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, thus 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.
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.
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
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.  Apply online Here
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 derogatoriness, 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.
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. Documentation Types
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. Free Credit Report
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, 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. More on Appraisals
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.
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.
Summation
A
typical "A" mortgage transaction takes between
7-21 business days to complete. With new automated underwriting,
this process speeds up greatly. Contact one of our Preferred
Lenders today to discuss your particular mortgage needs
or Apply
Online Here and a Loan Officer will promptly get
back to you.
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