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| K |
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 Pre-Qualification
Mortgage
Programs and Rates The
Application Processing
Required
Documents Credit
Reports Appraisal
Basics Underwriting
Closing
Summation
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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. |
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Mortgage Programs and Rates 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. |
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The Application 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. The borrower completes, with the aid of a mortgage professional, the 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 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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Processing 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 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. The entire mortgage package is then put together for submission to the lender. Back to Top |
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Required Documents 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. If you wish to speed up the approval process, you should also provide the past three-months 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 cash-out you will need a "Use of Proceeds" letter of explanation. Provide a copy of the divorce decree if applicable. If you are not 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 L-1 visa. If you are applying for a Home Equity Loan you will need to, in addition to the above documents, provide a copy of your first mortgage note and deed of trust. These items will normally be found in your mortgage closing documents. Back to Top |
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Credit Reports 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, 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 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 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. Back to Top |
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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, the appraiser 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. Back to Top |
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Underwriting 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. Back to Top |
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Closing 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. Back to Top |
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Summation 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. Back to TopKey financial Sources, mortgage consultants, mortgage consultant Chicago, consultant, financial consultant, mortgage company, mortgage rates, best mortgage rates, financial advisor, find a low interest rates, interest rates, mortgage calculator, real estate finance, real estate advisor, mortgage loan , home financing, property ,mortgages, loans, ARM, indexes, LIBOR, credit, refinance, sub prime, construction, BCD, condos, apartments, commercial, financing, interest, equity, best, LIBOR, consumer, home equity, home equity loans, home equity lines, fixed, second, survey, loan, Chicago based mortgage consultant, Illinois based mortgage consultant, Home equity, commercial loans, find a best mortgage rate, Home owners guide, mortgage refinancing , low interest rates, low mortgage rates, residential mortgage financing, Debt consolidation loans, damaged credit loans, financial planner, Niles, Skokie, Morton Grove, Harlem, North, Polish speaking, |
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