|
Loan Process 
-
-
-
-
-
-
-
-
-
-
Pre-Qualification
Pre-qualification starts the
loan process. Once a lender has gathered information about a borrower's income
and debts, a determination can be made as to how much the borrower can pay for a
house. Since different loan programs can cause different valuations a borrower
should get pre-qualified for each loan type the borrower may qualify for.
In attempting to approve homebuyers for the type and amount of mortgage they
want, mortgage companies look at two key factors. First, the borrower's ability
to repay the loan and, second, the borrower's willingness to repay the loan.
Ability to repay the mortgage is verified by your current employment and
total income. Generally speaking, mortgage companies prefer for you to have been
employed at the same place for at least two years, or at least be in the same
line of work for a few years.
The borrower's willingness to repay is determined by examining how the
property will be used. For instance, will you be living there or just renting it
out? Willingness is also closely related to how you have fulfilled previous
financial commitments, thus the emphasis on the Credit Report and/or your rental
payment history.
It is important to remember that there are no rules carved in stone. Each
applicant is handled on a case-by-case basis. So even if you come up a little
short in one area, your stronger point could make up for the weak one. Mortgage
companies could not stay in business if they did not generate loan business, so
it is in everyone's best interest to see that you qualify.
Back to Top
Mortgage Programs and Rates
To properly analyze a mortgage program, the borrower needs to think about how
long he plans to keep the loan. If you plan to sell the house in a few years, an
adjustable or balloon loan may make more sense. If you plan to keep the house
for a longer period, a fixed loan may be more suitable.
With so many programs to from which to choose, each with different rates,
points and fees, shopping for a loan can be time consuming and frustrating. An
experienced mortgage professional can evaluate a borrower's situation and
recommend the most suitable mortgage program, thus allowing the borrower to make
an informed decision.
Back to Top
The Application
The application is the true start of the loan process
and usually occurs between days one and five of the start of the loan process.
With the aid of a mortgage professional, the borrower completes the application
and provides all Required Documentation.
The various fees and closing cost estimates will have been discussed while
examining the many mortgage programs and these costs will be verified by the
Good Faith Estimate (GFE) and a Truth-In-Lending Statement (TIL) which the
borrower will receive within three days of the submission of the application to
the lender.
Back to Top
Processing
Once the application has been submitted, the processing of the mortgage
begins. The Processor orders the Credit Report, Appraisal and Title Report. The
information on the application, such as bank deposits and payment histories, are
then verified. Any credit derogatories, such as late payments, collections
and/or judgments require a written explanation. The processor examines the
Appraisal and Title Report checking for property issues that may require further
investigation. The entire mortgage package is then put together for submission
to the lender.
Back to Top
Required Documents
If you are purchasing or refinancing your home, and you are salaried,
you will need to provide the past two-years W-2s and one month of
pay-stubs: OR, if you are self-employed you will need to provide
the past two-years tax returns. If you own rental property you will need to
provide Rental Agreements and the past two-years' tax returns. If you wish to
speed up the approval process, you should also provide the past three months'
bank, stock and mutual fund account statements. Provide the most recent copies
of any stock brokerage or IRA/401k accounts that you might have.
If you are requesting cash-out, you will need a "Use of Proceeds" letter of
explanation. Provide a copy of the divorce decree if applicable. If you are not
a US citizen, provide a copy of your green card (front and back), or if you are
NOT a permanent resident provide your H-1 or L-1 visa.
If you are applying for a Home Equity Loan you will need, in addition to the
above documents, to provide a copy of your first mortgage note and deed of
trust. These items will normally be found in your mortgage closing documents.
Back to Top
Credit Reports
Most people applying for a home mortgage need not worry about the effects of
their credit history during the mortgage process. However, you can be better
prepared if you get a copy of your Credit Report before you apply for your
mortgage. That way, you can take steps to correct any negatives before making
your application.
A Credit Profile refers to a consumer credit file, which is made up of
various consumer credit reporting agencies. It is a picture of how you paid back
the companies you have borrowed money from, or how you have met other financial
obligations. There are five categories of information on a credit profile:
NOT included on your credit profile is race, religion, health, driving record, criminal record, political preference, or income.
If you have had credit problems, be prepared to discuss them honestly with a
mortgage professional who will assist you in writing your "Letter of
Explanation." Knowledgeable mortgage professionals know there can be legitimate
reasons for credit problems, such as unemployment, illness, or other financial
difficulties. If you had problems that have been corrected (reestablishment of
credit), and your payments have been on time for a year or more, your credit may
be considered satisfactory.
The mortgage industry tends to create its own language, and credit rating is
no different. BC mortgage lending gets its name from the grading of one's credit
based on such things as payment history, amount of debt payments, bankruptcies,
equity position, credit scores, etc. Credit scoring is a statistical method of
assessing the credit risk of a mortgage application. The score looks at the
following items: past delinquencies, derogatory payment behavior, current debt
levels, length of credit history, types of credit and number of inquires.
By now, most people have heard of credit scoring. The most common score (now the most common terminology for credit scoring) is called the FICO score. This
score was developed by Fair, Isaac & Company, Inc. for the three main credit
Bureaus; Equifax (Beacon), Experian (formerly TRW), and Empirica (TransUnion).
