The Loan Process in Nine Easy Steps
1. Loan Application
After discussing financing options, a loan application is taken by a home financing officer and submitted for initial credit approval.
2. Credit Only Approval
Once the application is complete, a credit report is pulled, and if you qualify, a 'credit-only' approval is provided based on the information contained in the credit report and application.
3. Disclosures Sent
Disclosures are sent within three business days of the completed application. FInancial documentation cannot be required until after this step is complete.
4. Request Documentation
Once the disclosures are received and the customer decides to continue with the loan, the customer is provided with a list of documentation needed to support the loan.
5. Appraisal and Title Insurance
Appraisal and title insurance is ordered and appraisal fee collected from the customer. This step can commence during the time the customer is gathering financial information.
6. Loan Approval
Upon receipt of the appraisal/title insurance and requested financial documents from the customer, the loan is ready to submit to underwriting for loan approval. Additional conditions may be added at this time.
7. Loan Documents
Once all loan conditions are cleared by the underwriter, loan documents are prepared and forwarded to the title company.
Once documents are received by the title company, final closing documents are prepared by the title company prior to signing documents.
Signed documents are returned to the lender. Funds are disbursed after any applicable recission period expires.
Mortgage Loan and other frequently Asked Questions
Yes, applying for a mortgage loan before you find a home is a great idea. If you apply for your mortgage now and meet our pre-qualification criteria, we can issue a pre-qualification letter online. You can use the pre-qualification letter to show sellers that you're a qualified buyer.
Credit reporting agencies collect information reported each month by your creditors about the balances you owe, the timing of your payments, your payment history, outstanding obligations, the length of time you've had outstanding credit, the types of credit used, and the number of inquiries that have been made about your credit history in the recent past.
A credit score is a compilation of all this information converted into a number (ranging from 300 to 900) that helps a lender to determine the likelihood that you'll repay the loan on schedule. The credit score is calculated by the credit bureau, not by the lender, and is proven to be a very effective way of determining creditworthiness.
There is no charge to you for the credit information we'll access with your permission to evaluate your application online. You'll only be charged for a credit report if you decide to complete the application process after your loan is approved.
Yes, some mortgage loan programs allow you to borrow funds to use as your down payment. If you own something of value that you could borrow funds against, such as a car or another home, it's a perfectly acceptable source of funds. If you're planning on obtaining a loan, make sure to include the details of this loan in the expenses section of the application.
Generally, the income of self-employed borrowers is verified by obtaining copies of personal (and business, if applicable) federal tax returns for the most recent two-year period.
We'll review and average the net income from self-employment that's reported on your tax returns to determine the income that can be used to qualify. We won't be able to consider any income that hasn't been reported as such on your tax returns. Typically, we'll need at least a one-year, and sometimes a full two-year history of self-employment to verify that your self-employment income is consistent.
In order for bonus, overtime, or commission income to be considered, you must have a history of receiving it and it must be likely to continue. We'll usually need to obtain copies of W-2 statements for the previous two years and a recent pay stub to verify this type of income. If a major part of your income is commission earnings, we may need to obtain copies of recent tax returns to verify the amount of business-related expenses, if any. We'll average the amounts you've received over the past two years to calculate the amount that can be considered as a regular part of your income.
If you haven't been receiving bonus, overtime, or commission income for at least one year, it probably can't be given full value when your loan is reviewed for approval.
We'll ask for copies of your recent pension check stubs, or bank statement if your pension or retirement income is deposited directly in your bank account. Sometimes it'll also be necessary to verify that this income will continue for at least three years since some pension or retirement plans don't provide income for life. This can usually be verified with a copy of your award letter. If you don't have an award letter, we can contact the source of this income directly for verification.
If you're receiving non-taxable income, such as social security earnings, in some cases, we'll consider the fact that taxes won't be deducted from this income when reviewing your request.
If you own rental properties, we'll generally ask for the most recent year's federal tax return to verify your rental income. We'll review the Schedule E of the tax return to verify your rental income, after all expenses except depreciation. Since depreciation is only a paper loss, it won't be counted against your rental income.
If you haven't owned the rental property for a complete tax year, we'll ask for a copy of any leases you've executed and we'll estimate the expenses of ownership.
