The application is the first step of the loan process. With the aid of a mortgage professional, the borrower completes the application and provides all Requested Documentation.
A loan application is not considered complete until you have given us at least the following information:
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:
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 reviews 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 inquiries.
FICO scores are simply repository scores meaning they ONLY consider the information contained in a person's credit file. They DO NOT consider a person's income, savings or down payment amount. Credit scores are based on five factors:
The scores are useful in directing applications to specific loan programs and to set levels of underwriting such as Streamline, Traditional or Second Review. However, they are not the final word regarding the type of program you will qualify for or your interest rate.
The following items are some of the ways that you can improve your credit score:
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 lower interest rates.
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 credit scores below 620 are not normally locked into the best rate and terms offered. The loan terms and conditions are less attractive with these loan types and more time may be 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. Bankruptcies and/or Foreclosures are the most important. Credit patterns, such as a high number of recent inquiries or more than a few outstanding loans, may also weigh on your credit.
Once you have completed the loan application, we will request documents from you in order to obtain your loan pre-approval.
The following statements are not a complete list of what will be needed but are intended to give you some idea of what we will need from you. Once you get to this stage of the loan process, we will give you a specific set of documents that we will need for your particular loan.
If you are salaried, you will need to provide the past two-years W-2s and one month of pay-stubs. 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 two 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, in addition to the above documents, to provide a copy of your first mortgage note and deed of trust. These items will normally be found in your mortgage closing documents.
WABondLoans.com recommends you work with a lender that does a full pre-approval.
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-approved 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.
The ability to repay the mortgage is verified by your current employment and total income. There is a common misperception that you need to be in the same job for two years. While this is sometimes true, it is often not the case. The amount of other debt payments is also considered.
The borrower's willingness to repay is partially 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 can be some variability in the requirements by the loan program. 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 could not stay in business if they did not generate loan business, so it is in everyone's best interest to see that you qualify.
To properly analyze a mortgage program, the borrower needs to think about how long he plans 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.
With so many programs from which to choose, each with different rates, points, and fees, shopping for a loan can be time consuming and frustrating. 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.
A Loan Estimate is a three-page form that you receive after applying for a mortgage. The Loan Estimate tells you important details about the loan you have requested.
The Loan Estimate provides you with important information, including:
In addition, the Loan Estimate will also indicate if the loan has special features that you will want to be aware of:
The form uses clear language and is designed to help you better understand the terms of the mortgage loan you’ve applied for. All lenders are required to use the same standard Loan Estimate form. This makes it easier for you to compare mortgage loans so that you can choose the one that is right for you. When you receive a Loan Estimate it does not mean that your loan has been approved or denied. The Loan Estimate shows you what loan terms we can offer you if you decide to move forward.
After you receive your Loan Estimate, it is up to you to decide whether to move forward with the loan or not. If you decide not to proceed with an application for a particular loan, you don’t need to do anything further. If you do intend to proceed, you must take the next step and tell your lender in writing or by phone that you want to move forward with the application for that loan.
All lenders are required to honor the terms of the Loan Estimate for 10 business days. So, if you decide to move forward more than 10 business days after you receive a Loan Estimate, please realize that market conditions may make it necessary to revise the terms and estimated costs and provide you with a revised Loan Estimate.
Once the application has been submitted, the processing of the mortgage begins. The Processor orders the Appraisal and Title Report.
The information on the application, such as bank deposits and payment histories, are then verified. Any derogatory credit marks, 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.
The appraiser interprets the market and the home 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.
Once the processor has put together a complete package with all verifications and documentation, the file is sent to the underwriter. The underwriter is responsible for determining whether the package is deemed an acceptable loan. If more information is needed, the loan may be 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 with conditions" status. The conditions may include things like updated or additional documents, a gift letter, a revision to the appraisal, tec.
The Closing Disclosure is a six-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs).
Lenders are required by law to give you the Closing Disclosure at least three business days before you close on your mortgage loan. This three-day window allows you time to compare your final terms and costs to those estimated in the Loan Estimate that you previously received from the lender. The three days also gives you time to ask us any questions before you go to the closing table.
Once the loan is approved, the file is transferred to the closing and funding department. The funding department notifies the Loan Officer and Title Company of the approval and verifies closing fees. The Title Company then schedules a time for the borrower to sign the loan documentation.
At the closing the borrower should:
After the documents are signed, the Title Company 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 Title Company arranges for the mortgage note and deed of trust to be recorded at the county recorder's office.
A typical mortgage transaction takes between 21-30 calendar days to complete. Of course, special loan types can include extra steps that lengthen the process. In particular, it can take longer to close some Down Payment Assistance loans since there are extra reviews of the loan to make sure it meets the extra guidelines associated with those loans.
WABondLoans.com recommends you work with your loan officer to get a clear picture of how much time you should allow for closing your loan.