- Mortgage Programs and Rates
- The Application
- The Loan Estimate
- Intent to Proceed
- Required Documents
- Credit Reports
- Appraisal Basics
- Closing Disclosure
The loan pre-qualification starts the loan process. Once we have gathered information about a borrower’s income and debts, we can determine how much home a borrower can comfortably afford. Because there are many loan types to choose from, borrowers should get pre-qualified for each loan type they plan to qualify.
When it comes to approving homeowners for the type and amount of loan they want, lenders consider a few essential aspects – the borrower’s ability to repay the loan, as well as the willingness to repay.
Your current employment and total income verify your ability to repay the mortgage. Generally speaking, most lenders prefer for the borrower to have been employed at the same business for at least two years or be in the same industry for a minimum of a couple of years.
A borrower’s willingness to repay the loan is determined by analyzing how the property will be used. For example, will the borrower be an owner-occupant in the subject property, or will they be renting it out?
A borrower’s willingness to pay the loan is also related to how the borrower has fulfilled previous financial obligations, thus the focus on the Credit Report and the borrowers’ previous mortgage or rental payment history.
Each application is considered on a case-by-case basis, based on the borrower’s circumstances. So, even if a borrower comes up short in one area, they may outperform in other areas. Lenders cannot stay in business unless they generate new loan business; thus, it is in everyone’s best interest to ensure that the borrower meets all state and federal guidelines and regulatory requirements.
Mortgage Programs and Rates
The borrower(s) must determine how long they intend to hold the loan to fully analyze it. If you expect to sell the house in a few years, an adjustable or balloon loan may be a better alternative. A fixed mortgage may be more suitable if you intend to remain in the property for a prolonged period.
Shopping for a home loan is a time-consuming and difficult process since many programs to choose from, each with its own set of rates, points, and fees. An expert mortgage professional can analyze borrowers’ circumstances and suggest the best mortgage program, allowing them to make an informed choice.
The loan application is where the loan procedure begins. It usually occurs between the first and fifth days of the loan process. The borrower fills out the application and provides all required documentation with the help of a mortgage broker.
Depending on the loan program chosen, the loan officer will normally discuss and disclose the various fees and closing cost estimates. The borrower will get a Good Faith Estimate (GFE) and a Truth-In-Lending Statement (TIL) within three days of submitting the loan application to the lender.
The Loan Estimate
After applying for a mortgage, you will receive a three-page Loan Estimate. The Loan Estimate provides crucial information regarding the loan you’ve sought. We’ll send it to you within three days of receiving your completed loan application.
The Loan Estimate contains critical information such as the expected interest rate, monthly payment, and total loan closing expenses. The Loan Estimate also tells you how much taxes and insurance will cost and how the interest rate and payments will fluctuate in the future. Furthermore, the Loan Estimate will indicate if the loan has any unique features that you should be aware of, such as penalties for paying off the loan early (prepayment penalty) or rises in the mortgage loan debt even if payments are made on time (negative amortization).
The form is written in plain English to assist you in better understanding the terms of the mortgage loan you’ve applied for. All lenders must use the same standard Loan Estimate form. This makes it easier to compare mortgage loans and select the best one for your needs.
It is important to note that receiving a Loan Estimate does not imply that your loan has been authorized or disapproved. If you decide to proceed, the Loan Estimate shows you what loan conditions we can give you.
The Intent to Proceed
It is up to you to decide whether or not to proceed with us after receiving your Loan Estimate. You are not required to do anything further if you decide not to proceed with a loan application.
If you still wish to work with us, you must let us know in writing or over the phone that you want to move forward with the loan application. For 10 business days, all lenders must adhere to the terms of the Loan Estimate.
So, if you decide to proceed more than ten business days after receiving a Loan Estimate, be aware that market conditions may force us to alter the terms and expected expenses. We will provide you with a revised Loan Estimate.
The mortgage processing begins once the loan application is submitted to the lender. The Processor orders the Credit Report, Appraisal, and Title Report. All of the information on the application is checked, including bank deposits and payment histories. Any negative credit issues, such as late payments, collections, or judgments, must be justified in writing.
