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Pre-sales and developing a pipeline of pre-qualified homebuyers is critical
for convincing funders of demand for your product and can help the CDC anticipate
construction schedules. The pre-qualification intake process must be integrated
into the overall Marketing Plan of the CDC's homeownership production program.
The staff person or contracted marketing professional must be familiar with
all applicable Fair Housing, Equal Credit Opportunity and Disability Accessibility
Laws. The Pre-Qualification Intake Session should provide the CDC and prospective
mortgage lenders with enough information to:
 Assess
creditworthiness; identify household income; determine cash available. |
|
| Calculate
the housing-to-income ratio and the total debt-to-income ratio.
|
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| Identify
issues that need to be resolved in order for the prospective buyer to become
loan ready.
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In addition, either prior to, during (if you have online access) or shortly after, the CDC should obtain a comprehensive credit report for each applicant. The three major credit reporting agencies are:
Equifax - 1 - 800 685 -1111 www.equifax.com
Experian - 1 - 888 397 - 3742 www.experian.com
Transunion - 1 - 800 888 - 4213 www.transunion.com
What to Bring to the Pre-Qualification Meeting?
Ideally, prior to the Intake Meeting the CDC Home Purchase Counselor has received permission to order a credit report via fax, mail or phone. The Counselor should instruct the buyer to bring the following to the Pre-Qualification Meeting:
| Bank
account numbers and the address of their bank branch, along with checking,
savings, investment and/or retirement account statements for the previous
2-3 months.
|
|
| Pay
stubs from previous 2-3 months, W2 withholding forms, tax returns for two
years, or other proof of employment and income verification.
|
|
| Divorce
settlement papers, if applicable.
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| Information
on other consumer debt such as car loans, furniture loans, student loans
and retail credit cards.
|
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| Financial
statements and tax returns, if self-employed.
|
|
| Any
gift letters, if buyer is using a gift from a parent or relative or other
organization to help pay the down payment and/or closing costs. This letter
simply states that the money is in fact a gift and will not have to be repaid.
|
The Housing-to Income Ratio ("Front End Ratio") - provides insight regarding the maximum that the buyer can pay for Principal, Interest, Taxes and Insurance ("PITI"), which provides the basis for how much of a home mortgage the buyer can afford. The mortgage industry limits the Front End Ratio to 33% of gross household income.
The Total Debt-to-Income Ratio ("Back End Ratio") - calculates the maximum amount of income that can be dedicated for PITI and consumer debt payments. The industry standard is that if the Back End Ratio exceeds 38% then the buyer must either pay off debts or obtain a smaller dollar amount mortgage.
The Pre-Qualification Worksheet - should calculate the ratios at their maximums, but should also make a calculation of how much of mortgage a buyer can afford based on either:
| How
much they currently pay for rent, or |
|
| An
"Affordable, Comfortable" Monthly Payment as determined by the buyer
|
Worksheets And Templates
The most comprehensive intake form is the Uniform Residential Loan Application (download here) known as Freddie Mac Form 65 and Fannie Mae Form 1033. Completion of this application form and a current credit report is enough information to help a mortgage lender underwrite and pre-approve a buyer for a home mortgage.
However this form is exhaustive and requires more information than is needed for an initial pre-qualification session. CDCs may want to consider using a Pre-Qualification Questionnaire (download here), which focuses more on the buyer's relevant financial information rather than the added layer of information on the property to serve as collateral for a home mortgage.
After completion of the Pre-Qualification Questionnaire, you have enough information to calculate and analyze the following:
| Front
End Ratio |
|
| Back
End Ratio |
|
| Buyer's
desired PITI monthly payment |
|
| How
much of a mortgage the buyer can afford |
|
| How
much cash available the buyer has for down payment and closing costs |
Download the Home Buyer Pre-Qualification Template (download here) that includes all of the above calculation templates.
CDCs are encouraged to use Fannie Mae's Desktop Home Counselor Program (www.fanniemae.com) because it automates the pre-qualification intake process and also provides comparison of available mortgage products, templates for household budgets and a client tracking system.
OHIO CAPITAL CORPORATION FOR HOUSING