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The Loan Process
Buying or refinancing a home may
be the most exciting, confusing and
stressful financial transaction you ever
undertake. Even if you have done it
several times you can still find the
process complicated and intimidating,
particularly when it comes to getting a
mortgage loan. Countless loan documents,
unfamiliar terminology and uncertainty
serve to temper the joy of buying a new
home.
As soon
as the sales contract is signed,
obtaining the financing for the purchase
becomes paramount for all but a very few
buyers. If you understand the steps
required to qualify for a mortgage loan
much of the stress can be avoided. The
following explanation of the loan
application process is intended to help
you through the complexities of obtaining
a mortgage loan.
Our application
process is not as complicated as other
lenders make it out to be. With 'Loan
Prospector ©' and 'Desktop
Underwriting
©', an application is all
we usually need to begin the process.
These new computerized underwriting
programs review your information
electronically, allowing for answers in
24 hours or less. Once we have your
approval, we will tell you what documents
that you have to provide. You may be
surprised at how little documentation may
be required.
Typical
requirements are:
- If you are
salaried: provide two years W-2
and one month of current paystubs
OR if you are
self-employed: provide two years
tax returns and a YTD profit and
loss statement.
- If you wish
to speed up the approval process,
please also provide three months
bank statements for each bank,
stock and mutual fund account. For MHFA,
you'll need the past 3-years of tax returns too.
- Provide
recent copies of any stock
brokerage or IRA/401K accounts
that you may have.
- Provide
copy of divorce decree and
bankruptcy papers (if
applicable).
Click
here for a Full List of Items Possibly
Needed for Complete Approval
The
Loan Interview
We will
explain the types of mortgage loans
available to you, the interest rates and
fees for each type and the qualification
requirements, complete the required
application and disclosure forms, and
collected the required documentation.
Completing
The Loan Application Form
The
loan application form asks for
information on the property you are
buying, terms of the purchase contract
and the employment and financial history
of all loan applicants, including your
spouse and/or other co-borrowers. The
lender will verify this information,
so it is very important to make sure that
it is complete and accurate.
You can
complete the loan application process
much more easily and accurately if you
prepare for it ahead of time. A great
deal of detail will be asked about your
personal finances, including bank account
numbers and balances, current loan
amounts and payments, and credit card
account numbers. You will want to be
thorough and precise in your answers, so
it will be to your benefit to assemble
this kind of information before the
meeting with the loan officer. The
following is a summary of the major kinds
of information required on the loan
application, the documents that may be
needed and the questions that you should
be prepared to answer.
Details
of Purchase Contract and the Property
Because
the property is security for the loan,
you will have to have an appraisal made
of the property, and you need to have the
following information available:
- A
complete copy of the sales
contract, including any
addendum's, signed by all
parties, showing the full names
of the sellers and buyers as they
will appear on the new deed, the
amount of earnest money deposit
and who is responsible for
closing costs, origination fees,
etc.
- If
the house is to be built, or is
still under construction, a set
of plans and specifications.
- The
complete mailing address of the
property, its age and its full
legal description.
- Name,
address and telephone number of
the real estate agent and/or the
seller of the property who will
assist the appraiser in obtaining
access to the property.
All of
this information should be in the
purchase contract.
Personal
Information
Your
loan officer will want the social
security numbers of you and your spouse
(or other co-borrowers), age, number of
years of schooling, your marital status,
number and ages of dependents and your
current address and telephone number. If
you have lived at your current address
less than 2 years, be prepared to furnish
former addresses for up to two FULL
years. You will also be asked to detail
your current housing expenses, including
rent or mortgage payments, real estate
taxes and insurance (your mortgage
payment may include tax and insurance
funds). You will need the name and
address of your landlord(s) or mortgage
lender(s) for the past two years.
Employment
History and Sources of Income
Your ability to
make the regular payments on the mortgage
and to afford the costs associated with
owning a home are primary considerations
is the lender's loan approval process and
should be your primary concern. Required
information includes:
- At least
two years employment history with
employer's name and address, your
job title or position, length of
time on the job, salary, bonuses,
commissions and average overtime
pay. Recent paycheck stubs and
Federal W-2 forms for the past
two years.
- If you are
self-employed, full tax returns
and financial statements for 2
years, plus a profit and loss
statement for the current year to
date.
