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.
Mortgage companies look at two key factors:
1. The borrower’s ability to repay the loan.
2. The borrower’s willingness to repay the loan.
Ability
to repay the mortgage is verified by your current employment and
total income. Most lenders prefer a record of two years employment
in the same line of work.
The
borrower’s willingness to repay is determined by examining
how the property will be used. Whether it will be used as a primary
residence or investment property? It is also dependent on your
previous relationship to fulfill other obligations. Hence, there
is a great emphasis’s on the Credit Report.
The
application is the true start of the loan process and usually
takes between three to five days from the start of the loan application.
The various fees and closing costs estimates are discussed when
you explore the many mortgage programs. These costs will be verified
in the form of a Good Faith Estimate (GFE) and a Truth-In Lending
Statement (TIL), which the borrower will receive after application
is made.
Once the application has been submitted, the processing
of the mortgage begins. The Credit Report, Appraisal and
the Title Report are all ordered. All information recorded
on the application is now verified. Any credit derogatory
or property issues are investigated and the entire mortgage
package is then put together for submission to the lender.
If
you are salaried and are applying for a FULL DOC program then
the following information is required:
•
Previous two years W2 statements
• Current Pay stubs for 30 day period
• Last two months bank statements
• Employment history for previous 2 years
• Residence history for the previous 2 years
• Name and phone number of Condominium ( if applicable)
The
following checklist will facilitate your mortgage loan interview.
The checklist includes most of the information that you and any
co-borrower will need to supply. However, some lenders have slightly
different requirements.
In preparation for your loan interview print this worksheet, then
check each box after you've gathered the required data.
Social
Security Number/Date of Birth
Paycheck
• Most recent pay stub that shows year-to-date earnings.
W-2
Tax Forms
• Original copies sent to you by the Internal Revenue
Service for the past two years.
Employer
Information
• Names, addresses, and telephone numbers of employers
for the past two years
Account
Information
•
Account numbers and current balances of checking, savings,
and any other accounts.
Current
Assets
• Individual Retirement Accounts (IRAs), CDs, stocks,
bonds, etc.
Personal
Property
• Value of property that can include life insurance,
retirement accounts, cars, etc.
Liabilities
• Auto loans, student loans, credit cards, and other
installment debt provide name and address of each creditor
and the monthly payment and total amount due.
Current
and Previous Addresses
• If you own a home: Bring the property address,
current market value, mortgage lender name, account number,
current monthly mortgage payment, and outstanding mortgage
balance.
• If you're renting: Bring the property address,
name and address of the landlord, current monthly rent,
and previous address/landlords if you've lived in your
current address for less than two years.
Agreement
to Purchase
• A signed copy and any amendments, a copy of the
listing form for the property, the legal description of
the property, and receipts for or down payment deposits.
There
may be some special situations that require you to supply additional
information. These include:
If
you are self-employed or work on a commissioned basis, you should
bring your federal tax forms for the past two years and a current
year-to-date profit and loss statement.
If you are separated or divorced, you should bring a copy of
your divorce decree and separation agreement. Also bring documentation
on alimony or child support payments you are required to make
or you receive as income. Proof of this income can be the clerk
of court's history of payments or canceled checks for the past
year.
If
you include pension, disability, Social Security, or other public
assistance as part of your income, you'll need to bring a copy
of an award certificate or a check from the issuing agency.
If you have a bankruptcy, foreclosure, or any judgments against
you over the past seven years, you'll need to bring relevant
information about the proceedings. Such information includes
a copy of the bankruptcy discharge and schedule of both debts
and assets. An attorney's letter that discusses the outcome
of the proceedings should be included if there are judgments
against you.
A
credit report is a useful document when application for a mortgage
is made. 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:
1.
Identifying information
2. Employment Information
3. Credit Information
4. Public Record Information
5. Inquire
Not
included on a credit profile is race, religion, health, driving
record, criminal record, political preferences, or income.
The
mortgage industry creates its own language and credit rating.
Credit scoring is a statistical method of assessing the credit
risk of a mortgage application. The most common scoring is called
the FICO score. This score was developed by Fair, Isaac &
Company, Inc. for the three main credit Bureaus.
