The Home Mortgage Process Start To Finish
January 30, 2009 by · Leave a Comment
The Mortgage Loan Process begins with an initial consultation between the borrower and the broker. During the first conversation, it is extremely important for the borrower to discuss what they hope to accomplish with their new investment in real estate. It is then the duty of the broker to best determine how to accomplish that goal, with the current qualifications of the borrower. Unfortunately, borrowers often end up in the wrong mortgage product because their lack of communicating what they truly intend to do. Borrowers also must remember to be upfront and truthful with their broker from the start. Remember, the broker acts as the borrowers representative and structures the loan for presentation to underwriting. They will help their borrower around any weaknesses they may not want to disclose to underwriting. From the conversation the broker will take a written loan application….
After taking a complete application, one of the very first things that the loan agent must do is access the applicant’s credit report. A competent mortgage professional will examine not only the credit scores but do a line by line analysis of the report and highlight any information that could be considered derogatory. Once the report has been examined the Loan Officer will review it with the applicant and get their response to any derogatory information.
After all of the documentation is collected we will send your loan package to underwriting for evaluation. Underwriting will then decide if the proper information has been sent or if they want to see additional information to make a final determination for the mortgage.
After submitting your application to an automated underwriting system such as DU or LP, you will be given a conditional approval letter. This conditional approval will outline all the required documents needed to accompany your application.
Your application along with the required documents will be submitted to an underwriter. An underwriter is a trained credit-risk analyst who will do everything possible to help you receive loan approval. It is the responsibility of the underwriter to insure all documents supplied with the application meet the lender’s requirements.
Soon after your application is approved you will receive a commitment letter that explains the terms of your loan, including any loan conditions that need to be met prior to closing. Read your commitment letter carefully, and be sure to follow the instructions to ensure a timely closing.
In the case that your application is not approved, your loan officer or mortgage broker can help you
determine what actions need to be taken to obtain financing.
From the time the application was taken the broker has three days to send you RESPA compliance forms.
An appraisal will be ordered as to support the value of the property. The loan is based off the overall value of the property and is crucial to get the appraisal done right away. Typical time for appraisal vary from area to area depending on demand and market conditions.
Your loan officer or mortgage broker has asked you a number of questions at application. Your answers,
credit report information, and the loan program you’ve applied for will help determine if you qualify
for an instant mortgage approval using an automated underwriting system. These systems are often referred to as DU and LP. They stand for Desktop Underwriting and Loan Prospector.
Documentation requirements vary, depending on the loan program, credit profile
and various other requirements of the lending institution. In some cases only minimal documentation
is required. In other cases more detailed documentation may be required.
An appraisal will be ordered at application to determine the fair market value of the property you are
purchasing.
You can either lock in your interest rate (rate lock) or float your interest rate. It is important to discuss
these options with your loan officer or mortgage broker.
At application or shortly after, you will receive a Good Faith Estimate and a Truth-in-Lending Statement,
which will show your annual percentage rate (APR). These documents are required by federal law and
disclose the credit terms of your loan and approximate closing costs.
The underwriter may ask for additional information on a case by case basis, considered a stipulation of funding.
After deciding on the loan program, the applicant must supply the necessary income and assets documents (W2’s, paystubs, bank statements, etc.) as required by the chosen loan program. Because these documents are essential to the underwriting process, the application package cannot be submitted without them. Therefore, it is important that the applicant present them without delay.
Its important to gather all of the remaining conditions quickly as the lender may still need a few days to review them. After all conditions are met your loan will be “cleared to close”. Generally at this time the settlement agent or title attorney will take over and prepare for closing.
Key Factors in Qualifying for a Home Mortgage Loan
January 27, 2009 by · Leave a Comment
When a lender makes a decision about a mortgage application, they consider two basic factors: 1) your ability and 2) your willingness to repay the loan. No matter how you compare mortgage rates, these two factors are important
Ability to repay the mortgage is determined by verifying your current employment and analyzing your total income. Lenders 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. Your proposed monthly payment will be compared to your monthly income and debt.
Willingness to repay is influenced by how you have paid previous loans and by examining how the property will be used. Willingness can be gauged by your credit report and previous commitments to pay rent and/or utility bills. There is also a greater tendency to stick with your payments if you live in a house as opposed to a rental property or vacation home.
It is important to remember that there are no set rules and each applicant is handled on a case-by-case basis. Many applicants come up a little short in one area, but make up for it with other strong points. These compensating factors may include a large down payment, solid employment, extensive educational background or overall financial health.
