Key facts
- Loan officers should ask five questions to improve complex income preapprovals.
- A preapproval should clearly state its load-bearing assumptions in one sentence.
- Loan officers should rank income sources as required, helpful, or unnecessary.
- Uncertainties should be written as testable statements, such as 'This approval assumes the compensation has the required history and remains likely to continue.'
- A memo should list sources, amounts, reviewed documents, assumed programs, and unresolved conditions for complex preapprovals.
Loan officers can enhance the reliability of complex income preapprovals by adopting a disciplined approach to identifying and verifying income sources, according to Case Laviolette, owner and mortgage loan originator at Kellibrooke Mortgage Partners, LLC. Instead of treating assumptions as settled facts, loan officers should clarify what supports a preapproval number and what remains unresolved.
Laviolette suggests that before issuing a preapproval, loan officers should define the number's underlying assumptions, specifying whether it relies solely on verified base pay or includes variable compensation, business income, restricted stock, or rental income. A clear, one-sentence explanation of these assumptions can make a preapproval more robust.
Identifying the primary income source that is crucial for the approval is key, especially in complex files with multiple legitimate sources. If the file can proceed without an unverified source, that should be noted. Otherwise, the unresolved source requires attention before the borrower proceeds based on the preliminary figure. Ranking income sources as required, helpful, or unnecessary helps prioritize efforts.