Understanding the Loan Process

Pre-qualification starts the loan process. Once we have gathered information about your income and debts, we can determine how much you can afford for a house. Since different loan programs can cause different valuations, you should get pre-qualified for each loan type you may qualify for.

In approving homebuyers for the type and amount of mortgage they want, we look at two key factors:

• Ability to repay: Verified by your current employment and total income. Generally, we prefer you to have been employed at the same place for at least two years, or at least be in the same line of work.
• Willingness to repay: Determined by examining how the property will be used and your credit history.

To properly analyze a mortgage program, think about how long you plan 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. Our experienced team can evaluate your situation and recommend the most suitable mortgage program, allowing you to make an informed decision.

With the aid of your mortgage professional, you'll complete the application and provide all requested documentation.

A loan application is not considered complete until you have provided at least the following information:

1. Your name
2. Your income
3. Your Social Security number (and authorization to check your credit)
4. The address of the home you plan to purchase or refinance
5. An estimate of the home's value
6. The loan amount you want to borrow

A Loan Estimate is a three-page form that you receive after applying for a mortgage. We will deliver this to you within 3 days of your fully completed loan application.

The Loan Estimate provides you with important information, including:

• Estimated interest rate
• Monthly payment
• Total closing costs
• Estimated costs of taxes and insurance
• How the interest rate and payments may change in the future
• Special features like prepayment penalties or negative amortization

All lenders are required to use the same standard Loan Estimate form, making it easier for you to compare mortgage loans.

After you receive your Loan Estimate, it's up to you to decide whether to move forward. If you do intend to proceed, you must tell us 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. If you decide to move forward more than 10 business days after you receive a Loan Estimate, market conditions may make it necessary to revise the terms and estimated costs.

Once the application has been submitted, the processing of your mortgage begins. The processor orders the Credit Report, 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.

Once you have completed the loan application, accepted the loan estimate, and indicated your intent to proceed, we will request documents from you in order to obtain your loan approval.

If you are salaried, you will need to provide:

• Past two years W-2s
• One month of pay stubs

If you are self-employed, you will need to provide:

• Past two years tax returns
• If you own rental property: Rental Agreements and past two years tax returns

Additional documents to speed up approval:

• Past three months bank statements
• Stock and mutual fund account statements
• Most recent copies of stock brokerage or IRA/401k accounts

Other situations may require:

• Cash-out: "Use of Proceeds" letter of explanation
• Divorce: Copy of divorce decree
• Non-US citizen: Copy of green card (front and back), or H-1/L-1 visa
• Home Equity Loan: Copy of first mortgage note and deed of trust

Most people applying for a home mortgage need not worry about the effects of their credit history during the mortgage process. However, you can be better prepared if you get a copy of your credit report before you apply.

Credit reports include five categories of information:

• Identifying Information
• Employment Information
• Credit Information
• Public Record Information
• Inquiries

FICO Credit Scores:

Credit scores are based on five factors:

• 35% - Payment history
• 30% - Amount owed
• 15% - Length of credit history
• 10% - New credit being sought
• 10% - Types of credit you have

Ways to improve your credit score:

• Pay your bills on time
• Keep balances low on credit cards
• Limit credit accounts to what you really need
• Check that your credit report information is accurate
• Be conservative in applying for credit

An appraisal of real estate is the valuation of the rights of ownership. The appraiser interprets the market to arrive at a value estimate, considering the site, amenities, and physical condition of the property.

Three common approaches to value:

• Cost Approach: What it would cost to replace the existing improvements, less any depreciation or obsolescence.
• Comparison Approach: Uses other similar properties (comps) that have recently sold to determine value.
• Income Approach: Used for rental properties based on net income the property produces.

Once the processor has put together a complete package with all 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 you'll be contacted to supply more information and/or documentation. If the loan is acceptable as submitted, it's put into an "approved" status.

The Closing Disclosure is a five-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.

We 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
• Ask us any questions before you go to the closing table
• Review all final details carefully

Once the loan is approved, the file is transferred to the closing and funding department. The closing attorney schedules a time for you to sign the loan documentation.

At the closing you should:

• Bring a cashier's check for your down payment and closing costs if required (personal checks are normally not accepted)
• Review the final loan documents and verify that the interest rate and loan terms are what you agreed upon
• Verify that the names and address on the loan documents are accurate
• Sign the loan documents
• Bring identification and proof of insurance

After the documents are signed, the closing attorney returns them 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 closing attorney arranges for the mortgage note and deed of trust to be recorded at the county recorder's office.