The
following items are some 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
• Check that your credit information is accurate
• Be conservative in applying for credit
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 timely manner.
A
score below 680 but above 620 may indicate underwriters will take
a closer look in determining potential risks.
Borrowers
with a credit score below 620 are normally locked into a loan
type that is referred to as “sub-prime”. The loan
terms and conditions are less attractive with these loan types
and more time is needed to find the borrower the best rates.
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.
Once
the processor has put together a complete package with the 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 agent of the approval and verifies broker and closing
fees. The closing agent then schedules a time for the borrower
to sign the loan documentation.
After
documents are signed, the closing agent returns the documents
to the lender who examines them and, then if everything is in
order, arranges for the funding of the loan. Once the loan has
funded, the closing agent arranges for the mortgage note and deed
of trust to be recorded at the county recorders office. The closing
agent then prints final settlement costs on the HUD-1 Settlement
Form. Final disbursements are then made.
The closing process can vary from state to state and even from
city to city. Closing costs can also vary widely depending on
the price of the home, its location, and other factors. You can
expect your closing costs to fall between 3 percent and 6 percent
of the sales price of the home.
If
you are thinking about refinancing your current home loan, you
should consider the following as you determine the best type of
mortgage, rates and terms for your situation.
• your reasons for refinancing
• the interest rate of the existing mortgage
• the interest rate of the new mortgage
• the cost of refinancing
• how much equity you have built up in your home
• how long you plan to stay in your home
• your current income and credit status
To
be eligible to refinance, lenders usually require that you have
at least 10 percent equity accumulated in your property.
There
are several reasons to refinance your mortgage:
1. TO GET A LOWER INTEREST RATE MORTGAGE TO REDUCE YOUR
MONTHLY PAYMENT.
2.
TO BORROW ADDITIONAL FUNDS FOR HOME IMPROVEMENTS, EDUCATION
BILLS OR OTHER NEEDS OFTEN REFERRED TO AS A "CASH-OUT"
REFINANCE.
Would
you like to fix up your home? Have you found a house that's "almost"
perfect but needs a better kitchen or new bathroom?
Decide
what home improvements you want to make. Take into account how
much value the renovations may add to your home. You will then
need to balance your wish list of home improvements with what
you can afford. Types of home improvements include:
• Major renovations: Adding or upgrading bathrooms, kitchens
or other additions.
• Repair work: Roof repairs, termite damage repair.
• Cosmetic renovations: Interior and exterior painting,
carpeting, floor refinishing.
• Improvements that save energy: Installation of energy-
efficient heating, cooling, electrical, or plumbing systems,
and related energy-saving appliances.
3. TO SWITCH FROM AN ADJUSTABLE-RATE LOAN TO A FIXED-RATE LOAN
THIS MAY MAKE SENSE IF INTEREST RATES HAVE FALLEN SINCE YOU
TOOK OUT YOUR ADJUSTABLE-RATE LOAN SO YOU CAN KNOW EXACTLY WHAT
YOUR MORTGAGE PAYMENT WILL BE FOR THE LIFE OF THE LOAN.
One common type of refinance is when you have an adjustable-rate
mortgage and you refinance to a fixed-rate mortgage. Your mortgage
payments with an ARM adjust with changes in market rates; so when
interest rates go up, your monthly payments likely go up at the
next rate adjustment period. But with a fixed-rate mortgage, your
interest rate stays the same for the entire term of your loan.
The predictability that comes with locking in the same interest
rate for as long as you live in your home is one reason why changing
from an adjustable-rate mortgage to a fixed-rate loan is one of
the more popular refinancing choices especially when interest
rates are falling.
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
application is the true start of the loan process and usually
takes between three to five days from the start of the loan application.
The various fees and closing costs estimates are discussed when
you explore the many mortgage programs. These costs will be verified
in the form of a Good Faith Estimate (GFE) and a Truth-In Lending
Statement (TIL), which the borrower will receive after application
is made.
A
credit report is a useful document when application for a mortgage
is made. 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:
Once
the loan is approved, the file is transferred to the closing and
funding department. The funding department notifies the broker
and closing agent of the approval and verifies broker and closing
fees. The closing agent then schedules a time for the borrower
to sign the loan documentation.