For applicants who need to make a lower down payment, mortgage insurance is protection for the lender in case you stop making payments. This allows low and moderate income families to become homeowners with low down payment programs
When trying to qualify for a home purchase, make sure that you get pre-approved before you begin house hunting. This will let you know how much of a mortgage you can be qualified for and if there are any problems with credit or anything, should provide you some time to take care of the issues upfront (not after you have already signed a purchase agreement and have a time deadline). Qualifying for a home loan is a fairly simple process with a knowledgeable and experienced mortgage broker.
Most lenders will allow for a debt to income ratio of between 40% to 55%.
When getting qualified for a home mortgage loan the property (collateral) will also need to be deemed acceptable to the lender. This is usually done by means of having your home appraised by a licensed appraiser and the underwriter reviewing the appraisal.
Automated underwriting is used on most conforming loans and this may allow for a certain amount of lates on your credit, a higher debt ratio or a lower credit score, so there may not be any set guidelines for your credit or debt ratio.
There are several ratios that get used to see if you qualify for a home loan. Your credit is examined, your income and your job history are all important factors when looking to qualify. The help of an honest and experienced mortgage professional is vital to getting approved.
Your gross monthly income is used to qualify you for a mortgage loan. Your gross income is how much you make before taxes.
Good Faith Estimate Explained
January 21, 2009 by · Leave a Comment
Loan Officers are requried to send a Good Faith Estimate to their clients as part of their pre disclosures. The Good Faith Estimate will have a line by line description of all finance charges associated with the loan. The Origination Fee is the fee your Loan Officer is charging to originate your loan.
When looking at your GFE look to see that the lender/broker has included what the title company will be charging. Though your lender/broker is not able to waive these charges they may be able to marginally influence the charges. One item that is not negotiable is the title insurance. This is usually divided into two parts, lender’s insurance & owner’s insurance.
Other charges can be Loan Discount or Loan Discount Point. This is most commonly referred to as “Points”. It is the cost of buying down the rate to reduce your overall monthly payment. The more you pay to buy down the interest rate, the less you will have to pay on the overall interest on the life of the loan. Some loans will have no points and some may have a required cost due to the particulars of the loan.
If an escrow account is going to be setup for you (this is usually a good idea for new homebuyers and those who have a harder time setting money aside for later) then look in the section for Reserves Deposited with the Lender. Depending upon your state you will have anywhere from 2-8 months of reserves that are included that will be held by the lender for your escrow account. The two items held in reserves are your home owner’s insurance and your property taxes.
Another item located on the Good Faith Estimate is Government Recording and Transfer Charges. These are the taxes that most jurisdictions include to get their fair share. On a purchase the taxes, stamps and recording fees are usually split between the seller and buyer. On a refinance, the taxes fall solely on the homeowner. Make sure this area is completed so it does not come as a surprise down the road.
Another form that is often used in replacement of the Good Faith Estimate is the MLDS. Mortgage Loan Disclosure Statement.
Just remember when looking at the Good Faith Estimate there will be Estimated Closing Costs and Estimated Prepaid Items. The prepaid items (escrow monies, taxes, etc.) are mandatory collections. The Closing Costs are what should be looked at attempt a true apples to apples comparison.
The Good Faith Estimate is often the first from that will disclose many of the most important aspects of your loan. The law requires your good faith estimate be provided by your lender or broker no later than 3 days from the receipt of your complete application. Be sure to carefully examine the interest rate, term, monthly payment, and amount due at closing to ensure the loan you are applying for is what you think it is.
Tips To Save On Mortgage Loan Fees
January 19, 2009 by · Leave a Comment
The first tip is to understand which fees are negotiable and which fees can be deleted. There will be lender related fees which may be negotiable and government related fees which are usually not negotiable.
Ask the broker to send you a copy of the good faith estimate and don’t be afraid to ask questions and demand answers for every penny listed on the estimate. ALSO, keep in mind that it is an estimate, and some of the figures can legally change before closing, so be sure to ask the broker which of those fees are constants, and which of the fees are variables.
Fees are generally broken into three categories: Fees associated with the Loan, Title/Government fees, and Pre-paids/Reserves. The title/government fees are standardized and will be the same regardless of who you do a loan with, so will the pre-paid/reserves. Only some of the fees associated with the loan can be negotiated.
In a purchase transaction the seller generally gets to choose the settlement agency and title attorney. Be sure to ask your mortgage broker to double check the fees being charged by the sellers chosen closing agents as this is often a source of dispute at settlement. If you think the fees are unreasonable you may be able to demand a neutral settlement agent be used.
