ARE THEY REALLY PRE-APPROVED? ⚠️

Welcome to my Monday Market Update for the week of August 4th with Nikki Erickson from Kevnik Mortgage! This week we have one of the most practical and important episodes we have done yet — the questions every listing agent should be asking when they receive a buyer's pre-approval letter. Most agents call the lender and ask "are they good to go?" That is not enough. And this week Nikki breaks down exactly what to ask and why — including questions that could save your deal from falling apart at the last minute. 

This week we are covering: 

✅ Interest rate update — back into the upper sixes and what is driving the volatility 

✅ The 5 questions every listing agent should ask when they receive a pre-approval letter 

✅ Has the lender reviewed income and assets or just pulled credit? 

✅ Has employment actually been verified not just stated by the borrower? 

✅ Has the file gone through the automated underwriting system and what does that mean? 

✅ Have any conditions been identified that could delay closing? 

✅ Is the buyer approved on estimated or property specific numbers? 

✅ What variable income is and why it matters more than most agents realize 

✅ How to look up any lender on the NMLS Consumer Access website before you trust them with your clients 

✅ Why Nikki does rescue missions for incorrect pre-approvals more than you would ever expect This is the kind of information nobody teaches real estate agents. And knowing it will make you a better advocate for your clients and a more professional agent in every single transaction. 

🔗 NMLS Consumer Access Website: www.nmlsconsumeraccess.org

📞 Connect with Nikki Erickson at Kevnik Mortgage: 📱 Call or Text: 952-484-1584 📧 Email: nikki@kevnikgroup.com 📘 Facebook | TikTok | Instagram: @mortgagesfrommntoaz

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Transcript

SPEAKER_01 0:35

All right. It's the week of August 2nd. Nikki, what you got for us?

SPEAKER_00 0:40

Well, we have a very interesting week starting out here with uh mortgage interest rates. We are up into the upper sixes again, um, kind of pushing into that 7% range. I hate to say it. Um, just due to just the uncertainty and, you know, everything that's been happening from an inflationary standpoint, all that stuff. Um, we're just gonna see these mortgage interest rates go up and down with the volatility of the market. Um, hopefully we'll still get back down into that six, you know, well into the mid-six range. But, you know, only time will tell. And, you know, it's just one of those things where the market is just reacting very a lot right now to different changes in the market. And it is what it is. So we keep people are gonna keep buying houses. We're gonna keep looking at options for people when they when you know when they do come across houses that they love. But yeah, we can get into that mid-six range with some point buy down. But right now, I would say upper sixes is really where we're at from a conventional standpoint. Um, so today I want to talk about good questions to ask the lender when you are the listing agent on a property and you get a pre-approval letter. Um, a lot of these questions um I usually get, or they're questions that I think you know, agents should be asking me um when they call me. Half the time I get agents who don't reach out to me at all, which is fine. Um, I'll but for the ones that do reach out, half of the ones that actually do reach out don't really ask me any questions. They just say, Are they good to go? And you know, you're just what's what's the point of even calling me, you know, at that point. So, one of the questions has the lender reviewed the income and assets or have they just pulled credit? This is very important because if they, you know, you can write a pre-approval in the business by just pulling credit and having the borrower state information on their application. You are in no way required to provide documentation to a lender for a full pre-approval. It's but completely voluntary. And so if you are in a lend, you if you are a lender and you want to do a pre-approval, the important question is to make sure that they've gathered income and asset statements and also pulled credit. So that's a really good question to ask. Um, the other question to ask is has their employment been verified? So just because they hand over a pay stump doesn't mean their employment's been verified. We have systems in place that will do automated verifications of in of employment and state on the day of the pre-approval that they are actively employed, um, which is a huge thing to have in the pre-approval letter and make sure that the employment has been verified. Um, has the file gone through the automated underwriting system? This is a huge question. AUS, it's sometimes referred to as DU or LP, um, but have they been through the automated underwriting system? And did you get an approve eligible or an accept eligible reading from the system? Because you need to know as the agent if the buyer is automatically approved without going to an underwriter. That's a huge thing. What the automated underwriting system does is it actually takes all the information from the application, puts all the pieces of the puzzle together, and spits out an automated reading. In other words, if the debt to income looks good, the credit looks good, the down payment amount looks good, and all those things, all the stars align, it'll spit out what's called an approved eligible reading, which is what we use for the basis of lending. We take that approved eligible reading, we look at the conditions, the underwriter looks at the conditions, and they basically approve the loan from there. So it does get a human touch after you do the under automated underwriting system, but having that approval up front is essential when you're looking at a pre-approval. And how long about take? What's that? Um, so the automated underwriting system should be part of the normal pre-approval process. It takes like two minutes to run it as long as the application is input correctly.

