Section 8 _From START
TO FINISH…The Process Simplified
Your
PreQual-Analysissm has started the process for you…now
we're ready to get going to determine what the steps are as you
complete the process. We've already discussed that two key factors
are the borrower's ability to repay the loan and, second, the
borrower's willingness to repay the loan. Ability to repay the
mortgage is verified by current employment and total income. Generally
speaking, it is preferable for you to have been employed at the
same company for at least two years, or at least be in the same
line of work for two years.
The borrower's willingness to repay is 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 your credit history and your mortgage payment
history (or, rental payment history if a first-time home buyer).
It is important to remember that there are no rules set in stone.
Each applicant is handled on a case-by-case basis. Even if you
come up a little short in one area, your stronger points can make
up for weak factors. Do not assume you cannot qualify.
Review This! Here's
some LENDING TRUTHS for You! ...as you enter the mortgage maze!
The Application
The application is the true start of the loan
process and usually occurs between days 1 and 5 of the start of
the loan process. The borrower completes, with the aid of a mortgage
professional, the application and provides all Required Documentation.
The various fees and closing cost estimates will have been discussed
while examining the many Mortgage Programs and these costs will
be verified by the Good Faith Estimate (GFE) and a Truth-In-Lending
Statement (TIL) which the borrower will receive within three days
of the submission of the application to the lender.
Credit Reports
Most people applying for a home mortgage need
not worry about the effects of their credit history after initial
pre-approval. However, in some instances there are credit reconciliation
issues which would position you better if certain items were "cleared
up" prior to going forward with your full submittal. Talk
to us about these exceptions.
You can be better prepared if you get a copy
of your Credit Report before you apply for your mortgage. That
way, you can take steps to correct any negatives before making
your application. See Credit
Reports & You!
Ratios, Ratios, Ratios
When analyzing a borrower's loan application,
two different debt ratios are used to determine if the borrower
can afford his proposed obligations. Known as the "Top"
and "Bottom" ratios; the top ratio consists of monthly
housing expense known as PITI (principal, interest, taxes, homeowner's
insurance and homeowner's association fees or PMI Insurance, if
any) divided by gross monthly income. The bottom ratio consists
of PITI plus all monthly consumer debt payments (cars, credit
cards, and student loans) divided by gross monthly income.
Fannie Mae/Freddie Mac guidelines are that
the top and bottom ratios should not exceed 28 over 36 (28/36)
with a down payment of less than 20%. If your down payment is
20% or greater they will go to 33/38. Direct underwriting exceptions
may apply.
FHA guidelines state that your ratios
should not exceed 29/41 and VA guidelines have just one overall
ratio of 41%. If your ratios exceed the standard guidelines, don't
worry. Many programs will let back end ratios can go over 50%
with compensating factors such as low Loan to Value (LTV) or high
borrower liquidity.
As your initial Pre-Qual Analysissm has been
completed early in the process, you know exactly what consumer
debt is reporting on the credit bureaus. This will also give you
a chance to improve your ratios by considering the paying off
low consumer debt balances.
Processing
Once the application has been submitted, the
processing of the mortgage begins. The processor orders merged
Credit Report(s), the Appraisal and Title Report. The information
on the application, such as bank deposits and payment histories
are then verified. Any credit derogatory items, 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.
Underwriting
Once the processor has put together a complete
package with all verifications and documentation, the file is
submitted. The underwriter may require additional documentation
or information. If this is the case, the loan is put into "suspense"
and the borrower is contacted to supply the requested items. If
the file is acceptable as submitted, the loan is put into an "approved"
status. Only underwriters issue "Final Approvals" on
Complete Mortgage Submissions.
Closing
Once the loan is approved, the file is
transferred to the closing and funding departments. Ask us about
the advantages of having your own "separate-side" closing.
The funding department notifies the closing agent of the approval
and verifies fees. A closing time is then scheduled for the borrower(s)
to sign the loan documentation papers. The closing agent prepares
the final settlement costs on the HUD-1 Settlement Statement to
be signed at closing, along with other required loan documents,
which may vary, depending on the specific requirements of the
wholesale agency/investor.
At the closing the borrower(s) should:
- Bring a cashiers' check for your down payment
(if a purchase) and closing costs if required. Personal checks
are normally not accepted and if they are it will delay the
process until the check clears your bank.
- Review the final loan documents. Make sure
that the interest rate and loan terms are what you agreed upon.
Also, verify that the names and address on the loan documents
are accurate.
- Sign the loan documents.
- Bring photo identification.
After the documents are signed, the closing
attorney/agent returns the documents to the Funding Department
for examination. If everything is in order, the loan is funded.
Final disbursements are then made. Once the loan has funded, the
closing attorney/agent arranges for the mortgage note and deed
of trust to be recorded at the office of the county recorder where
the subject property is located.