- A written
explanation if there are gaps in
your employment record, because
of circumstances such as illness
or layoffs, or for any other
reason.
The loan officer
may have you sign a Verification of
Employment (VOE) form. This will be sent
to your employer to verify your
employment and earnings. One will be sent
to previous employers if you have been on
the job less than two years. Many lenders
now use a general authorization form
which allows them to verify employment
and other financial information on the
application.
If you are
relying on income from other sources,
such as rental property, social security
or disability payments, child support,
etc., you must provide adequate proof of
the source. Appropriate documents could
include canceled checks, copies of
leases, certification of benefits,
divorce decrees and similar evidence. If
you are using child support for income,
you will be required to PROVE that you
are actually receiving it.
Personal
Assets
A detailed
listing of your personal assets is
required on the loan application form.
You will need to have the following
information available to complete the
form:
- All bank
accounts, both checking and
savings, and money market
accounts, with the name and
address of the institution,
name(s) on the accounts, account
numbers and current account
balances.
- Recent bank
statements for at least two
months.
- Current
market value of stocks, bonds,
CDs and other investments.
- Vested
interest in all retirement funds.
- Face amount
and cash value of life insurance
policies in force.
- Make,
model, year and value of
automobiles owned.
- Address and
market value of all real estate
owned along with the amount of
rents collected, the mortgage on
the property and the monthly
mortgage payments (a profit and
loss statement may be required
for investment properties).
- Value of
other personal property such as
furniture.
As with the
Verification of Employment, the loan
officer may have you sign Verifications
of Deposit (VOD) for each of the
institutions (or a general authorization)
where you have savings or checking
accounts. Differences between the account
balances reported by the institution and
the balance you give for the loan
application have to be reconciled, so be
sure you have your correct current
balances.
The lender will
look for the source of funds with which
you will make the down payment and pay
closing costs and fees. Gifts from a
relative, church, municipality or
non-profit organization may sometimes be
used, but must usually be verified in
writing. With most programs, the donor
must be a relative and must provide a
letter stating the donor's relationship
to you, the amount of the gift and the
fact that no repayment is expected. FHA
loans now require that we verify the
donor actually had the money to give.
We also have
newer 3% percent down programs. One
requires the down payment money to be
verified as your money. One allows for
the 3% down payment to come from cash,
secured loan; such as 401(k), CD's, cash
value of life insurance, or other real
estate, gift from a relative, non-profit
organization, or the borrowers employer.
Another requires you provide at least
$500 of your own money, the rest can be a
gift from a relative, non-profit
organization.
Personal
Indebtedness
You will be
asked to itemize all of your current
bills, loans and other debts, including
current balances and monthly payments.
Debts include automobile loans, credit
cards such as Visa, MasterCard and other
retail store accounts, finance company,
bank and credit union loans and existing
mortgages, including home equity loans.
You should be able to give the account or
loan number, the monthly payment, the
number of payments remaining and the
outstanding balance.
The information
you provide on the loan application will
later be verified by a credit report.
Like employment and deposit information,
differences between your figures and
those on the credit report will raise
questions and may delay the approval of
your loan. It is to your advantage to
take time to get your data right prior to
filling out the loan application.
If you have had
credit problems, you should inform the
lender. Lenders recognize that
unemployment, illness, marital problems
or other financial difficulties can
temporarily impair your credit rating.
Provide a written explanation of the
circumstances regarding the problem to be
included with the loan application. The
lender must consider such a written
explanation as part of the underwriting
analysis. If the problem has been
corrected and your payments have been
made on time for a year or more, your
credit will probably be judged as
satisfactory. Chronic late payments,
judgments or loan defaults, however,
severely damage your credit standing and
may prevent you from obtaining the 'best
rate' loan financing you need to complete
the purchase. Bruised credit loans are always an
alternative. While they do carry higher
interest rates, we can usually get
everyone a mortgage loan. Ask your loan
officer for details.
If you have been
through bankruptcy or foreclosure
proceedings within the past seven years,
be prepared to give full details and full
copies of applicable documents regarding
them.
You will also be
asked to explain the details if you are
obligated to pay alimony, child support
or separate maintenance. Such obligations
are treated like debt payments by most
lenders and will be part of the
underwriting analysis.
