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 your current
employment and total income. Generally speaking, mortgage companies
prefer for you to have been employed at the same place for at least two
years, or at least be in the same line of work for a few years.
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The borrower's willingness to repay is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Willingness is also closely related to how you have fulfilled previous financial commitments, thus the emphasis on the Credit Report and/or your rental payment history.
Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, your stronger point could make up for the weak one. Mortgage companies could not stay in business if they did not generate loan business, so it is in everyone's best interest to see that you qualify.
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To properly analyze a mortgage program, the borrower needs to think about how long he plans to keep the loan.With so many programs to from which to choose, each with different rates, points and fees, shopping for a loan can be time consuming and frustrating. An experienced mortgage specialist can evaluate a borrower's situation and recommend the most suitable mortgage program, thus allowing the borrower to make an informed decision.
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The application is the start of the loan process and with the aid of an experienced mortgage specialist, the borrower can expediently complete the application and provide all Required Documentation. You will need to provide information about yourself and any co-borrower that may be applying with you. Usually, we will ask for information about your employment, income, assets, and current debt.
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 Good 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.
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Once the application has been submitted, the processing of the mortgage loan 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 derogatories, such as late payments, collections and/or judgments require a written explanation. The processor examines the Appraisal and Title Report to check for property issues that may require further investigation. The entire mortgage package is then put together and submitted to the lender.
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If you are purchasing or refinancing your home, 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-employed you will need to provide the past two-years tax returns. If you own rental property you will need to provide Rental Agreements and the past two-years tax returns. To speed up the approval process, you should also provide the past two months bank, stock and mutual fund account statements. Provide all pages of the most recent copies of any stock brokerage or IRA/401k accounts that you might have.
If you are recently divorced provide a copy of the divorce decree if applicable. If you are applying for a Home Equity Loan you will need, in addition to the above documents, to provide a copy of your first mortgage note and deed of trust. These items will normally be found in your mortgage closing documents.
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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: Identifying Information , Employment Information, Credit Information Public Record Information , and Inquiries.
If you have had credit problems, be prepared to discuss them honestly with an experienced mortgage specialist and provide a "Letter of Explanation". Experienced mortgage specialists 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 and your payments have been on time for a year or more, your credit may be considered satisfactory.
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 inquires. The most common score 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.
Some of the ways that you can improve your credit scores are to:
- Pay your bills on time.
- Keep Balances low on credit cards.
- Check that your credit report information is accurate.
- Limit applying for credit and make sure that your credit is only checked when necessary.
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.
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An appraisal of real estate is the valuation of the rights of ownership. An independent 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 to make sure the amount you are paying or refinancing is supported by the market value of the home. 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.
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Once the processor has put together 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 an acceptable loan. If more information is needed, the loan may be put into a suspended status and the borrower is contacted to supply more information and/or documentation. If the loan is acceptable as submitted, the loan is then statused as approved.
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Once the loan is approved, the file is transferred to the closing and funding department. The actual closing will involve working with the closing attorney who will prepare the necessary documents to finalize your Mortgage Loan. The funding department notifies the experienced mortgage specialist 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. Also, you should review the final loan documents making sure that the interest rate and loan terms are what you agreed upon and verifying that the names and address on the loan documents are accurate. A Government issued picture identification will also be required.
You will go to the attorney's office to sign all of the necessary legal documents to officially complete the Mortgage Loan transaction and have the loan proceeds distributed. After the documents 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 the loan. At this time any money that is to be your down payment and any closing costs will be collected. If this is a purchase, the transaction will be complete. However, if this is a refinance of your primary home, the law requires a three day waiting period, called a right of recission, before the funds may be disbursed. Once the loan has funded, the closing attorney arranges 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.
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A typical mortgage transaction can take between two to three weeks to complete. Contact us today for a FREE CONSULTATION to discuss your mortgage needs with one of our experienced mortgage specialists.
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