Generally, three years' personal tax returns are required to verify the amount of your dividend and/or interest income so that an average of the amounts you receive can be calculated. In addition, we'll need to verify your ownership of the assets that generate the income using copies of statements from your financial institution, brokerage statements, stock certificates or promissory notes.
Typically, income from dividends and/or interest must be expected to continue for at least three years to be considered for repayment.
Having changed employers frequently is typically not a hindrance to obtaining a new mortgage loan. This is particularly true if you made employment changes without having periods of time in between without employment. We'll also look at your income advancements as you've changed employment.
If you're paid on a commission basis, a recent job change may be an issue since we'll have a difficult time of predicting your earnings without a history with your new employer.
If you were in school before your current job, enter the name of the school you attended and the length of time you were in school in the "length of employment" fields. You can enter a position of "student" and income of "0."
Some mortgage loan programs allow you to use gift funds as an acceptable source of a down payment, if the gift giver is related to you or your co-borrower we'll ask you for the name, address, and phone number of the gift giver, as well as the donor's relationship to you.
If your loan request is for more than 80% of the purchase price, we'll need to verify that you have at least 5% of the purchase price in your own assets.
Prior to closing, we'll verify that the gift funds have been transferred to you by obtaining a copy of your bank receipt or deposit slip to verify that you've deposited the gift funds into your account.
If you're selling your current home to purchase your new home, we'll ask you to provide a copy of the settlement or closing statement you'll receive at the closing to verify that your current mortgage has been paid in full and that you'll have sufficient funds for our closing. Often the closing of your current home is scheduled for the same day as the closing of your new home. If that's the case, we'll just ask you to bring your settlement statement with you to your new mortgage closing.
If you'll be working for the same employer, complete the application as such but enter the income you anticipate you'll be receiving at your new location.
If your job is with a new employer, complete the application as if this were your current employer and indicate that you have been there for one month. The information about the employment you'll be leaving should be entered as a previous employer. We'll sort out the details after you submit your loan for approval.
Generally, a co-signed debt is considered when determining your qualifications for a mortgage. If the co-signed debt doesn't affect your ability to obtain a new mortgage we'll leave it at that. However, if it does make a difference, we can ignore the monthly payment of the co-signed debt if you can provide verification that the other person responsible for the debt has made the required payments by obtaining copies of their cancelled checks for the last 12 months.
If you've had a bankruptcy or foreclosure in the past, it may affect your ability to get a new mortgage. Unless the bankruptcy or foreclosure was caused by situations beyond your control, we'll generally require that two to four years have passed since the bankruptcy or foreclosure. It's also important that you've re-established an acceptable credit history with new loans or credit cards.
An installment debt is a loan that you make payments on, such as an auto loan, a student loan or a debt consolidation loan. Don't include payments on other living expenses, such as insurance costs or medical bill payments. We'll include any installment debts that have more than 10 months remaining when determining your qualifications for this mortgage.
The closing will take place at the office of a title company in your area who will act as our agent. If you are purchasing a new home, the seller may also be at the closing to transfer ownership to you, but in some states, these two events actually happen separately.
During the closing you will be reviewing and signing several loan papers. The closing agent or attorney conducting the closing should be able to answer any questions you have or you can feel free to contact your loan adviser.
Just to make sure there are no surprises at closing, your Loan Advisor will contact you a few days before closing to review your final fees, loan amount, first payment date, etc.
If your loan is a refinance or is adding an additional security interest to your primary residence, federal law requires that you have three days to decide positively that you want a new mortgage after you sign the documents. This means that the loan funds won't be disbursed until three business days have passed. The closing agent will provide more details at the closing.
The closing agent acts as our agent and will represent us at the closing. However, your personal Loan Advisor will contact you prior to closing to talk about your final documents and to provide a final breakdown of your closing fees. If you have any questions that the closing agent can't answer during the closing, ask them to contact your Loan Advisor by phone and we'll get you the answers you need — before the closing is over.
We use a nationwide network of closing agents and attorneys to conduct our loan closings. We'll schedule your closing to take place in a location that is near your home for your convenience. We'll deliver our loan documents and wire transfer your loan funds to the closing agent or attorney prior to closing so that they'll have plenty of time to prepare for your closing.
Loan Program Information
Discount points are considered a form of interest. Each point is equal to one percent of the loan amount. You pay them, up front, at your loan closing in exchange for a lower interest rate over the life of your loan. This means more money will be required at closing; however, you will have lower monthly payments over the term of your loan.