Additional
Information
You will be
asked to sign a section of the loan
application form which contains your
certification that the information you
have provided is correct to the best of
your knowledge; your promise to advise
the lender of any material changes in the
information on; and your consent to (1)
verification of the application data, (2)
submission of account history to credit
reporting agencies, and (3) transfer of
the loan or loan servicing to successors
to the original lender.
The last part of
the application form requests information
on the race and gender of the applicants.
The Federal Government uses this data to
monitor lenders' compliance with fair
housing and equal credit opportunity
laws. Providing this information is
strictly voluntary on your part and has
no effect on your loan application. The
lender, however, is required by federal
law to request the information.
Because of the
particular circumstances surrounding a
loan application, the lender may require
additional information or documentation
regarding you or the property after the
application has been submitted for
approval. Loan officers make every effort
to collect all data at the outset, but
cannot foresee every eventuality.
Requests for additional information are
not necessarily bad omens and your
primary concern should be in responding
promptly with the information.
After The
Loan Application - What Next?
Loan processors
send out the Verifications of Employment
and Deposit and order the credit report,
property appraisal and other documents.
The time it takes to receive these
documents affects the length of time
required for approval of the loan. If you
are transferring from out of the local
community, it may take longer to receive
the credit and employment information.
If you apply by
phone, mail, or Internet - within three
days you will also receive a
Truth-in-Lending Disclosure statement and
a Good Faith Estimate. These statement
shows, among other things, the estimated
monthly payment. The total cost of all
finance charges on your loan is also
shown, stated as an Annual Percentage
Rate (APR). The APR represents the dollar
amount of finance charges you pay either
up front or over the life of the loan,
converted to an annual interest rate.
Since the APR includes origination fees
and other charges as well as interest on
the mortgage loan, the APR is usually
higher than the interest rate on the
loan.
After the lender
has approved the loan, you will usually
receive a commitment letter which sets
out the terms of the loan and the length
of time for which those terms are
offered. If the loan does not close
within the specified commitment period,
the terms are subject to change. You
usually must accept the commitment by
returning a signed copy to the lender
within five to ten days and may have to
pay appraisal and credit report fees at
this time. The commitment may contain
conditions that you will still have to
satisfy, so you should read it carefully.
In cases where
closing is scheduled soon after approval,
the lender may give you verbal approval
instead of a commitment letter. This is
not unusual, but make sure you understand
the terms of the approval.
Once the
commitment letter or approval has been
received, you are assured the financing
you need to complete the purchase of your
home and you need to turn your attention
to completing the details required for
settlement.
Reducing The
Anxiety of Waiting
For many home
buyers, the period of time between the
submission of the loan application and
receipt of the commitment letter is one
of uncertainty and concern. Requests for
additional information, unexpected delays
and lack of communication all serve to
increase the tension. There are a number
of things that both you and the lender
can do to reduce the stress.
Keep in mind
that the lender wants to make the loan.
Loan underwriters are looking for ways to
approve loans, not reject them. If you
have come to the interview with the loan
officer fully prepared and have provided
good documentation, you have done a great
deal to assure prompt processing of your
application and approval of your loan.
You and the
lender need to make sure that lines of
communication are kept open. Your contact
person may be the loan officer, but often
it might be someone in the lender's loan
processing department who can tell you
the status of your application. Remember,
however, that it may take several weeks
to process the application and frequent
inquiries from you prior to that time
will not speed things up.
You should be
accessible if the lender needs additional
information or documents during
processing. If you are from out of town,
use your real estate agent as a contact
if necessary. Quick response to lender
requests helps keep the process on
schedule. In order to protect both you
and the lender, mortgage loans require
much more paperwork and legal
documentation than an automobile or other
installment loan, and lenders do not ask
for more than is absolutely necessary.
Obtaining a
mortgage loan need not be an ordeal that
dampens the thrill of acquiring a new
home. If you understand the lending
process and are prepared to do your part,
it simply becomes a key step in owning a
home.
Closing
Finally, the day
has come!
Click here for 10 Tips to
a Smooth Closing.
Our loan services available only for
properties located in Minnesota,
Wisconsin, & Florida. Licensed as Great Rivers
Mortgage, LLC., and or Mortgages Unlimited. All images,
text, and materials Copyright © 1998-2007. Metzler
Enterprises, LLC. All Rights Reserved. Any use or
duplication of any materials is strictly prohibited.
Contact us with any questions.
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