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Loan Process

Step 1: Find Out How Much You Can Borrow

The first step in obtaining a mortgage loan is to determine how much money you can qualify to borrow.  In the case of buying a home, you should determine how much home you can afford even BEFORE you begin looking. By answering a few simple questions, we will calculate your buying power based on general lender guidelines.

Click here to PRE-QUALIFY.

You may also elect to get PRE-APPROVED for a loan which requires VERIFICATION of your income, credit, assets and liabilities.  It is HIGHLY RECOMMENDED that you get PRE-APPROVED before you start looking for your new house so you can: 

  1. Focus on looking at properties that are within your buying range.
  2. Be in a better position when negotiating with the seller (seller will know you are a truly qualified and serious buyer with a loan ready to buy the property).
  3. Have the ability to close your transaction in a shorter time frame (often times a contract demands this to be competitive and obtain seller acceptance).

More on Pre-Qualification
     LTV and Debt-to-Income Ratios
     FICO Credit Score
     Self Employed Borrower
     Source of down payment

LTV and Debt-to-Income Ratios
LTV (Loan-To-Value ratio) is the maximum amount of exposure that a lender is willing to accept in financing your purchase. Lenders are usually prepared to lend a higher percentage of the value, even up to 100%, to creditworthy borrowers.

Another consideration in approving the maximum amount of loan for a particular borrower is the Debt- to Income Ratio (ratio of monthly debt payments- such as auto and personal loans- to income). General lending guidelines state that your monthly mortgage payments should not exceed 1/3 of your GROSS monthly income. Therefore, borrowers with a high debt-to-income ratio may need to pay a higher down payment (lower LTV ratio) to qualify.

FICO Credit Score
FICO Credit Scores are widely used by almost all lenders in their credit decision. It is a quantified measure of creditworthiness of an individual, which is derived from mathematical models developed by Fair Isaac and Company in San Rafael, California. FICO scores reflect credit risk of the individual in comparison with that of general population. It is based on a number of factors including past payment history, total amount of borrowing, length of credit history, search historty for new credit, and type of credit already established. When you begin shopping around for a new credit card or a loan, every time a lender runs your credit report it can adversely effects your credit score. It is, therefore, advisable that you only authorize a lender to pull your credit report AFTER to choose to apply with them.

Self Employed Borrowers
Self Employed individuals, or those who earn 1099, K-1 or Schedule C income, often find that there are greater hurdles to borrowing for them as opposed to a W-2 employed individual. For many lenders the problem with lending to the a self employed person is documenting the applicant's income. Applicants with W-2 jobs can provide lenders with Pay Stubs, and lenders can easily verify the information through their employer. In the absence of such verifiable employment records, lenders must rely on the Federal Income Tax Returns for income. Lenders typically require Self Employed borrowers to provide the last two (2) years of Federal Tax Returns to insure income history and access probability of future income, and thus the ability to repay the loan.

Source of Down Payment
Lenders expect borrowers to provide funds for the down payment, as well as some other closing fees that are typically paid by the borrower, at the time of closing and funding of the loan. Generally, down payment requirements are made with funds the borrowers have saved. If a borrower does not have the required down payment, they may receive “gift funds” from an acceptable donor with a signed letter stating that the gifted funds do not have to be paid back.

Step 2: Select The Right Loan Program

Home loans come in many shapes and sizes. Deciding which loan makes the most sense for your financial situation and goals means understanding the benefits of each.  Whether you are buying a home, or refinancing one, there are 2 basic types of home loans. Each has different reasons you'd choose them.