The Processor looks over the appraisal and title report for any potential property issues that need to be looked into further. After that, the full mortgage package is put together and sent to the lender.
Assume you are a salaried employee who is buying or refinancing a home. In that instance, you’ll need to submit W-2s from the past couple of years as well as one month’s worth of pay stubs: OR, if you’re self-employed, you’ll need to submit tax returns from the previous two years. Rental Agreements and tax returns from the previous two years are necessary if you own rental property.
To speed up the approval process, you should also submit bank, stock, and mutual fund account statements for the previous three months. Any IRA/401k or stock brokerage accounts that you may have should be provided with the most recent copy.
A “Use of Proceeds” letter of explanation is required if you are requesting cash-out. If relevant, include a copy of the divorce decree. A copy of your green card (front and back) should be provided if you are not a US citizen or your H-1 or L-1 visa if you are not a permanent resident.
In addition to the following papers, you will need to supply a copy of your original mortgage note and deed of trust if you apply for a Home Equity Loan. These elements can be found in your mortgage closing documentation in most cases.
During the mortgage process, most people applying for a home mortgage do not have to be concerned about the impact of their credit history. However, getting a copy of your credit report before applying for a mortgage will help you be prepared. This way, you’ll be prepared to address any problems before finalizing your application.
A credit profile is a compilation of consumer credit history from several credit reporting bureaus. It’s a representation of how you paid back companies from whom you borrowed money or met your financial commitments. A credit profile contains five types of information:
- Identifying Information
- Employment Information
- Credit Information
- Public Record Information
Religion, race, health, driving or criminal record, political inclination, and wealth are not included in your credit profile.
If you’ve had credit issues in the past, be ready to talk about them openly with a mortgage professional who will help you write your “Letter of Explanation.” Unemployment, illness, or other financial challenges can be genuine reasons for credit issues.
Assume you had credit concerns that were resolved (reestablishment of credit), and you’ve been paying on time for a year or longer. Your credit may be considered satisfactory in that case.
Credit rating is no exception to the mortgage industry’s creation of its jargon. Payment history, the number of debt payments, bankruptcies, equity position, credit ratings, and other factors are used to grade a person’s credit. Credit scoring is a statistical way of determining a mortgage applicant’s credit risk. The following factors are considered when calculating the score:
- Past delinquencies.
- Derogatory payment behavior.
- Current debt levels.
- Length of credit history.
- Types of credit and number of inquires.
Most people have heard about credit scoring by now. The FICO score is the most popular (currently the most used phrase for credit rating). Fair, Isaac & Company, Inc. created this score for the three major credit bureaus: Equifax (Beacon), Experian (previously TRW), and Empirica (TransUnion).
FICO scores are repository scores, which means they only take into account information from a person’s credit file. They don’t consider a person’s salary, savings, or down payment. Credit scores are determined by the following five factors:
- Payment history accounts for 35% of your score, followed by
- 30% of the amount owed
- 15% of the length of time you’ve had credit
- 10% of new credit sought, and
- 10% of the sorts of credit you have.
The scores can be used to guide applicants to certain loan programs and underwriting levels, such as Streamline, Traditional, or Second Review. However, they are not the final word on the type of program you will be eligible for or your interest rate.
Many people in the mortgage industry are wary of FICO scores’ reliability. Scoring has only been a component of the mortgage process for a few years (since 1999); however, retail merchants, credit card firms, insurance companies, and banks have been using FICO ratings for consumer lending since the late 1950s. The results of large-scale scoring initiatives, such as big mortgage portfolios, show that the scores are accurate and useful.
Some of the things you may do to increase your credit score are as follows:
- Make sure you pay your payments on schedule.
- Maintain a low credit card balance.
- Keep your credit cards to a bare minimum. Because zero balance accounts can still count against you, accounts no longer needed should be officially terminated.
- Verify that the information on your credit report is correct.
- Be cautious and only have your credit examined when necessary when applying for credit.
