• Getting a Home Loan

  • The Home Loan Process

    The home loan process basics step by step:

    Prequalification

    Prequalification starts the mortgage loan procedure. Once a lender has gathered information about a borrower’s income and debts, a determination may be made as to how far the borrower can pay for a home. Since different loan programs can cause different valuations a borrower should get pre-qualified for each loan type the borrower may qualify for.

    In trying to approve homebuyers for the type and amount of mortgage they want, mortgage businesses look at two important facets. First, the borrower’s capacity to repay the mortgage and, second, the borrower’s willingness to repay the bank loan.

    Capability to repay the mortgage is verified by your current employment and total income. Broadly speaking, mortgage businesses prefer for you to have been employed at exactly the same spot for 2 years, or at least be at the exact same amount of business with a few years.

    The borrower’s willingness to repay is determined by examining how the land is going to be properly used. For example, are you going to be living there or just renting it out? Willingness is also closely associated with how you have fulfilled previous financial commitments, thus the emphasis on your credit file and/or your lease payment history.

    It’s crucial to remember we have no rules carved into the rock. Each applicant is handled on a case-by-case basis. Thus, even if you come up a little short in one area, your stronger point could make up for the feeble one. Mortgage companies could not stay in business if they didn’t generate loan business, therefore it’s in everybody’s best interest to see that you qualify.

    Mortgage Programs and Rates

    To correctly analyze a mortgage program, the borrower should think about how long he plans to keep the bank loan. If you plan to sell your house in a couple of years, an adjustable or balloon loan may make more sense. If you’re planning to keep the house for a longer period, a fixed loan may be more suitable.

    With so many programs from which to select, each with various rates, points, and fees, shopping for a loan may be time-consuming and frustrating. An experienced mortgage professional can evaluate a borrower’s situation and recommend the most suitable mortgage application, hence permitting the borrower to make an informed decision.

    The Applying

    The application is the true beginning of the loan process and usually occurs between days one and five of the start of the loan process. With the help of a mortgage professional, the borrower completes the application form 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 great 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.

    Performance

    When the application has been filed, the processing of the mortgage begins. The info on the application form, 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.

    Required Documents

    If you’re purchasing or refinancing your house, 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-explanatory you will want to present the previous two-years tax yields. If you own rental property you’ll have to provide Rental Agreements and the past two-years’ tax yields. If you would like to speed up the approval procedure, you also need to provide the previous three weeks’ 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 a cashout, you will require a “Use of Proceeds” letter of explanation. Provide a copy of the divorce decree if applicable. If you aren’t 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 even l1 visa.

    If you are applying for a Home Equity Loan you may need, along with the above-mentioned documents, to provide a copy of your first mortgage note and deed of trust. These items will typically be found in your mortgage closing documents.

    Charge File

    Many people obtaining a house mortgage need not worry about the effects of their credit history during the mortgage procedure. But, you may be more prepared if you receive yourself a copy of your Credit Report before you apply for your mortgage. This way you’ll be able to take steps to correct any negatives before making your application.

    A Credit Profile refers to a consumer credit file, which can be composed of various consumer credit rating agencies. It’s an image 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:

    If you’ve had credit problems, be ready to discuss them frankly with a mortgage professional that will help you in writing your “Letter of Explanation.” If you had issues that have been corrected (reestablishment of credit), and your payments have been on time for a year or longer, your credit may be considered satisfactory.

    The mortgage industry tends to make its own language, and credit rating is the same. 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 ratings, etc.. Credit scoring is a statistical way of assessing the credit risk of a loan 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 of us have heard of credit scoring.

    FICO scores are simply repository scores meaning they ONLY consider the information contained in a person’s credit report. They DO NOT consider a person’s income, savings or down payment amount. Credit scores are based on five factors: 35% of this score is based on payment history, 30% on the total amount owed, 15% on how long you have had credit, 10% percent on new credit being hunted, and 10 percent on the kinds of loan you have. The scores are useful in directing applications to specific loan programs and also to set levels of underwriting such as Streamline, Traditional or Second Review. However, they’re not the last word regarding the kind of application you will be eligible for the rate of interest.

    Lots of individuals in the mortgage business are skeptical about the accuracy of FICO scores. Scoring has only been an integral aspect of the mortgage process for the last few years (since 1999); however, the FICO scores have been used as the late 1950’s by retail merchants, creditors, 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 things are some of the ways Which You Can improve your credit rating:

    Pay your bills on time.

    Limit your credit accounts to what you absolutely need. Accounts that are no longer needed should be formally canceled since zero balance accounts can still count against you personally.

    Verify that your credit report information is accurate.

    Be conservative in applying for credit and be certain that the 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 is going to be placed through an “automated basic computerized underwriting” system and be completed within seconds. Borrowers in this category qualify for the lowest interest rates and their loan can close in a day or two.

    A score below 680 but above 620 may indicate underwriters will have a good look at determining potential risk. Supplemental documentation may be required before final approval.

    Borrowers with credit scores below 620 are not normally locked into the best rate and terms presented. This loan type usually goes to “subprime” lenders. The loan terms and conditions are less attractive with these loan types and additional time is required to locate the borrower the best rates.

    All things being equal, if you have derogatory credit, all the other characteristics of the loan should 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 situation will push your grade to a lower credit grade. Late mortgage payments along with Bankruptcies/Foreclosures would be the main. Credit patterns, such as a high number of recent inquiries or more than a few outstanding loans, may signal an issue. As an indication of a “willingness to pay” is important, several late payments in the exact same time frame are better than random lates.

    Appraisal Basics

    An evaluation of real estate is the valuation of the rights of ownership. The appraiser does not create value, the appraiser interprets the market to arrive at a value estimate. While the appraiser compiles data pertinent to a report, consideration must be given to the website and amenities in addition to the physical status of the house. Considerable research and collection of data need to be completed prior to the appraiser arriving at a final opinion of value.

    With three common approaches, which are all based on the current market, derives the opinion, or estimate of value. This method derives what it would cost to change the current improvements as of the day of the assessment, less any physical deterioration, functional obsolescence, and economic obsolescence. The second method is the COMPARISON APPROACH, which uses other “benchmark” 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 used in the evaluation of single household dwellings. This process provides an objective estimate of what a prudent investor would pay on the basis of the net income the property produces.

    Once the processor has put together a full package with all verifications and documentation, the file is provided for the lending company. The underwriter is responsible for determining if the package is deemed an acceptable loan. If more info is needed, the loan is put into “suspense” and the borrower is contacted to provide additional information and/or documentation. If the loan is acceptable as submitted, the loan is put into an “approved” status.

    Closing

    Once the loan is approved, the document is transferred to the closing and funding department. The closing attorney then schedules a time for the borrower to sign the loan documentation.

    In the closing the borrower should:

    Bring cashiers check for the down payment and closing costs if required. Personal checks are normally not accepted and when they are they’ll delay the closing until the check clears your bank card.
    Review the last loan documents. Make sure the rate of interest and loan terms are what you consented.
    Bring identification and proof of insurance.
    Following the records 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 this loan.

    Summation

    An average “A” mortgage transaction takes 14-21 business days to accomplish. With new automated underwriting, this process speeds up greatly.