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 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.
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, hence the
emphasis on the Credit Report and/or your
rental payment history.
It is important to remember that there are
no rules carved in stone. 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 couldn't stay
in business if they didn't generate loan
business, so it's in everyone's best interest
to see that you qualify.
To properly analyze a Mortgage Program, the borrower
needs to think about how long they plan to keep
the loan. If you plan to sell the house in a
few years, an adjustable or balloon loan may
make more sense. If you plan to keep the house
for a longer period, a fixed loan may be more
suitable. Shopping for a loan is very time consuming
and frustrating. With so many programs to choose
from, each with different rates, points and fees,
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 is the true start of the loan
process and usually occurs between days one and
five of the start of the loan process. With the
aid of a mortgage professional, the borrower
completes an application 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 a 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.
Once the application has been submitted, the
processing of the mortgage 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 derogatory credit items, 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.
The entire mortgage package is then put together
for submission to the lender.
Once the application has been submitted, the
processing of the mortgage 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 derogatory credit items, 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.
The entire mortgage package is then put together
for submission to the lender.
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
Inquiries
NOT included on your credit profile is race,
religion, health, driving record, criminal
record, political preference, or income. If
you have had credit problems, be prepared to
discuss them honestly with a mortgage professional
who will assist you in writing your "Letter
of Explanation." Knowledgeable mortgage professionals
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 (reestablishment of
credit), and your payments have been on time
for a year or more, your credit may be considered
satisfactory.
The mortgage industry tends to create its own
language and credit rating is no different.
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 scores,
etc. 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.
By now, most people have heard of credit scoring.
The most common score (now the most common
terminology for credit scoring) is called the
FICO score. This score was developed by Fair,
Isaac & Company, 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 persons
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've had credit,
10% percent on new credit being sought and
10% on the types of credit you have. The scores
are useful in directing applications to specific
loan programs and to set levels of underwriting
such as Streamline, Traditional or Second Review,
but are not the final word regarding the type
of program you will qualify for or your interest
rate.
Many people in the mortgage business are skeptical
about the accuracy of FICO scores. Scoring
has only been an integral part of the mortgage
process for the past few years (since 1999);
however, the FICO scores have been used since
the late 1950's by retail merchants, credit
card companies, 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 items are some of the ways that
you can improve your credit score:
Pay your bills on time.
Keep balances low on credit cards.
Limit your credit accounts to what you
really need. Accounts that are no longer
needed should be formally cancelled since
zero balance accounts can still count against
you.
Check that your credit report information
is accurate.
Be conservative in applying for credit
and make sure that your 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 will be put through an "automated basic
computerized underwriting" system and be completed
within minutes. Borrowers in this category
qualify for the lowest interest rates and their
loan can close in a couple of days.
A score below 680 but above 620 may indicate
underwriters will take a closer look in determining
potential risk. Supplemental documentation
may be required before final approval. Borrowers
with this credit score may still obtain "A" pricing,
but the loan may take several days longer to
close. Borrowers with credit scores below 620
are not normally locked into the best rate
and terms offered. This loan type usually goes
to "sub-prime" lenders. The loan terms and
conditions are less attractive with these loan
types and more time is needed to find the borrower
the best rates. 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. Since an indication of a "willingness
to pay" is important, several late payments
in the same time period is better than random
lates.
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.
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 is put into "suspense" and
the borrower is contacted to supply more information
and/or documentation. If the loan is acceptable
as submitted, the loan is put into an "approved" status.
Once the loan is approved, the file is transferred
to the closing and funding department. The
funding department notifies the broker 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.
Review the final loan documents.
Make sure that the interest rate and loan
terms are what you agreed upon. Also, verify
that the names and address on the loan documents
are accurate.
Sign the loan documents.
Bring identification and
proof of insurance.
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.
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. Once the mortgage has been recorded,
the closing attorney then prints the final
settlement costs on the HUD-1 Settlement Form.
Final disbursements are then made.
A typical "A" mortgage transaction takes between
14-21 business days to complete. With new automated
underwriting, this process speeds up greatly.
Contact one of our experienced Loan Officers
today to discuss your particular mortgage needs
or Apply Online and a Loan Officer will promptly
get back to you.
the
loan process