To determine whether it makes sense for you to pay discount points, you should compare the cost of the discount points to the monthly payments savings created by the lower interest rate. Divide the total cost of the discount points by the savings in each monthly payment. This calculation provides the number of payments you'll make before you actually begin to save money by paying discount points. If the number of months it will take to recoup the discount points is longer than you plan on having this mortgage, you should consider the loan program option that doesn't require discount points to be paid.
The Federal Truth in Lending law requires that all financial institutions disclose the APR when they advertise a rate. The APR is designed to present the actual cost of obtaining financing, by requiring that some, but not all, closing fees are included in the APR calculation. These fees in addition to the interest rate determine the estimated cost of financing over the full term of the loan. Since most people do not keep the mortgage for the entire loan term, it may be misleading to spread the effect of some of these up-front costs over the entire loan term.
Also, unfortunately, the APR doesn't include all the closing fees, and lenders are allowed to interpret which fees they include. Fees for things like appraisals, title work, and document preparation are not included even though you'll probably have to pay them.
For adjustable rate mortgages, the APR can be even more confusing. Since no one knows exactly what market conditions will be in the future, assumptions must be made regarding future rate adjustments.
You can use the APR as a guideline to shop for loans but you should not depend solely on the APR in choosing the loan program that's best for you. Look at total fees, possible rate adjustments in the future if you're comparing adjustable rate mortgages, and consider the length of time that you plan on having the mortgage.
Don't forget that the APR is an effective interest rate–not the actual interest rate. Your monthly payments will be based on the actual interest rate, the amount you borrow, and the term of your loan.
Mortgage interest rate movements are as hard to predict as the stock market and no one can really know for certain whether they'll go up or down.
Before you decide to lock, make sure that your loan can close within the lock-in period. If you're purchasing a home, review your contract for the estimated closing date to help you choose the right rate-lock period. If you are refinancing, in most cases, your loan could close within 30 days. However, if you have any secondary financing on the home that won't be paid off, allow some extra time, since we'll need to contact that lender to get their permission.
If you think rates might drop while your loan is being processed, take a risk and let your rate "float" instead of locking.
A 15-year fixed-rate mortgage gives you the ability to own your home free and clear in 15 years. And, while the monthly payments are somewhat higher than a 30-year loan, the interest rate on the 15-year mortgage is usually a little lower, and more important, you'll pay less than half the total interest cost of the traditional 30-year mortgage.
Some younger homebuyers with sufficient income to meet the higher monthly payments to pay off the house before their children start college may choose a 15-year mortgage. Other homebuyers, who are more established in their careers, have higher incomes and whose desire is to own their homes before they retire, may also prefer this mortgage.
The 15-year fixed-rate mortgage offers two big advantages for most borrowers:
- You own your home in half the time it would take with a traditional 30-year mortgage.
- You save more than half the amount of interest of a 30-year mortgage. Lenders usually offer this mortgage at a slightly lower interest rate than with 30-year loans. It is this lower interest rate added to the shorter loan life that creates real savings for 15-year fixed-rate borrowers.
The possible disadvantages associated with a 15-year fixed rate mortgage are:
- The monthly payments for this type of loan are roughly 10 percent to 15 percent higher per month than the payment for a 30-year loan.
- Because you'll pay less total interest on the 15-year fixed-rate mortgage, you won't have the maximum mortgage interest tax deduction possible.
The interest rate market is subject to movements without advance notice. Locking in a rate protects you from the time that your lock is confirmed to the day that your lock period expires.
A lock is an agreement by the borrower and the lender and specifies the number of days for which a loan's interest rate and discount points are guaranteed. Should interest rates rise during that period, we are obligated to honor the committed rate. Should interest rates fall during that period, the borrower must honor the lock.
When Can I Lock?
In some cases, your online application will provide all the information needed and you will have the option to request a lock immediately through your Loan Advisor at 800-727-8893. Otherwise, you will be invited back to lock after we have reviewed your documentation and credit package.
We do not charge a fee for locking in your interest rate.
We currently offer 30-, 45- and 60-day lock-in periods on our site. This means your loan must close and disburse within this number of days from the day your lock is confirmed by us.
Once we accept your lock, your loan is committed into a secondary market transaction. We may be able to renegotiate your lock terms, depending on your loan product.
