Loan Process Pre-Qualification Pre-qualification starts the loan process. Once a lender has gathered information about a borrower's income and debts, a determination can be made as to how much the borrower can pay for a house. Since different loan programs can cause different valuations a borrower should get pre-qualified for each loan type the borrower may qualify for. In attempting to approve homebuyers for the type and amount of mortgage they want, mortgage companies look at two key factors. First, 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 your current employment and total income. Generally speaking, mortgage companies prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few 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 the Credit Report and/or your rental payment history. It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, your stronger point could make up for the weak one. Mortgage companies could not stay in business if they did not generate loan business, so it is in everyone's best interest to see that you qualify. Mortgage Programs and Rates To properly analyze a mortgage program, the borrower needs to think about how long he plans 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. An experienced mortgage professional can evaluate a borrower's situation and recommend the most suitable mortgage program, thus allowing the borrower to make an informed decision. The Application The application is the true start of the loan process and usually occurs between days one and five of the start of the loan process. With the aid of a mortgage professional, the borrower completes 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. Processing Once the application has been submitted, the processing of the 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 credit derogatoriness, such as late payments, collections and/or judgments requires 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. Required Documents If you are purchasing or refinancing your home, and you are salaried, you will need to provide the past two-years W-2s and one month of pay-stubs: OR, if you are self-employed you will need to provide the past two-years tax returns. If you own rental property you will need to provide Rental Agreements and the past two-year' tax returns. If you wish to speed up the approval process, you should also provide the past three months' bank, stock and mutual fund account statements. Provide the most recent copies of any stock brokerage or IRA/401k accounts that you might have. If you are requesting cash-out, you will need a 'Use of Proceeds' letter of explanation. Provide a copy of the divorce decree if applicable. If you are not a US citizen, provide a copy of your green card (front and back), or if you are NOT a permanent resident provide your H-1 or L-1 visa. If you are applying for a Home Equity Loan you will need, in addition to the above documents, to provide a copy of your first mortgage note and deed of trust. These items will normally be found in your mortgage closing documents. Credit Reports 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 for your mortgage. That way, you can take steps to correct any negatives before making your application. A Credit Profile refers to a consumer credit file, which is made up of various consumer credit reporting agencies. It is a picture of how you paid back the companies you have borrowed money from, or how you have met other financial obligations. There are five categories of information on a credit profile: Identifying Information Employment Information Credit Information Public Record Information Inquiries NOT included on your credit profile is race, religion, health, driving record, criminal record, political preference, or income. If you have had credit problems, be prepared to discuss them honestly with a mortgage professional who will assist you in writing your 'Letter of Explanation.' Knowledgeable mortgage professionals know there can be legitimate reasons for credit problems, such as unemployment, illness, or other financial difficulties. If you had problems that have been corrected (reestablishment of credit), and your payments have been on time for a year or more, your credit may be considered satisfactory. The mortgage industry tends to create its own language, and credit rating is no different. BC mortgage lending gets its name from the grading of one's credit based on such things as payment history, amount of debt payments, bankruptcies, equity position, credit scores, etc. Credit scoring is a statistical method of assessing the credit risk of a mortgage application. The score looks at the following items: past delinquencies, derogatory payment behavior, current debt levels, length of credit history, types of credit and number of inquiries. By now, most people have heard of credit scoring. The most common score (now the most common terminology for credit scoring) is called the FICO score. This score was developed by Fair, Isaac & Company, Inc. for the three main credit Bureaus; Equifax (Beacon), Experian (formerly TRW), and (TransUnion). FICO scores are simply repository scores meaning they ONLY consider the information contained in a person's credit file. They DO NOT consider a person's income, savings or down payment amount. Credit scores are based on five factors: 35% of the score is based on payment history, 30% on the amount owed, 15% on how long you have had credit, 10% percent on new credit being sought, and 10% on the types of credit you have. The scores are useful in directing applications to specific loan programs and to set levels of underwriting such as Streamline, Traditional or Second Review. However, they are not the final word regarding the type of program you will qualify for or your interest rate. Many people in the mortgage business are skeptical about the accuracy of FICO scores. Scoring has only been an integral part of the mortgage process for the past few years (since 1999); however, the FICO scores have been used since the late 1950's by retail merchants, credit card companies, insurance companies and banks for consumer lending. The data from large scoring projects, such as large mortgage portfolios, demonstrate their predictive quality and that the scores do work. The following items are some of the ways that you can improve your credit score: Pay your bills on time.Keep Balances low on credit cards.Limit your credit accounts to what you really need. Accounts that are no longer needed should be formally cancelled since zero balance accounts can still count against you.Check that your credit report information is accurate.Be conservative in applying for credit and make sure that your credit is only checked when necessary. A borrower with a score of 680 and above is considered an A+ borrower. A loan with this score will be put through an 'automated basic computerized underwriting' system and be completed within minutes. Borrowers in this category qualify for the lowest interest rates and their loan can close in a couple of days. A score below 680 but above 620 may indicate underwriters will take a closer look in determining potential risk. Supplemental documentation may be required before final