SPEAKER_01 4:11

Yep.

SPEAKER_00 4:11

And then the human aspect? The human aspect is your regular underwriting, your 24 to 48 hours. You know, but it doesn't go, it only the only time it ever sees an underwriter's eyes before during the pre-approval process is if we send it in for what's called a TBD underwrite to be determined underwrite. And we would do that in cases where we're a little bit unsure of the income. Um, for example, if you have someone who's self-employed and um we're using 12 months of bank statements to approve the loan, we would want to get the underwriter's eyes on what income they're gonna use for approval. Um, another example would be if we have to do what's called a manual underwrite. In other words, we don't get that AUS approval or we don't get that approved eligible rating. We have to do a manual underwrite. Sometimes I will send those in to underwriting to do a uh upfront manual underwriting to make sure that as the client's offering on homes, we don't have any issues that come on. Um so, and then this is a really interesting question. Have any conditions been identified up front that could delay closing? So, for example, something like this, if someone were to ask me this, I would have to identify things like, yeah, the borrower changed jobs a month ago and they still haven't received a pay stub. Or the borrower, you know, is we're working off an offer letter for employment instead of an actual pay stub, and that could delay closing. Um if, you know, yes, they have to um get a bonus payout from their, you know, employer in order to have enough funds to close. Things of that, things like that that could delay closing if we don't um identify them up front. I had a client um that didn't have a photo ID, and we ended up having to delay closing by a week and a half because he was having issues getting a photo ID from the state, from you know, a passport, et cetera. So we actually ended up having to wait until he received his passport in the mail in order to close on a loan. So if there's anything that's been identified like that up front, that's a very important question to ask. And then last one I came up with is is the buyer approved based on estimated information, or do you actually have documentation and have you ran this property in through their debt to income ratios? So why that's important is I can say to the client, yeah, shop at a $400,000 price range. But that is very, very, very determined on taxes and insurance amounts. And if we're hitting the top of the debt to income ratios for clients in that situation where we're really hitting the top of the debt to income ratios and we're really stretching that budget, I would tell them every single, any time you offer on a property, I'm going to be running this through your debt to income ratio to make sure that we aren't going over. Because if we do go over, obviously that creates problems, you know, with the pre-approval. You have to either come up with more money down or we have to pay something off or something of that nature. So make sure you ask them like, have you run proper or have you ran property specific numbers on this particular property to make sure that they are approved at this estimated payment? Um, because like I said, things that can change that would be like insurance cost. So I always try to like overestimate what the insurance is going to be to make sure that our debt to income ratio are gonna be just fine. So just some things to ask your lender when you do call them. And you know, it is an interrogation, and that's fine. I definitely would suggest that you do a little bit of interrogation. If they can't answer those questions, then you have another, you know, another set of uh issues on your hands, if that makes sense.

SPEAKER_01 7:32

No, absolutely. So, and I know the first one you talked about was the income and asset statements. So, if those aren't like talk a little bit more about when, if not right away, when that's reviewed, how far into the process, or um, why would we want to ask that?

SPEAKER_00 7:48

So a lender should be reviewing income and asset statements up front with the pre-approval, with the loan application. They should be asking their client, send me pay stubs, send me W-2s, send me, you know, this minimum documentation, send me an asset statement so that I know you have enough cash to close. I can calculate your income accurately, and I can do a solid pre-approval with the credit report. Um, sometimes, and it doesn't really matter to me necessarily if I do a soft poll on credit or I do a hard inquiry. A soft poll is gonna give me the same information that a hard inquiry does. It's just a matter of it doesn't hit your credit as an inquiry on a soft pull. So it still counts, it's still a valid pre-approval, it still gives all the information that's gonna show up on a credit report. It just doesn't give you a hard inquiry. So if that makes sense. So it pulls from two of the three bureaus. Okay.

SPEAKER_01 8:34

Yep. No, that does. Have you seen lenders that will issue, and I kind of know the answer, but I want to hear your take, that will issue a pre-approval without having gone through the income and asset statements thoroughly.

SPEAKER_00 8:46

Oh, yeah. Yeah, all the time. Wow. And they get into a lot of issues. And, you know, like I said before, I do a ton of rescue missions for, you know, incorrect pre-approvals, we'll just put it that way.

SPEAKER_01 8:59

Oh my gosh. Yeah.