FICO scores are simply repository scores meaning they ONLY consider the
information contained in a person's credit file. They DO NOT consider a person's
income, savings or down payment amount. Credit scores are based on five
factors: 35% of the score is based on payment history, 30% on the amount owed,
15% on how long you have had credit, 10% percent on new credit being sought, and
10% on the types of credit you have. The scores are useful in directing
applications to specific loan programs and to set levels of underwriting such as
Streamline, Traditional or Second Review. However, they are not the final word
regarding the type of program you will qualify for or your interest rate.
Many people in the mortgage business are skeptical about the accuracy of FICO
scores. Scoring has only been an integral part of the mortgage process for the
past few years (since 1999); however, the FICO scores have been used since the
late 1950's by retail merchants, credit card companies, insurance companies and
banks for consumer lending. The data from large scoring projects, such as large
mortgage portfolios, demonstrate their predictive quality and that the scores do
work.
The following items are some of the ways that you can improve your credit
score:
-
Pay your bills on time.
-
Keep Balances low on credit cards.
-
Limit your credit accounts to what you really need. Accounts that are no
longer needed should be formally cancelled since zero balance accounts can still
count against you.
-
Check that your credit report information is accurate.
-
Be conservative in applying for credit and make sure that your credit is
only checked when necessary.
A borrower with a score of 680 and above is considered an A+ borrower. A loan
with this score will be put through an "automated basic computerized
underwriting" system and be completed within minutes. Borrowers in this category
qualify for the lowest interest rates and their loan can close in a couple of
days.
A score below 680 but above 620 may indicate underwriters will take a closer
look in determining potential risk. Supplemental documentation may be required
before final approval. Borrowers with this credit score may still obtain "A"
pricing, but the loan may take several days longer to close.
Borrowers with credit scores below 620 are not normally locked into the best
rate and terms offered. This loan type usually goes to "sub-prime" lenders. The
loan terms and conditions are less attractive with these loan types and more
time is needed to find the borrower the best rates.
All things being equal, when you have derogatory credit, all of the other
aspects of the loan need to be in order. Equity, stability, income,
documentation, assets, etc. play a larger role in the approval decision. Various
combinations are allowed when determining your grade, but the worst-case
scenario will push your grade to a lower credit grade. Late mortgage payments
and Bankruptcies/Foreclosures are the most important. Credit patterns, such as a
high number of recent inquiries or more than a few outstanding loans, may signal
a problem. Since an indication of a "willingness to pay" is important, several
late payments in the same time period is better than random lates.
Back to Top
Appraisal Basics
An appraisal of real estate is the valuation of the rights of ownership. The
appraiser must define the rights to be appraised. The appraiser does not create
value, the appraiser interprets the market to arrive at a value estimate. As the
appraiser compiles data pertinent to a report, consideration must be given to
the site and amenities as well as the physical condition of the property.
Considerable research and collection of data must be completed prior to the
appraiser arriving at a final opinion of value.
Using three common approaches, which are all derived from the market, derives
the opinion, or estimate of value. The first approach to value is the COST
APPROACH. This method derives what it would cost to replace the existing
improvements as of the date of the appraisal, less any physical deterioration,
functional obsolescence, and economic obsolescence. The second method is the
COMPARISON APPROACH, which uses other "bench mark" properties (comps) of
similar size, quality and location that have recently sold to determine value.
The INCOME APPROACH is used in the appraisal of rental properties and has
little use in the valuation of single family dwellings. This approach provides
an objective estimate of what a prudent investor would pay based on the net
income the property produces.
Back to Top
Underwriting
Once the processor has put together a complete package with all verifications
and documentation, the file is sent to the lender. The underwriter is
responsible for determining whether the package is deemed an acceptable loan. If
more information is needed, the loan is put into "suspense" and the borrower is
contacted to supply more information and/or documentation. If the loan is
acceptable as submitted, the loan is put into an "approved" status.
Back to Top
Closing
Once the loan is approved, the file is transferred to the
closing and funding department. The funding department notifies the broker and
closing attorney of the approval and verifies broker and closing fees. The
closing attorney then schedules a time for the borrower to sign the loan
documentation.
At the closing the borrower should:
-
Bring a cashiers check for your down payment and closing costs if required.
Personal checks are normally not accepted and if they are they will delay the
closing until the check clears your bank.
-
Review the final loan documents. Make sure that the interest rate and loan
terms are what you agreed upon. Also, verify that the names and address on the
loan documents are accurate.
-
Sign the loan documents.
-
Bring identification and proof of insurance.
After the documents are signed, the closing attorney returns the documents to
the lender who examines them and, if everything is in order, arranges for the
funding of the loan. Once the loan has funded, the closing attorney arranges for
the mortgage note and deed of trust to be recorded at the county recorders
office. Once the mortgage has been recorded, the closing attorney then prints
the final settlement costs on the HUD-1 Settlement Form. Final disbursements are
then made.
Back to Top
Summation
A typical "A" mortgage transaction takes between 14-21 business days to
complete. With new automated underwriting, this process speeds up greatly.
Contact one of our experienced Loan Officers today to discuss your particular
mortgage needs or Apply Online and a Loan Officer will
promptly get back to you.
Back to Top
Copyright (c) 2006 Bonis & Bonnie Byrd, Jr. All rights reserved.
WebMaster@BestHomeLoansRUs.com |
