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The Loan Process The loan process is similar for each borrower. However, the time of events and the need for additional steps may change based on specific circumstances of each borrower.
Pre-Qualification In attempting to approve homebuyers for the type and amount of mortgage they want, Hometown Mortgage looks 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 gross monthly income. Generally speaking, Hometown Mortgage prefers 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 using the property as an investment? Willingness is also closely related to how you have fulfilled previous financial commitments, thus the emphasis on the Credit Report and/or your mortgage/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 they plan to keep the loan. If you plan to sell the house in a few years an adjustable rate mortgage (ARM), interest only mortgage or balloon loan may make more sense. If you plan to keep the house for a longer period of time, a fixed rate loan may be more suitable. Shopping for a loan is very time consuming and frustrating. With so many programs to choose from and each with different rates, points and fees, let an experienced mortgage professional from Hometown Mortgage 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. The borrower completes, with the aid of an experienced mortgage professional from Hometown Mortgage, 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 derogatories, such as late payments, collections and/or judgments may require a written letter of explanation and some may be required to be paid off. 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-years tax returns (p. 1 & 2) along with schedule E. 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 may need a "Use of Proceeds" letter of explanation and you will need to sign and date a "12 Day Notice" or "Constitutional Notice". This document is required by the State of Texas to be signed by any party listed on the original title and states that the new loan may not close before 12 days after you submit a written application to the lender. If you have been divorced please 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 alien you will need to provide your H-1 or L-1 visa. If you are applying for a Home Equity Loan you will need to, in addition to the above documents, 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:
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." Hometown 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. B/C 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 inquires. 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 Empirica (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 persons 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’ve 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, but 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:
A borrower with a score of 680 and above is considered an A+ "conforming" borrower. A loan with this score will be submitted through our automated 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 600 will also be submitted through our automated underwriting system for approval but may require an underwriter to take a closer look in determining potential risk. Supplemental documentation may be required before a final approval can be made. Borrowers with this credit score may still obtain A+ "conforming" pricing but the loan may take a few days longer to close. Borrowers with credit scores below 600 are normally considered "nonconforming". We will submit the application through our automated underwriting system to see if we can get the borrower approved as a "conforming" loan but due to stricter underwriting guidelines the borrower may not qualify. Hometown Mortgage will then submit the application through our "nonconforming" automated underwriting system which will best determine a loan program that best fits the needs of the borrower. The loan terms and conditions are sometimes 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 is 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 valued 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. TIP: During the delicate time between approval, underwriting and dispersion of funds, do not make any adverse changes to your financial picture. These changes will, at least, force an explanation to be given and, at worst, cause the approval to be withdrawn. Closing
At the closing the borrower should:
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 recorders office. Once the mortgage has been recorded, the closing attorney then prints the final settlement costs on the HUD-1 Settlement Form. Final disbursements of funds are then made to the appropriate parties. Summation A typical "conforming" mortgage transaction takes between 10-21 business days to complete. With new automated underwriting, this process speeds up greatly. "Nonconforming" loan transactions usually take between 15-45 days depending on the time it takes to collect the required documents needed. Contact one of our experienced Mortgage Specialists today to discuss your particular mortgage needs or Apply Online and a Mortgage Specialist will promptly get back to you. |
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Hometown Mortgage - 1710 Westminster - Denton, TX 76205 Phone: 940-243-5000 - Fax: 940-387-5043
© Copyright 2001, Hometown Mortgage. All Rights Reserved. TX Mortgage Brokers License# 15411
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