Loan Process

• Pre-Qualification

  Pre-Qualification is what gets the loan process started. Once the lender accumulated all of the information about the borrower’s income and debts, a determination can be made regarding how much a borrower can afford to pay for a house. Meanwhile, different loan programs have different estimations, a borrower should be pre-qualified for certain loans.

  In order to approve homebuyers for the type of and amount of mortgage they want, mortgage companies typically seek for the two basic essential factors of a borrower. The two key factors mortgage companies seek are if the borrower has an ability to repay the loan, and second, if the borrower is willing to repay the loan.

  The competence of repaying the mortgage is verified by your current employment and total income. Generally speaking, mortgage companies prefer you to have been employed in the same company for at least two years or at least have been in the same career field for a few years.

  How the property will be used determines the borrower’s willing to repay the loan. In example, will you be living in that property for some time or would you consider renting out the property? Willingness is looked at how you had fulfilled your financial commitments in the past based on your Credit Report and/or rental payment history.

  It is very important to remember that there are no rules engraved on a stone. Each pre-qualified applicant is processed on case-to-case basis. Mortgage companies wouldn’t had been in business if they did not engender the loan business. So even if you have a short point in one area, your sturdy point can make up for the delicate one. Mortgage Lenders try to figure out relevance ways to find you qualified loans.

• Mortgage Programs and Rates

  To accurately evaluate a mortgage program, borrowers need to consider how long (s)he plans to keep the loan. An adjustable or balloon loan suits those homeowners who plan in selling the house in a few years. A fixed loan perhaps is a good option for those who plan in staying in the house for a long time.

  As there are so many programs, we understand it can be overwhelming to decide which one to choose from as each have different rates, points, and fees making shopping for a loan devastating. To help the borrower make a cognizant decision, an experienced mortgage professional will evaluate the borrower’s situation and recommend the most suitable mortgage program for the borrower.

• The Application

  The application is the actual start of the loan process and typically takes place between the first day and five days from the start of the loan process. With the mortgage professional’s assistance, the borrower is able to complete the application and provide all of the required documents.

  Within 3-days of submitting the application, the borrower will receive the various fees and closing costs estimates after it gets verified by the Good Faith Estimate (GFE) and a Truth-In-Lending statement (TIL) after the lender examines the mortgage programs that will best suit the borrower.

• The Process

  The processing of the mortgage loan begins once the application has been submitted. The processor usually orders the borrowers Credit Report, Appraisal and Title Reports. Then the bank deposits and payment histories information in the application are verified. Any late payments, collections, and/or judgments require a written explanation. The processor than examines the Appraisal and Title Report checking for any property issues that could possibly require any further investigation then the entire mortgage package is composed for submission to the lender.

• Required Documents

  Whether if you are purchasing your home or refinancing your home, here are the following documents you will need prior filing any type of mortgage loan-

  • if you are employed and earning a salary, you would need to provide the past 2-years’ W2s and one month of pay-stubs.
  • If you are self-employed, you will need to provide the past 2-years’ tax returns.
  • If you own a rental property, you will need to provide the Rental Agreement and the past 2-years’ tax returns
  • If you want to accelerate the approval process, you should also provide the past 3-months’ bank, stock, and mutual fund account statements. It will be essential if you could provide the most recent copies of any stock brokerage or IRA/401k accounts that you might have.
  • If you are applying for a cash-out loan, you will need a “Use of Proceeds” letter of explanation. It will be best if you can provide a copy of the divorce decree if applicable.
  • If you are not a U.S. Citizen, you would need to provide a copy of your Green Card from the front and back.
  • If you are not a permanent resident, you would need to provide your H-1 or L-1 visa.
  • If you are applying for a Home Equity Loan, you will need the above listed documents in addition to providing a copy of your first mortgage note and deed of trust. These documents will usually be found in your mortgage closing documents.

• Credit Reports

  A credit report typically refers to the consumer credit file consists of various consumer credit reporting agencies. It’s basically a picture referring to how you have paid back to the companies you had borrowed money from, or how you have met other financial obligations.

  What most people don’t know is the fact they do not need to worry about the effects of their credit history while applying for a home mortgage. To help you be better prepared, we would suggest if you can get a copy of your Credit Report prior applying for your mortgage so you can reestablish your credit prior starting on your application, allowing you enough time to clear off any negativity you might have in your credit history.

  A Credit Report consists of these following five categories of information on a credit profile:

  • Identifying Information
  • Employment Information
  • Credit Information
  • Public Record Information

  What is Not included on your credit profile is race, religion, health, driving record, criminal record, political preference, or income.

  If you do have credit problems, don’t be afraid to discuss them honestly with a mortgage professional who are willing to assist you in writing your “Letter of Explanation.” Acknowledgeable mortgage professionals know unemployment, illness, or any other financial difficulties can cause legitimate credit problems. If you had been able to reestablish your credit and you had been making payments on-time for a year or more, it’s possible your credit is then considered satisfactory.