approval. Borrowers with this credit score may still obtain 'A' pricing, but the loan may take several days longer to close. Borrowers with credit scores below 620 are not normally locked into the best rate and terms offered. This loan type usually goes to 'sub-prime' lenders. The loan terms and conditions are less attractive with these loan types and more time is needed to find the borrower the best rates. All things being equal, when you have derogatory credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation, assets, etc. play a larger role in the approval decision. Various combinations are allowed when determining your grade, but the worst-case scenario will push your grade to a lower credit grade. Late mortgage payments and Bankruptcies/Foreclosures are the most important. Credit patterns, such as a high number of recent inquiries or more than a few outstanding loans, may signal a problem. Since an indication of a 'willingness to pay' is important, several late payments in the same time period are better than random lates. Appraisal Basics An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights to be appraised. The appraiser does not create value; the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. Considerable research and collection of data must be completed prior to the appraiser arriving at a final opinion of value. Using three common approaches, which are all derived from the market, derives the opinion, or estimate of value. The first approach to value is the COST APPROACH. This method derives what it would cost to replace the existing improvements as of the date of the appraisal, less any physical deterioration, functional obsolescence, and economic obsolescence. The second method is the COMPARISON APPROACH, which uses other 'bench mark' properties (comps) of similar size, quality and location that have recently sold to determine value. The INCOME APPROACH is used in the appraisal of rental properties and has little use in the valuation of single family dwellings. This approach provides an objective estimate of what a prudent investor would pay based on the net income the property produces. Underwriting 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 the borrower is contacted to supply more information and/or documentation. If the loan is acceptable as submitted, the loan is put into an 'approved' status. ClosingOnce the loan is approved; the file is transferred to the closing and funding department. The funding department notifies the broker and closing attorney of the approval and verifies broker and closing fees. The closing attorney then schedules a time for the borrower to sign the loan documentation. At the closing the borrower should: Bring a cashier's check for your down payment and closing costs if required. Personal checks are normally not accepted and if they are they will delay the closing 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 identification and proof of insurance. After the documents are signed, the closing attorney returns the documents 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. Once the mortgage has been recorded, the closing attorney then prints the final settlement costs on the HUD-1 Settlement Form. Final disbursements are then made. Summation A typical 'A' mortgage transaction takes between 14-21 business days to complete. With new automated underwriting, this process speeds up greatly. Contact one of our experienced Loan Officers today to discuss your particular mortgage needs or Apply Online and a Loan Officer will promptly get back to you. Loan ProcessPlease Provide the Following DocumentationEVERY DOCUMENT REQUESTED IS NEEDED! Standard Income Documentation: 2 years W-2's AND Previous 2 Federal Income Personal Tax returns. ALL pages/ALL Schedules If self-employed 2yr's Corporate tax returns and K1s. ALL schedules All Pages. (If you own more than 25% of a company you are required to provide Corporate returns these include)(Corp. Sched. 1120s) (LLC sched. 1065) 2 weeks' pay stubs (Please keep providing me with them up until the day we close). 2 months bank statements (please provide ALL PAGES even if they are blank). (Please keep providing me with them up until the day we close). Proof of assets (i.e.: 401k, annuity, mutual fund, IRA, CD etc...) (All PAGES even if they are blank). (Please keep providing me with them up until the day we close). 2 forms of ID (Most common driver's license social security card). Copy of mortgage statements (Most current statement). Copy of home owner's insurance declaration page (Has agents name, phone number, policy number and your premium amount). Tennant Leases (IF Multi-family) Signed disclosures (please sign and date ALL PAGES ALSO PLEASE DO NOT CROSS ANYTHING OUT). If you own any properties currently we require the following documents Copy of mortgage statements for (ALL properties owned). Copy of home owner's insurance declaration page (for ALL properties owned). Copy of home property tax statements (for ALL properties owned). ALTERNATIVE INCOME DOCUMENTS The following forms of income are acceptable: Pension, Social Security, and Disability Must provide 2 of the following items Award letter (For social security or pension). Bank statements showing deposits (Showing the social or pension being direct deposited). Copy of check stubs (Copy of cancelled stubs from social security). Purchase Information Copy executed purchase and sales agreement. (Signed by all parties). Deposit to the seller at the time of contract. (Please provide proof of this we are going to need the cancelled check. Also need bank statement showing the money coming out of the account). Bank Statement showing the money where the down payment that you are putting down on the house is coming out of. (Need to have that account on hand). Verification of Rent or 12 months cancelled rent checks or rent free letter. (I will let you know which applies for you). Gift Letter (Only if this applies to you. We provide you the form). Reduced Doc Loans Accountants Letter: To state the following. (Keep in mind this is an example so please use real numbers and your own whatever they may be). This writing is to confirm that for that I have been ABC'S Company account or CPA for the past 11 years, during that time ABC Company has been self-employed in the construction industry. He has 100% ownership of his business. ABC Company and he have filed his business and personal tax returns in such capacity. ABC Company is located at 123 ABC Street in Brooklyn NY 11566 and has been in business for 21 years. Please do not hesitate to contact me with any questions or concerns.Thank You Mr. Accountant Miscellaneous Documentation Divorce Decree & Settlement Agreement (If you're receiving child support of alimony please let us know and provide proof we can give you credit for that and it can be used as positive income). Bankruptcy (Please provide the Discharge Notice, Filing and Schedule of Creditors). If you are NOT a US citizen, provide a copy of your green card (front & back). If you are NOT a permanent resident (Provide a copy of your H-1 or L-1 visa). If you are requesting cash out refinance loan, provide a letter explaining how you will use the refinance proceeds.