A home loan often involves many fees, such as the appraisal fee, title charges, closing fees, and state or local taxes. These fees vary from state to state and also from lender to lender.
To assist you in evaluating our fees, we've grouped them as follows:
Fees that we consider third-party fees may include the appraisal fee, the credit report fee, the settlement or closing fee, the survey fee, tax service fees, title insurance fees, flood certification fees, and courier/mailing fees.
Third-party fees are fees that we'll collect and pass on to the person who actually performed the service. For example, an appraiser is paid the appraisal fee, a credit bureau is paid the credit report fee, and a title company or an attorney is paid the title insurance fees.
Typically, you'll see some minor variances in third-party fees from lender to lender since a lender may have negotiated a special charge from a provider they use often or chooses a provider that offers nationwide coverage at a flat rate.
Taxes and Other Unavoidables
Fees that we consider to be taxes and other unavoidables include: State/local taxes and recording fees. These fees will most likely have to be paid regardless of the lender you choose. If some lenders don't quote you fees that include taxes and other unavoidable fees, don't assume that you won't have to pay it.
Fees such as discount points, document preparation fees, and loan processing fees are retained by the lender.
You may be asked to prepay some items at closing that will actually be due in the future. These fees are sometimes referred to as prepaid items.
One of the more common required advances is called "per diem interest" or "interest due at closing." If your loan is closed on any day other than the first of the month, you'll pay interest, from the date of closing through the end of the month, at closing. For example, if the loan is closed on June 15, we'll collect interest from June 15 through June 30 at closing. This also means that you won't make your first mortgage payment until August 1. All lenders will charge you interest beginning on the day the loan funds are disbursed. It is simply a matter of when it will be collected.
If an escrow or impound account will be established, you will make an initial deposit into the escrow account at closing so that sufficient funds are available to pay the bills when they become due.
If your loan requires mortgage insurance, up to two months of the mortgage insurance will be collected at closing. Whether or not you must purchase mortgage insurance depends on the size of the down payment you make.
If your loan is a purchase, you'll also need to pay for your first year's homeowner's insurance premium prior to closing. We consider this to be a required advance.
The purchase of a home is most likely one of the most expensive and important purchases you will ever make. You, and especially your mortgage lender, want to make sure the property is indeed yours: That no individual or government entity has any right, lien, claim, or encumbrance on your property.
The function of a title insurance company is to make sure your rights and interests to the property are clear, that transfer of title takes place efficiently and correctly, and that your interests as a homebuyer are fully protected.
Title insurance companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders, and others who have an interest in real estate transfer. Title companies typically issue two types of title policies:
1) Owner's Policy. This policy covers you, the homebuyer.
2) Lender's Policy. This policy covers the lending institution over the life of the loan.
Both types of policies are issued at the time of closing for a one-time premium, if the loan is a purchase. If you are refinancing your home, you probably already have an owner's policy that was issued when you purchased the property, so we'll only require that a lender's policy be issued.
Before issuing a policy, the title company performs an in-depth search of the public records to determine if anyone other than you has an interest in the property. The search may be performed by title company personnel using either public records or, more likely, the information contained in the company's own title plant.
After a thorough examination of the records, any title problems are usually found and can be cleared up prior to your purchase of the property. Once a title policy is issued, if any claim covered under your policy is ever filed against your property, the title company will pay the legal fees involved in the defense of your rights. They are also responsible to cover losses arising from a valid claim. This protection remains in effect as long as you or your heirs own the property.
Buying a home is a big step emotionally and financially. With title insurance you are assured that any valid claim against your property will be borne by the title company.
Mortgage insurance should not be confused with mortgage life insurance, which is designed to pay off a mortgage in the event of a borrower's death. Mortgage insurance makes it possible for you to buy a home with less than a 20% down payment by protecting the lender against the additional risk associated with low down-payment lending.
The mortgage insurance premium is based on loan-to-value ratio, type of loan, and amount of coverage required by the lender. Usually, the premium is included in your monthly payment and one to two months of the premium is collected as a required advance at closing.
It may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount–below 75% to 80% of the property value. Recent federal legislation requires automatic termination of mortgage insurance for many borrowers when their loan balance has been amortized down to 78% of the original property value.
The maximum percentage of your home's value depends on the purpose of your loan, how you use the property, and the loan type you choose, so the best way to determine what loan amount we can offer is to complete our online application.
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