  Credit scoring is an arithmetical method of assessing the credit risk of mortgage application as the score observes any past delinquencies, derogatory payment behavior, current debt levels, length of credit history, types of credit and number of inquiries. The mortgage industry got its name from the grading of one’s credit based on payment history, amount of debt payments, bankruptcies, equity positions, credit scores, etc.

  The most eminent score (now the prominent terminology for credit scoring) is called the FICO score. FICO score was developed by Fair, Isaac, and Company, INC for the three main credit Bureaus- Equifax (Beacon), Experian (formerly TRW), and Empirica (TransUnion). FICO scores 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 payment history, amount owned, how long you have had your credit, new credit being pursued, and the types of credit you have. These scores are usually useful in aiding you to a specific loan program and to set levels of underwriting such as Streamline, Traditional, or Second Review. Furthermore, they do not finalize the type of program you will qualify or the interest rate you will qualify for. Although many people in the mortgage business are skeptical about the accuracy of FICO scores as it may not list everything lenders are seeking regarding the borrower.

  The following ways will help you improve your credit scores:

  • Paying your bills punctually
  • Keeping your Credit Card balances low
  • Limiting your credit accounts to what you actually need. Unnecessary accounts should be cancelled since zero balance accounts can still count against you
  • Be sure to check that your credit report information is correct

  Assure your credit is checked when necessary and be cautious when applying for credit.

  A loan with the borrower having the score of 680 and above is considered as an A+ borrower as borrowers usually qualify for the lowest interest rates and their loan can close in a couple of days. A loan process with this score be completed within minutes.

  A loan borrower with the score below 680 but above 620 may indicate a potential risk for the lenders. A Supplemental documentation might be required prior final approval. Borrowers with this credit score might possibly still obtain an “A” ranking pricing but the loan might take several days longer to close.

  Borrowers with the credit scores below 620 usually do not get the best rate and terms. This type of loan usually goes to the “sub-prime” lenders and takes more time finding the borrower the best rates.

• Appraisal Basics

  An appraisal of real estate is the valuation of the rights of ownership. The appraiser typically interprets the market to attain at a value estimate by essentially defining the rights to be appraised. As the appraiser collects data relevant to the report, the physical condition of the property is a consideration to the site in addition to the site and amenities. Significant research and data collection must be finished prior to the appraiser arriving at a final opinion of value.

  The following three common approaches descends from the opinion or estimate of value.

  • Cost Approach- derives what it would cost to replace the existing improvements as of the date of the appraisal, less than any physical deterioration, functional obsolescence, and economic obsolescence.
  • Comparison Approach- usually uses other “bench mark” properties (comps) of similar size, quality, and location that have been sold to determine value.
  • Income Approach- provides a genuine estimate of what a prudent investor would pay based on the net income the property produces. This type of approach is used in rental properties appraisal and has minimum use in the valuation of single family dwellings.

• Underwriting

  The underwriter is responsible for determining whether the loan is acceptable or not after the processor has gathered a complete package with all of the verifications and documentations, the file is sent to the lender. If, however more information is needed, then the loan is put into “suspense” and the borrower is contacted to provide more information and/or documentation. After submission, when the loan is acceptable, then the loan gets put into an “approved” status.

• Closing

  Once the loan gets approved, the file is transmitted to the closing and finding department. The funding department informs the broker and closing attorney regarding the approval of the loan then verifies the broker and the closing fees. The closing attorney then schedules an appointment for the borrower to sign the loan documentation.

  It is very important for the borrower to bring the following documents at the closing:

  • A cashiers check for down payment and closing costs if required but know the fact personal checks are usually not accepted. If they are accepted, they will delay the closing until the check clears your bank.
  • Evaluate the final loan documents to assure the interest rate and loan terms are what you had consented. Also be sure to verify the names and addresses on the documents are correct.
  • Sign the Loan Documents
  • Be sure to bring your forms of identification (driver’s license, passport, state I.D., etc.)
  • Proof of insurance

  After the documents have been signed, the documents are returned to the lender by the closing attorney then the lender looks over those documents and if everything is in order, the lender will start making arranges for the funding of the loan. Once the loan is funded to the borrower, the closing attorney will start making arrangements for the mortgage note and deed of trust to be recorded at the county recorders office. The closing attorney then prints the final settlement costs on the HUD-1 Settlement Form after the mortgage has been recorded. Then the final disbursements are made.

• Summation

  The typical “A” mortgage transaction usually takes between 14 to 21 business days to complete but thanks to this new automated underwriting system, the underwriting process takes shorter time. Contact Pramod Zacharias today to discuss your specific mortgage needs or you can also contact us via email to be further guided with your mortgage loan process and we will get back to you as soon as possible.