A borrower with a credit score of 680 or higher is classified as an A+ borrower. A loan with this score will be processed through an “automatic basic computerized underwriting” procedure, which will take minutes to complete. Borrowers in this group are eligible for the lowest interest rates and can complete their loan in as little as a few days.
Underwriters may identify potential risk if your score is below 680 but over 620. Before final approval, more paperwork may be required. Borrowers with this credit score may still qualify for “A” pricing, but the loan will likely take longer to close.
Borrowers with credit scores under 620 are usually not guaranteed the best rate and terms available. This type of loan is typically given to “sub-prime” lenders. These loan options have less appealing loan terms and conditions, and it takes more time to discover the best rates for the customer.
If you have bad credit, you need to be sure that all of the other components of the loan are in order. The approval decision is influenced by equity, stability, income, documents, assets, and so on. When establishing your grade, you can choose any combination you want. Still, the worst-case scenario will result in a lower credit grade.
The most significant are late mortgage payments and bankruptcies/foreclosures. A significant number of recent queries or more than a few ongoing loans could indicate a problem with your credit. Multiple late payments in a row are preferable to random late payments because an indicator of “willingness to pay” is vital.
An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights to be appraised. The appraiser interprets the market to arrive at a value estimate.
When compiling data for a report, the appraiser must take into account the property’s location and features, as well as its physical condition. Prior to arriving at a final opinion on worth, the appraiser must conduct extensive research and gather evidence.
Using three common approaches, all derived from the market derive the opinion or value estimate.
The COST APPROACH is the first method of determining value. This technique calculates the cost of replacing existing improvements at the appraisal time, less physical degradation, functional obsolescence, and economic obsolescence.
The COMPARISON APPROACH is the second approach, examining comparable recently sold “benchmark” properties (comps) of similar size, quality, and location to assess value.
The INCOME APPROACH is primarily used to value rental properties and rarely value single-family homes. Based on the property’s net income, this method provides an objective estimate of what a wise investor would pay.
The loan application is delivered to the underwriter after the Processor has bundled it with all of the needed documentation and verifications. The underwriter decides if the package is suitable for a loan. The loan is placed in “suspense” if more information is required. The requisite information and/or paperwork must be provided by the borrower. If the loan is acceptable in its current state, it is marked as “approved.”
The Closing Disclosure is a five-page document that contains final information regarding the mortgage loan you’ve chosen. It outlines the loan terms, your expected monthly payments, and the fees and other expenditures associated with obtaining your mortgage (closing costs).
The Closing Disclosure must be provided to you at least three working days before your mortgage loan closes. This three-day period gives you the opportunity to compare your final terms and prices to those estimated in the Loan Estimate you got before. Before you go to the closing table, you will have three days to ask us any questions you may have.
The paperwork is transferred to the closing and funding department once the loan has been approved. The funding department notifies the broker and closing attorney of the approval and confirms the fees. After that, the closing attorney arranges for the borrower to sign the loan documents.
At the closing, the borrower should:
- Bring a cashier’s check for your down payment and, if applicable, closing charges. Personal checks are frequently refused, and if they are, the transaction will be delayed until the check clears your bank.
- Examine the loan’s final documentation. Make sure the interest rate and loan terms are the same as what you committed to.
- Make sure the names and addresses on the loan documentation are correct.
- Sign the loan paperwork.
- Identification and proof of insurance are required.
The closing attorney/title firm returns the documents to the lender once they have been signed, who checks them and arranges for the loan to be funded if everything is in order. The closing attorney/title company arranges for the mortgage note and deed of trust to be recorded at the county recorders’ office once the loan has been financed. The closing attorney publishes the final settlement fees on the HUD-1 Settlement Form once the mortgage has been registered. After then, final disbursements are made.
The typical “A” mortgage transaction takes 14 to 21 days to complete. This process has been greatly accelerated because of new computerized underwriting. To discuss your specific mortgage needs, call or email one of our knowledgeable Loan Officers immediately, or apply online. A Loan Officer will contact you as soon as possible.