SPEAKER_00 9:00

So yeah, a ton of rescue missions. Um, that's kind of you know one of the things that I specialize in. It's one of those, you know, like if somebody says no, it's like, okay, how can I turn this into a yes, or how do I identify the problem? And is there a solution that we can get to based on that? The income is very important because just you let's just say for whatever reason you don't work exactly 40 hours at your job every week, and sometimes you missed, and sometimes you don't have enough PTO, and sometimes your year-to-date income is low, things of that nature. When those things happen, we get into a completely different approval category from an income standpoint called variable income approval. What variable income basically means is that you don't either your year-to-date income is lower than what it should be for working 40 hours that entire time, or you show some indication that you are not working 40 hours on a consistent basis. Good example of this would be like a nurse. They work, you know, 32 hours, 36 hours. They're still considered full-time in nurse world, but in mortgage world, they are not. And so we get into a variable income category, and that's very important to understand how to calculate variable income because depending on how it looks, it could be a year-to-date calculation average, it could be a one-year plus year to date, and it could be a two-year plus year today, depending on how the guidelines work and how what type of job it is, and how whether it's typical for that job. You really have to be good at understanding pay stuff's income, how they look, what to calculate, and what number to use for that, for that calculation. And I will tell you that as good as I am at calculating income and as good as I am at, you know, doing self-employed income and all that stuff, nine times out of 10, the income comes back from the underwriter with some sort of change to it that's usually pretty minimal, but it's very rare that it's entirely spot on. So, for example, even if you have a client that works 40 hours a week and always has in the year-to-date income lines up or whatever that is, the underwriter may decide to go last year W-2 plus year-to-date income because it still works for the loan and offers less risk to do it to lose to use a lower income amount, if that makes sense. So, in other words, like let's say the their normal 40-hour week income is $5,000 a month, but we average it over last year and up into this year, and now it's four four thousand eight hundred. If four thousand eight hundred works for the loan, oftentimes underwriters will put that on the on the loan application as the approved amount so that they have that wiggle room because it offers less risk with lower income if the debt to income ratio still work. Yeah, so it's really interesting.

SPEAKER_01 11:35

Very interesting. Well, and yes, yeah, I mean, I no one no one really teaches real estate agents these questions to ask. Um, I haven't heard them this way either. I know them, but I haven't heard them. So you're being so succinct about it is so wonderful. And I want to flip that too, because I work with so many agents that are newer to the business or not yet established and don't have an amazing lender like you that I can just be like, here you go, next, here you go, next, here you go, next, yeah. Um, and know with a hundred percent and fifty percent certainty that everything's going to be taken care of. Agents, you need to be asking these questions when you are vetting. Like, first of all, just go to Nikki. If you need a great lender, just go to Nikki and you're fine. However, if you want another second or third option, um be asking these questions when you're vetting the vendors, uh, the lenders, just like you should with any vendor, any inspector, any you know, mortgage, uh, contractors, title companies. I mean, you really, this is a direct reflection and extension of your business. And it can stay in your lane and have some with someone like Nikki in her lane for the lending, because having these questions and knowing that this is happening up front, yes, it's the whole difference between uh, I'm guessing the one you saved me was a rocket mortgage versus so uh it's very important. And and what what we came to find out um is that the the gentleman who was there was newer, he didn't know what he didn't know. And there's a lot of lenders that um are doing this as a job, and they're not doing it as a career, like Nikki has made her life career. I mean, 27, 28, however many years it is now, uh, that you've been doing this and you know what to look out for. So I think that years in the business too, it's just a badge of honor because you've really seen it all, and it's something to definitely be thinking about.

SPEAKER_00 13:39

And I did just put in the chat the link to the NMLS Consumer Access website. What that website does is it allows you to put in any NMLS number or name or company name into their search, and you can pull up and see how long the loan officer's been employed, how long they've been in each place of employment, how long they've been licensed, and what states they're licensed in. And then you can also see if there's any sort of infraction against them or any sort of legal action that's been taken or kind of like dings on their license that they've had. And you can absolutely, as a consumer and as a realtor, look up those numbers and names and find out a lot of information about who you're working with from a buyer's lender standpoint.

SPEAKER_01 14:21

It's so, so, so important. So I appreciate that. And if you're watching on YouTube or listening on the podcast, I will put it in the notes so that you have that link as well that Nikki just mentioned. But yes, no, know these, know these questions to ask. And when you're calling, if you're especially, yeah, if you're the listing agent and the buyer comes and you don't know or the the um lender of the buyer, or they're not reputable, you be asking these questions. And if they hesitate or if they're asking you questions back, that's definitely a red flag. And just give them Nikki's name and number and have them call her. Absolutely, absolutely, because you will eventually, because you'll have to save it. Exactly. Yeah, so so awesome. Oh, such great information, Nikki. Thank you so much for your time and your expertise and your years and years of experience. It's only bringing the industry up and making us better and being able to serve our clients better. So I appreciate you so so much. I appreciate you as well. All right, we'll see you next week. Bye. Bye.