 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
| Apply Online | Pre-Qualify | Rate Request | Major Markets | Partners | Calculator | Glossary | FAQ's | Contact | Home |
The Mortgage Loan Process
Buying a home may be the most exciting, confusing and stressful financial
transaction you ever undertake. Even if you have done it before, 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, however,
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.
The Loan Application Interview
Once you have selected a lender, the next step will probably be a meeting
with a loan officer or other lender representative, whose job is to begin the
collection of information the lender needs to approve the loan. They will
explain the types of mortgage loans available to you, interest rates, fees for
each type and the qualification requirements. During the meeting, the loan
officer will fill out, or assist you in filling out, the loan application.
By this time you should have a good idea of the general interest rates and
fees being charged in the area. The total cost of a mortgage loan consists
of the interest rate on the loan, origination fees, discount points, and
miscellaneous other charges. One point is equal to one percent of the
amount of the loan and is usually collected at the loan closing, or
settlement. The interest rate affects the amount of the monthly payment,
while points affect the amount of cash you must have at closing.
Most lenders will offer a range of interest rate/point combinations to meet
the borrower needs. In general, the higher the interest rate, the lower the
points. For example, if the current market provides for an 8.5 percent
interest rate with 2 points, a nine percent rate may be offered at no points.
If you are a first-time home buyer, the larger monthly payments on the 9
percent loan may be easier to handle than the 2 points that will require
additional cash at settlement. If you are a corporate transferee, however,
your company's relocation policy may pay all or part of origination costs
and the lower rate will have more appeal. The loan officer is prepared to
explain options to you.
When discussing the terms of the loan, make sure you understand how
and when the rate and fees on the loan are going to be set. Most lenders
will quote a rate and fee at the time the application is taken and then will
guarantee, or "lock" the rate quote for a specified length of time. A rate
lock protects you from rising interest rates while the loan is being
processed, but it also typically commits you to close the loan at the rate
and the fee even if rates decline prior to closing. Lock periods may run
from 10 to 60 days, with longer periods available in some cases at an
additional fee. The lock period must be long enough to get you through the
estimated closing date. A 30-day lock affords you no protection if closing is
at least 60 days away.
You may have the option to let the rate "float," getting the final rate and
fees set nearer the settlement date. If you believe rates are declining and
are willing to run the risk that interest rates could rise during the processing
of your loan, you may select this alternative. Before you take a floating
rate, make sure that the rise in interest rates will not create a problem for
you because you have insufficient income to cover the higher mortgage
payments. In either case, make sure you understand the terms of the lock-
in agreement.
Completing The Loan Application Form
The loan application asks for information on the property, terms of the
purchase contract, employment and financial history of all loan applicants,
including your spouse and/or other co-borrowers. The lender will verify or
not, to approve the loan, so it is very important to submit a complete and
accurate application.
You can complete the loan application process easier if you prepare for it
ahead of time. A great amount of detail will be asked about your personal
finances, including bank account numbers and balances, current loan
amounts, payments, and credit card account numbers. You will want to be
thorough and precise in your answers. It will be to your benefit to assemble
it this kind of information before the meeting with the loan officer. The
following is a summary of information required on the loan application,
documents you may need to provide and the questions you should be
prepared to answer.
Details of Purchase Contract and the Property
Because the property is security for the loan, the lender will have an
appraisal made of the property, and you need to have the following
information available:
· A complete copy of the sales contract, including addendums, 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.
All of this information should be in the purchase contract. If not, consult the
Realtor or the seller.
Personal Information
The 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 seven 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:
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.
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.
As with the Verification of Employment, the loan officer will 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 account balances reported by the institution and balances you
provided on the loan application have to be reconciled. Be sure you have
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 be verified in writing. If you are providing less than 5 percent of the
sales price, 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.
Personal Indebtedness
You will be asked to itemize all 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 requested by the lender. As with 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 have data correct, 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 financing you need to complete the
purchase.
If you have been through bankruptcy or foreclosure proceedings within the
past seven years, be prepared to give full details and 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 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 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 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 on your part and has no effect on
your loan application. The lender, however, is required by federal law to
request the information. Under Federal Regulations, this lender is required
to note race and sex on the basis of physical observation or surname.
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.
Based on the application, the loan officer may be able to pre-qualify you,
but cannot approve the loan. That is done by the lender's underwriters
after all documents and information have been received and verified.
After The Loan Application - What Next?
After the loan application has been completed, it will be forwarded to the
lender's loan processing department and then to an underwriter, where the
decision to approve or reject the loan will be made. Loan processors send
out 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. Processing times vary from
one lender to another, but the loan officer should be able to give an idea of
the processing time for your application.
Within three business days after receiving the application, the lender must
provide you with a Good Faith Estimate of the anticipated closing costs. It
will show costs associated with the loan settlement, such as origination
fees, mortgage insurance, title insurance, escrow reserves and hazard
insurance.
Within the same three days you will also receive a Truth-in-Lending
Disclosure statement. This 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 an approval
letter . If the loan does not close within the specified commitment period,
the terms are subject to change. The approval may contain conditions you
need 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 an approval letter. This is not unusual,
but make sure you understand the terms of the approval.
Once the approval letter 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 submission of the loan
application and approval 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 both you and
the lender can do to reduce the stress.
