. But he actually had a little bit of difficulty getting the HR department person to write the necessary documentation to support the facts. What happened? How did we get that done?

Working with HR

​So after you know, a lot of prodding, a lot of getting back to the HR contact, a lot, trying to boil down what was a guaranteed part of income versus what was then subjected to randomness based on those commissions, we were able to find that we had enough of what was guaranteed within that new role to get him over the hump on on debt to income ratio.

Obviously that’s the big thing that we’re trying to cure when you’re talking about income. And so it just takes a lot of time. Sometimes you have to go back to the same HR person or employer a number of times to help them understand what we need to specifically get over that. But that’s where I think having somebody that’s knowledgeable in the business to understands how to get through those items is worth its weight in gold to make sure that you can get the loan. Even though I think in general you think you deserve it.

I know what everybody was kind of freaking out and biting their nails. You were calm and steady and certain that things were going to work out. All we needed was for the HR department to do a couple things and once they did, everything went quite well. So that was a good outcome.

How About if Somebody Is New at A Job?

Freshly out of school and they are just beginning to work. Let’s say as a nurse and they don’t have a lot of history, could that come up as a conditional loan?

It does. The great news and what I would want people to know is that just because you’re brand new in a job doesn’t mean you have to have a year or two years worth of to be able to get that loan. So as two employee we could even put a FHA is a little bit stricter where they want to know exactly what you’ve done the last two years. So we could put that school transcript to meet the last two years and then put the job income.

First Pay Stub Will be Enough to Get the Approval

They’re just gonna want to see 30 days of pay on a conventional loan side of things though it’s a little bit easier because once you get that first pay stub, you could close that loan immediately without having any job history. As long as it’s, Hey, I’m going to work 40 hours a week, here’s what my hourly rate is and get through that process so you can get alone immediately, even in a brand new job.

​So would that be the same for other professors? Like teachers, people who are fresh out of school just started teaching? Same thing? Absolutely. The ones that I would tell you don’t fall into that bucket would be the person that comes out of out of school and gets into a full commission job or self-employment where they have no history of that. That would be the one that gets pushed off.

Any Regular Job Income Would Be Good

If somebody that’s probably not even going to get that far in the loan process, I would imagine during your initial consultation, if they say that they just started working construction or as a 10, 99 especially. They’re going to need a couple of years history, right? Correct. So, what about somebody who’s like driving a truck? You know, those guys make a pretty good income, but their paychecks aren’t always. I guess their paychecks aren’t always like a traditional one.

Sometimes they’ll get overnight pay, sustain some place out of sorts. That is not historically speaking, easy to count. But this is where I think you have to be able to creatively think through how do I get you from point a to point B and pay stubs may not be the best answer for that person. We might go back to the employer to do written verification of employment to decipher down base pay versus other and see how do we put the puzzle together to make it work. But we can absolutely get through those. I mean we’ve had plenty of truck drivers. I can think of one that even works out of California lives, primary residence in Arizona. We were able to get him finance and you just have to be able to paint a picture.

The condition of gifted funds? So somebody’s need is ready to buy a house. They’ve got maybe they’ve got their down payment but not their closing costs or whatever the case is. They need a little extra money. Mom and dad gifts them some money. You have some money.

What the Underwriting Department Needs to See in Order to Get Past that Condition

​That’s a great question and I think it goes back to the point of if you set up the documentation right up front, you find that it’s easy to get through, but it would be a copy of that gift check. If they give it to them in a check, it would be proof of deposit into their account. So they know that they’ve got the funds in there. And then a gift letter sometimes where you find that it gets a little harried is that if they give them cash, that’s tough. Or if they’ve already made the deposit and then you have to back into getting the check from the parents and everything, which is a little bit more laborious to people that don’t want to do a lot. But all in all, if you set it up right, getting through gift funds is easy.

Nowadays, a lot of, a lot of transactions for a lot of things are electronic. They could be something like a bank transfer or they could be a check that you initiate through online banking. They could even be like a Zelle deposit. I don’t know if you’ve ever used one of those apps where you can transfer money to another person or from an app that’s linked to your bank account. It works beautifully, but in any case, all those transactions just have to be documented.

​Absolutely. It’s just a matter of an underwriter wants to know that the money came from the person that you said it came from and that they had the ability to give that money to you. Outside of that, it’s, it’s simple. So don’t bring a $10,000 back of cash. Taum or John and ask them to put it towards the house and the title company won’t take it either.  When somebody is in conditional loan approval status, a lot of times I’ve noticed it’s not just one item. It might be three or four items.

Conditional Loans Status Into Full Loan Approval Status

I noticed that any your processor is able to help people get out of the conditional loans status into full loan approval status. You and her work together beautifully. It helped people move towards that and while everybody else was sweating them worrying. You guys just know that it’s going to get done.

I would say Annie is awesome and she really runs that for us. It’s one of those to where you try to handle as many of them as you can without maybe the borrower needing to know. I know that buying a home is already stressful and so you need that teammate, a player that is going to go and run the ball for you without you having to stress every single day about getting through the conditional loan because the conditions could be very few. Tax returns are not how sticky the bank statements are or not. So having somebody like Annie to to run that for you is worth everything.

Independent Contractor Can Get a Home Loan

Even somebody who is a 10 99 worker who is working as an independent contractor, they can get a home loan too. Determining the right financing option for your real estate purchase is just as vital as making sure that your new property will be an excellent long-term investment. They might run into some different conditions than somebody who’s a W2. And what is the most common issue with somebody who’s an employee? Well, without a doubt, the number one problem for your 10 99 self-employed borrower. It’s that they try to write off every piece of income that they can to minimize the taxes that they pay to the federal government.

We get a lot of times where I’ll ask somebody. What do you make? And they’ll say, I make 50 grand a year. And I’ll say, okay, you’re self employed. So after your business expenses, what do you make? And then all of a sudden you hear 15,000 or 20,000. Because they’ve written 30 or $35,000 off of that top line number. We unfortunately can only use the after business expense number to help them qualify. They do not get to use the number before their business expenses. We do get to add things back in like depreciation because that’s more of a fictitious write-off for tax purposes. But in general, that’s where I think the big hurdle is for your self employed or 10 99 contractor.

It’s a normal pro part of almost every single loan process. If we do a hundred loans during a year, there might be, five or 10 at the most that don’t have conditions.

I would say one out of a hundred to see it’s just something every loan is going to go through. Every underwriter is going to scrutinize a loan package. They’re just going to want to make sure that the bank is protected. So it’s not something you’ve got to worry about. It’s just something you’ve got to expect. Conditions will come up and we’ll help you clear those so that you can get the home that you want.

Got Something for You!

It’s called moving kit. It’s going to help you save thousands when you buy your next home. All you’ve got to do is to get movingkit.com and Taum also has something that’ll be a cost saver for you.

For our viewers and for anybody that mentions it’s coming through the video is that we will offer. We’ll give a full appraisal refund at the time of closing. So part of the appraisal process is a little bit new for folks. They do have to pay for it upfront, but at the time of closing we’ll give them a full refund. That’s somewhere between five and $600 depending on the transaction. In order to get my moving kit, put your name and email in there and you will be in on moving kit when you buy and close a home from me. Make sure to check out my video series on the home buying process. I’ve got a video that you want to check out about the Roosevelt district in downtown Phoenix. Make sure to check that up. I’ll see you there!

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