Keep in mind that if you are able to negotiate a lower fee, you should keep an eye on the interest rate to make sure it does not increase. Some lenders will offset your savings on the closing costs by inflating your interest rate.
Using the same mortgage company (mortgage broker), the same title company and/or the same appraisal company to handle all of your mortgage financing can usually save you a considerable amount of money from fees being charged to you. Many mortgage brokers will provide discounts for you if you continue to use their services for all of your home financing needs along with possibly being able to negotiate lower fees from the other service providers involved.
A fee that is frequently overlooked is the notary fee. Many companies are now charging to have a notary signing agent come to your home to complete your loan documents. Typically the fee is around $350 to $450 for the service. The notary usually only gets about $75 to $125 of that fee and the rest is eaten up by the intermediate services. Ask to close your loan at the escrow company or contract your own notary by going to one of the notary signing agent bulletin boards like notaryrotary.com
The notaries are listed by zip code and their fees are usually posted on their profiles. Find an experienced notary near you and you may be able to save even more.
If you have questions regarding any of the fees you are being charged, do not hesitate to ask your mortgage professional what the fee is for. The only way you will know is if you ask. If you are being charged an application fee, ask if it is possible to get the loan without the application fee. Also, if you are being quoted X amount at one mortgage company, but you prefer another company, ask the other company if they are willing to match the closing costs if you were to bring in a good faith estimate. Often times they will, because they would like to have your business.
Learn How To Compare Mortgage Rates
January 15, 2009 by · Leave a Comment
Knowing which financial institution can offer you the best mortgage rates with the service you expect is not always a simple task. How do you know when you have found a good deal or not?
There are a few things you must bear in mind as you peruse a variety of different mortgage rate quotes to zero in on the best one. The rates being offered are important as is the Good Faith Estimate (GFE) and the level of trust that you have for the company and the individual whom you will be working with. Keep all of these important points in mind as you rate shop.
If you are shopping for a 100 percent loan and you want to compare two loans then this is the most effective way to do it- if the loan you are seeking is an 80/20 loan that is 160,000 and 40,000 then what you need to do is multiply the rate for the first loan by .8. Next, take the second loan rate and multiply it by .2. Take the two numbers you come up with and add them together. The number you end up with is your rough “weighted” interest rate.
When a mortgage lender quotes you a rate on a home loan, you need to compare the weighted average of what the 80/20 offer is in relation to the rate for the single loan. This can help you to figure out what financially is the best course of action for you to take.
If the loan terms are the same, then you can use the APR as a means of comparing the two. However your best bet would be to take a careful look at the interest rate and closing costs fro the property. Then ask yourself how many years you can anticipate at the moment that you will live in the house you wish to purchase. Once you have an estimated timeframe you can then calculate the complete cost of the home loan.
Choosing the lowest interest rate is not your only consideration. If the closing costs are high then this can sour a deal that started out looking very good. If you are comparing two different types of mortgages then do so by comparing the APR of the rate quotes you are given. Take a look on the Truth in Lending disclosure that you are provided. This is something that the law deems necessary to give everyone seeking a mortgage.
As a prospective homeowner you need to be familiar with interest rates and the like. If you do not understand what the mortgage broker is telling you then how can you make a smart and informed choice?
The more information about yourself that you can provide to the mortgage broker the better it will be to find the rate quote that is most appropriate for you. If you do not want to answers questions about your job and income then it is not the right time for you to be shopping for a mortgage.
What else must you be prepared to divulge to the mortgage broker? You must know the approximate value of the property you are interested in purchasing, as well as whether the home is in an urban, suburban or rural area, whether you will reside in the home or plan to rent it out. You also need to have an idea of what your credit score is and whether or not your rent payments in the past have been paid on time every month. If there are any bankruptcies on your record is also relevant to divulge, as well as a host of other things that the mortgage broker will think to ask.
All of these questions will help to determine an honorable interest rate for you. It is important to be able to know and trust that the interest rate a mortgage broker quotes you is one that he or she will honor when the time comes to do so. The more information you give the better the choices will be that will be laid before you. However you may have to talk to a number of different brokers and answer an exhausting amount of the same questions before you find the one that can offer you the best deal possible.
When considering rate quotes from a variety of brokers, ask for a Truth in Lending statement (TIL). What this will clearly show is the mortgage’s APR. While your payments will not be based on the APR, you can do a comparison of the GFE and the TIL to better determine how much you will end up paying overall.
