The Loan Process
Below is a detailed explanation of the loan process for your convienece
1. Mortgage Preapproval - Take the First Step to Your Dream Home
Pre-approvals don't take much time. They involve pulling a three-bureau credit report (called a tri-merge) that shows your credit score and credit history as reported by third-party, respected institutions. Within the credit report, a lender can see your payment history (to see if payment obligations have been on-time and in-full) and your lines of credit (past and present).
Your lender will be able to pinpoint a loan amount for which you qualify. This pre-approval will save you a lot of time since you will be able to focus exclusively on houses in your price range.
Mortgage pre-approvals also signal to the seller that you’re a serious buyer. Being prepared is particularly useful when making an offer on a house. If you intend to negotiate the deal (and why wouldn’t you?), a pre-approval gives your offer a little extra gravity. Sellers tend to focus on the path of least resistance: the buyer who is pre-approved.
2. Mortgage Pre-Qualification
As you do your online research, you may read the term mortgage pre-qualification. It is not the same as pre-approval, and it’s important to know the difference.
A pre-qualification is a less meaningful measure of a person’s actual ability to get a loan. It’s a very lightweight “at a glance” look at a borrower’s credit and capacity to repay a mortgage. It’s usually determined by a loan officer asking a potential borrower a few basic questions like, “How is your credit?” There’s no third-party verification of the borrower’s answers. While the conversation with a loan officer can be helpful for other reasons, there’s no tangible result that proves anything to anyone (like to your real estate agent or a seller).
4. Required Documents
A state-issued driver’s license or photo ID card.
All borrowers/co-borrowers must provide ID
Tax Returns • 2 years of tax returns ( Business and Personal )
W-2 forms form two years
For self-employed folks, you’ll most likely be asked for your profit & loss (P&L) statement, federal tax statements and/or balance sheets for last two years
Pay stubs covering 30 days
Bank Statements Provide 2 months of most recent, complete bank statements. Include all pages for all accounts. Statements much show your complete account numbers.
Source all Large Deposits showing that are not payroll
Mortgage statements for all Real Estate owned
Homeowners policies for homes
HOA Monthly Dues
Mortgage gift letter
Bankruptcy discharge paperwork •
Pension statement & Social Security/Disability Statement
Certificate Of Eligibility
Contact Info for Nearest Living Relative
Copy of the Note
5. The Intent to Proceed
After you receive your Loan Estimate, it is up to you to decide whether to move forward with us or not. If you decide not to proceed with an application for a particular loan, you don't need to do anything further. If you do intend to proceed with us, you must take the next step and tell us in writing or by phone that you want to move forward with the application for that loan. All lenders are required to honor the terms of the Loan Estimate for 10 business days. So if you decide to move forward more than 1 business days after you receive a Loan estimate, please realize that market conditions may make it necessary to revise the terms and estimated costs and provide you with a revised Loan Estimate
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 derogatoriness, such as late payments, collections and/or judgments require a written explanation. The processor examines the Appraisal and Title Report checking for any property issues that may require further investigation. The entire mortgage package is then put together for submission to the lender.
7. Loan Estimate
A Loan Estimate is a three-page form that you receive after applying for a mortgage. The Loan Estimate tells you important details about the loan you have requested. We will deliver this to you within 3 days of your fully completed loan application. The Loan Estimate provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan. The Loan Estimate also gives you information about the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future. In addition, the Loan Estimate will also indicate if the loan has special features that you will want to be aware of, like penalties for paying off the loan early (a prepayment penalty) or increases to the mortgage loan balance even if payments are made on time (negative amortization). The form uses clear language and is designed to help you better understand the terms of the mortgage loan you've applied for. All lenders are required to use the same standard Loan Estimate form. This makes it easier for you to compare mortgage loans so that you can choose the one that is right for you. When you receive a Loan Estimate it does not mean that your loan has been approved or denied. The Loan Estimate shows you what loan terms we can offer you if you decide to move forward.
8. 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:
Public Record Information
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 inquiries.
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 1950s 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 !ates.
9. 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 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 arid 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.
Once the processor has put tog.ether 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 acceptable loan. If more information is needed, the loan is put in to "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.
11. Closing Disclosure
The Closing Disclosure is a five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs). We are required by law to give you the Closing Disclosure at least three business days before you close on your mortgage loan. This three-day window allows you time to compare your final terms and conditions to those estimated in the Loan Estimate that you previously received from us. The three days also gives you time to ask us any questions before you go to the closing table.
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 then, and, if everything is in order, arranges for the funding bf the loan. Once the loan has funded, the closing attorney 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 final CD. Final disbursements are then made.