Keep in mind 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.
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.
Buying a home may be the most exciting, confusing and stressful financial
transaction you ever undertake. Even if you have done it before, 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, however,
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.
The Loan Application Interview
Once you have selected a lender, the next step will probably be a meeting
with a loan officer or other lender representative, whose job is to begin the
collection of information the lender needs to approve the loan. They will
explain the types of mortgage loans available to you, interest rates, fees for
each type and the qualification requirements. During the meeting, the loan
officer will fill out, or assist you in filling out, the loan application.
By this time you should have a good idea of the general interest rates and
fees being charged in the area. The total cost of a mortgage loan consists
of the interest rate on the loan, origination fees, discount points, and
miscellaneous other charges. One point is equal to one percent of the
amount of the loan and is usually collected at the loan closing, or
settlement. The interest rate affects the amount of the monthly payment,
while points affect the amount of cash you must have at closing.
Most lenders will offer a range of interest rate/point combinations to meet
the borrower needs. In general, the higher the interest rate, the lower the
points. For example, if the current market provides for an 8.5 percent
interest rate with 2 points, a nine percent rate may be offered at no points.
If you are a first-time home buyer, the larger monthly payments on the 9
percent loan may be easier to handle than the 2 points that will require
additional cash at settlement. If you are a corporate transferee, however,
your company's relocation policy may pay all or part of origination costs
and the lower rate will have more appeal. The loan officer is prepared to
explain options to you.
When discussing the terms of the loan, make sure you understand how
and when the rate and fees on the loan are going to be set. Most lenders
will quote a rate and fee at the time the application is taken and then will
guarantee, or "lock" the rate quote for a specified length of time. A rate
lock protects you from rising interest rates while the loan is being
processed, but it also typically commits you to close the loan at the rate
and the fee even if rates decline prior to closing. Lock periods may run
from 10 to 60 days, with longer periods available in some cases at an
additional fee. The lock period must be long enough to get you through the
estimated closing date. A 30-day lock affords you no protection if closing is
at least 60 days away.
You may have the option to let the rate "float," getting the final rate and
fees set nearer the settlement date. If you believe rates are declining and
are willing to run the risk that interest rates could rise during the processing
of your loan, you may select this alternative. Before you take a floating
rate, make sure that the rise in interest rates will not create a problem for
you because you have insufficient income to cover the higher mortgage
payments. In either case, make sure you understand the terms of the lock-
in agreement.
Completing The Loan Application Form
The loan application asks for information on the property, terms of the
purchase contract, employment and financial history of all loan applicants,
including your spouse and/or other co-borrowers. The lender will verify or
not, to approve the loan, so it is very important to submit a complete and
accurate application.
You can complete the loan application process easier if you prepare for it
ahead of time. A great amount of detail will be asked about your personal
finances, including bank account numbers and balances, current loan
amounts, payments, and credit card account numbers. You will want to be
thorough and precise in your answers. It will be to your benefit to assemble
it this kind of information before the meeting with the loan officer. The
following is a summary of information required on the loan application,
documents you may need to provide and the questions you should be
prepared to answer.
Details of Purchase Contract and the Property
Because the property is security for the loan, the lender will have an
appraisal made of the property, and you need to have the following
information available:
· A complete copy of the sales contract, including addendums, 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. If not, consult the
Realtor or the seller.
Personal Information
The 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 seven 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 two years (some
lenders may require full Federal tax returns).
- Records of dividends and interest received from investments.
- 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, 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.
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 will be
required for investment properties).
- Value of other personal property such as furniture.
As with the Verification of Employment, the loan officer will 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 account balances reported by the institution and balances you
provided on the loan application have to be reconciled. Be sure you have
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 be verified in writing. If you are providing less than 5 percent of the
sales price, 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.
Personal Indebtedness
You will be asked to itemize all 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 requested by the lender. As with 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 have data correct, 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 financing you need to complete the
purchase.
If you have been through bankruptcy or foreclosure proceedings within the
past seven years, be prepared to give full details and 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 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 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 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 on your part and has no effect on
your loan application. The lender, however, is required by federal law to
request the information. Under Federal Regulations, this lender is required
to note race and sex on the basis of physical observation or surname.
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.
Based on the application, the loan officer may be able to pre-qualify you,
but cannot approve the loan. That is done by the lender's underwriters
after all documents and information have been received and verified.
After The Loan Application - What Next?
After the loan application has been completed, it will be forwarded to the
lender's loan processing department and then to an underwriter, where the
decision to approve or reject the loan will be made. Loan processors send
out 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. Processing times vary from
one lender to another, but the loan officer should be able to give an idea of
the processing time for your application.
Within three business days after receiving the application, the lender must
provide you with a Good Faith Estimate of the anticipated closing costs. It
will show costs associated with the loan settlement, such as origination
fees, mortgage insurance, title insurance, escrow reserves and hazard
insurance.
Within the same three days you will also receive a Truth-in-Lending
Disclosure statement. This 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 an approval
letter . If the loan does not close within the specified commitment period,
the terms are subject to change. The approval may contain conditions you
need 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 an approval letter. This is not unusual,
but make sure you understand the terms of the approval.
Once the approval letter 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 submission of the loan
application and approval 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 both you and
the lender can do to reduce the stress.
Keep in mind 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.
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.