Pre-qualification initiates the loan process. After gathering information on a borrower's income and debts, a lender determines the amount the borrower can afford for a house. Since various loan programs yield different valuations, borrowers should seek pre-qualification for each eligible loan type.
When approving homebuyers for their desired mortgage, mortgage companies assess two primary factors: the borrower's ability and willingness to repay the loan.
- Ability to repay is verified through current employment and total income. Ideally, lenders prefer stable employment for at least two years or consistent work in the same field.
- Willingness to repay is evaluated based on how the property will be utilized. Factors include residency versus rental usage and past financial commitments, highlighted by credit reports and rental payment history.
It's essential to recognize that there are no strict rules. Each applicant is evaluated individually. Even minor deficiencies in one area can be compensated by strengths in another. Ultimately, mortgage companies strive to facilitate loan processes to sustain their business while ensuring borrowers qualify.
To thoroughly analyze a mortgage program, the borrower should consider the duration of the loan. If intending to sell the house within a few years, opting for an adjustable or balloon loan might be more practical. Conversely, if planning to retain ownership for an extended period, a fixed loan could be more appropriate.
Given the plethora of programs available, each with varying rates, points, and fees, navigating the loan market can be daunting and time-consuming. However, an experienced mortgage professional can assess the borrower's circumstances and advise on the most suitable mortgage program. This enables the borrower to make a well-informed decision.
The application marks the official commencement of the loan process, typically happening within days one to five. Assisted by a mortgage professional, the borrower fills out the application and submits all necessary documentation. During the exploration of numerous mortgage programs, discussions about various fees and closing costs take place. These costs are then confirmed through the Good Faith Estimate (GFE) and a Truth-In-Lending Statement (TIL), which the borrower receives within three days of submitting the application to the lender.
After the application is submitted, the mortgage processing commences. The Processor initiates the Credit Report, Appraisal, and Title Report orders. Subsequently, the information provided in the application, including bank deposits and payment histories, is verified. Any credit derogatoriness, such as late payments, collections, or judgments, necessitate a written explanation. The processor scrutinizes the Appraisal and Title Report for property issues that may warrant additional investigation. Finally, the entire mortgage package is compiled for submission to the lender.
If you are purchasing or refinancing your home and are a salaried employee, you will need to submit your W-2s from the past two years along with one month of pay stubs. Alternatively, if you are self-employed, you should provide your tax returns from the past two years. For those who own rental property, Rental Agreements and tax returns from the past two years are required. To expedite the approval process, it's advisable to include bank statements, stock, and mutual fund account statements from the past three months. Additionally, provide recent copies of any stock brokerage or IRA/401k accounts.
If you're requesting cash-out, include a "Use of Proceeds" letter of explanation. In cases of divorce, submit a copy of the divorce decree if applicable. Non-US citizens should provide a copy of their green card (front and back), while non-permanent residents need to submit their H-1 or L-1 visa.
Applicants for a Home Equity Loan should also include a copy of their first mortgage note and deed of trust, typically found in their mortgage closing documents.
When applying for a home mortgage, understanding your credit history is crucial. Obtain a copy of your Credit Report beforehand to address any potential issues proactively. A Credit Profile comprises vital information from various consumer credit reporting agencies, reflecting your financial responsibility and payment history. It includes five key categories:
- Identifying Information
- Employment Information
- Credit Information
- Public Record Information
- Inquiries
Excluded from your credit profile are factors such as race, religion, health, driving record, criminal record, political preference, or income.
Should you have encountered credit challenges, honest communication with a mortgage professional is essential. They can aid in crafting a "Letter of Explanation" to clarify any past issues, recognizing legitimate reasons such as unemployment or illness.
Credit rating terminology, like BC mortgage lending, evaluates credit based on payment history, debt obligations, and credit scores. Credit scoring analyzes factors like past delinquencies, debt levels, and credit history length to assess credit risk accurately.
To improve your credit score, consider these strategies:
- Timely bill payments
- Maintaining low credit card balances
- Minimizing unnecessary credit accounts
- Verifying the accuracy of your credit report information
- Prudent credit application practices, minimizing unnecessary inquiries.
An appraisal in real estate involves determining the value of ownership rights associated with a property. The appraiser's role is to define these rights and assess the property's value based on market interpretations rather than creating value. As the appraiser gathers relevant data, they consider factors such as the property's location, amenities, and physical condition. Extensive research and data collection are necessary before the appraiser can form a final opinion of value.
There are three primary approaches to property valuation, all rooted in market analysis. The Cost Approach evaluates the cost of replacing existing improvements, accounting for depreciation and obsolescence. The Comparison Approach relies on comparing the subject property to similar recently sold properties to determine its value. Meanwhile, the Income Approach, commonly used for rental properties, estimates value based on the property's income potential for investors.
Each approach provides unique insights into property valuation, allowing appraisers to arrive at a comprehensive and accurate estimate of a property's worth.
Underwriting plays a pivotal role in the mortgage process by ensuring that loans adhere to lender standards and regulatory guidelines. By meticulously reviewing loan applications, underwriters mitigate risks and maintain the integrity of the lending process, benefiting both borrowers and lenders.
After receiving approval, the loan file is forwarded to the closing and funding department. This department informs the broker and closing attorney of the approval, verifies associated fees, and coordinates the signing of loan documents with the borrower. During the closing, the borrower should:
- Bring a cashier’s check for the down payment and closing costs, as personal checks may cause delays.
- Review the final loan documents to ensure accuracy of interest rates, loan terms, names, and addresses.
- Sign the loan documents and provide identification and proof of insurance. Once signed, the closing attorney returns the documents to the lender for examination. If all is in order, the loan is funded. Subsequently, the closing attorney facilitates the recording of the mortgage note and deed of trust at the county recorder’s office. Final settlement costs are then detailed on the HUD-1 Settlement Form, and disbursements are made.
In a typical “A” mortgage transaction, the process usually spans between 14 to 21 business days. However, with the integration of advanced automated underwriting, this timeline has significantly expedited, ensuring a quicker turnaround for borrowers. Whether you're a first-time homebuyer or refinancing your existing mortgage, our team of experienced Loan Officers is here to guide you through the process.
Feel free to reach out to one of our knowledgeable Loan Officers today to discuss your specific mortgage requirements. We prioritize your needs and interests, offering personalized assistance tailored to your unique financial situation. Rest assured, as a dedicated mortgage broker, we work tirelessly to ensure your best interests are always at the forefront of our services.