The 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 the applicant's current employment and total income. Generally speaking, mortgage companies prefer an applicant to have been employed at the same company for at least two years, or to be in the same line of work for two years.

The borrower's willingness to repay is determined by examining how the property will be used. For instance, will the property be owner-occupied or rented out? Willingness is also closely related to how an applicant has repaid previous financial commitments, thus the emphasis on the Credit Report and an applicant's rental payment history.

It is important to note that each application is different and therefore handled on a case-by-case basis. File weaknesses can be offset by other file strengths.

Mortgage Programs and Rates

To properly analyze a mortgage program, a borrower will need to consider how long they plan to keep the loan. If they plan to sell the house in a few years, an adjustable or an adjustable rate loan may be appropriate. If they plan to keep the house for a longer period, a fixed loan may be more suitable.

With so many programs 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.

The Application

The application is the starting point of the loan process.  With the aid of a mortgage professional, the borrower will complete the application and provide all Required Documentation.

The loan cost estimates will have been discussed while examining the many mortgage programs and these estimates will be verified in writing, by the Loan Estimate, also known as the LE. The borrower will receive the LE within three days of the submission of the application to the lender.

Processing

Once the application has been submitted by the applicant, the processing of the mortgage begins. The Processor orders the Credit Report, Appraisal and Title Report. The information on the application, such as income from employment, bank deposits/assets and payment histories, are then verified. Any credit derogatories, such as late payments, collections and/or judgments require a written, satisfactory explanation. Examination of the Appraisal and Title Report and required documentation will take place. The entire mortgage package is then put together for submission to the mortgage lender.

Credit Reports

A Credit Profile refers to a consumer credit file, which is compiled by TransUnion, Equifax, and Experian who collect credit data on consumers in the United States of America. The Credit Report provides data on a consumer's use of credit, and payment histories thereof.  There are five categories of information in a credit profile:

• Identifying Information

• Employment Information

• Credit Information and Credit Scoring (FICO)

• Public Record Information

• Number of recent Inquiries to obtain new credit

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.

Underwriting

The underwriter is responsible for determining whether the document package, submitted by an applicant, is deemed acceptable. If more information is needed, an underwriter will request it. If the loan documentation submitted is acceptable the loan application will receive an "approved" status. If an applicant cannot provide the underwriter with the required documentation, the mortgage loan application will be denied.

Closing

Once a  loan application is approved, and all of the conditions to make that loan are cleared by the underwriter,  the loan file will be transferred to the lender's closing and funding department. 

A Closing Disclosure also known as a CD will be provided to the borrower, a minimum of 3 days prior to the scheduled closing date, for verification and accuracy.

The funding department will notify all the parties to the transaction and in particular, the closing agent or attorney,  then, a date, place and time will be established for signing/executing the loan documents. (Note, Mortgage and compliance documents).

The borrower will be asked to:

• Bring a cashiers check for the down payment and closing costs if required.

• Review the final loan documents, names, addresses, terms, etc..

• Bring Identification,  Sign the loan documents.

After the mortgage loan documents are signed, the closing agent/attorney will return the documents to the lender for final examination. If everything is in order, the lender will fund the loan. Once the loan has been funded, the closing agent/attorney will provide the borrower a full loan package and arrange for the mortgage note and deed of trust to be recorded at the county/town recorder's office.