1) Fixed Rate Mortgage

Fixed Rate Mortgages usually have terms lasting 10, 15 or 30 years. Throughout those years, the interest rate and monthly payments remain the same.  You would select this type of loan when you:

  • Plan to live in the home atleast for 7 years
  • Prefer the stability of a fixed principal/interest payment
  • Don't want the risk of future monthly payment increases
  • Think your income and spending habits will remain stable

2) Adjustable Rate Mortgage

Adjustable Rate Mortgages (often called ARMs) typically last for 10, 15 or 30 years, just like fixed rate mortgages. However, during those years, the actual interest rate on the loan may go up or down based on market conditions. Thus, the monthly payments for principal and interest can increase or decrease as well.  You may opt to elect this type of loan when you:

  • Plan to live in your home for LESS than 5 years
  • Can manage having your monthly payment periodically change (up or down)
  • Are comfortable with the risk of possible payment INCREASES in the future
  • Your INCOME will likely INCREASE in the future

By carefully considering the above factors and seeking our professional advice, you should be able to select the loan that properly matches your present finances, as well as your future financial goals.

Step 3: Apply For A Loan

Step 4: Begin Loan Processing

Although lenders typically conform to standards set by GSE's (Fannie Mae or Freddie Mac) or government agencies (FHA or VA), loan approval guidelines vary depending on the terms of each loan and each lender's underwriting guidelines. In general, approval is based on two factors: your ability to repay the loan and the value of the property.

Once your loan application has been received we will start the loan approval process immediately. Your mortgage banker or loan officer will review and verify all of the information you provide. If any discrepancies are found, your mortgage banker, loan officer or loan processor will troubleshoot to get the documentation needed to complete the underwriting process.  This information includes:

Income/Employment Check
Is your income sufficient to cover monthly payments?  Industry guidelines are used to evaluate your income and your debts.
 
Credit Check
What is your ability to repay debts according to the terms?  Your credit report is reviewed to determine the type and terms of other existing debts. Any lapses or delays in payments are considered and must be explained.
 
Asset Evaluation
Do you have the funds necessary to make the down payment and pay closing costs? 
 
Property Appraisal
Is there sufficient value in the property? The property is appraised to determine market value. Location, zoning, recent sales (within the last year) of other properties within a close proximity, and with similar features, play a part in the evaluation.
 
Other Documentation
In some cases, additional documentation might be required before making a final determination regarding your loan approval.

In order to improve your chances of getting a loan approval:

  1. Complete your loan application in it's entirety. You may use our online forms to expedite the process.
  2. Respond promptly to any requests for additional documentation- especially if your rate is locked or if your loan is to close by a certain date.
  3. Do NOT deposit large sums of money into, nor withdrawl or transfer from, your bank accounts without retaining a  paper trail to document the source of funds and the transactions themselves. If you are receiving money from friends, family or other relatives, please contact us to get an acceptable gift letter properly prepared.Do NOT make any major purchases until your loan is closed.  New purchases can cause your debts to increase and might have an adverse affect on your current application. If you find yourself needing to do this you MUST contact us and provide the new debt information that can be added to your application to insure all debts are disclosed.
  4. Do NOT plan to  go out of town around your loan's closing date. If you must be out of town, a Power of Attorney may be necessary. A power of attorney is NOT a preferred means to close any mortgage loan. However, IF applicable, it must be prepared specific to the transaction and approved by your lender PRIOR to closing.

Step 5: Close Your Loan

After your loan is APPROVED and CLEARED TO CLOSE, you are ready to sign the final loan documents! You must review the documents prior to signing and make sure that the interest rate and loan terms are what you were promised. Also, verify that the name and address on the loan documents are accurate on each document. The signing/closing normally takes place at a title agency, realtor's office, or at the property itself by a notary public, or a real estate attorney.

There are also several fees associated with obtaining a mortgage and transferring property ownership which you will be expected to pay at closing. You will be expected to wire funds for closing on a PURCHASE. Personal checks are normally not accepted, even on a refinance, however if funds required to close are less than $10,000.00 an exception MAY be considered. You also will also need to bring an acceptable form of photo ID to your closing.

Your loan will normally close and file shortly after you have signed the loan documents. On an owner occupied REFINANCE transaction, federal law requires that you have three (3) business days to review the documents before your loan transaction can disburse and file.

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