Loan Process

Pre-Qualification

Pre-qualification is the first step in the loan process. The gathering of information regarding a borrower’s income and debts determine the amount the borrower can pay for a house. Different loan programs result in different valuations so borrowers are advised to get pre-qualified for each loan type for which they may qualify.

The two key factors mortgage companies look at when attempting to approve homebuyers for their financing are: the borrower’s ability to repay the loan and the borrower’s willingness to repay the loan. The borrower’s ability to repay to repay the loan is determined through current employment and total income.
When determining the borrower’s willingness to pay the loan, mortgage companies look at the intended use of the property: primary residence or rental property. This key factor also hinges upon the fulfillment of previous financial commitments as evidenced by the borrower’s Credit Report as well as rental payment history.

When it comes to financing, there are no rules carved in stone. Financing is approved and not approved on an individual, case by case basis. Coming up short in one area does not necessarily mean you won’t be approved for financing. A strong work history/high income could make up for a lower credit score and vice versa. Mortgage companies are in the business of loaning money so it is in their best interest as well as yours to see you qualify for your home financing.

Mortgage Programs and Rates

When analyzing a mortgage program borrowers have to consider the length of time they plan to spend in repayment. Some borrowers know up front they only plan on keeping the home for a few years; in this case it is appropriate to discuss the advantages/disadvantages of an adjustable or balloon loan. If borrowers are planning on keeping the home beyond a few years, a fixed loan would probably be more appropriate.

Shopping for a loan can be frustrating and can become quite time consuming when you consider that various programs to choose from with different rates, points & fees, etc. With Mesa Mortgage an experienced loan professional evaluates your situation and recommends the most appropriate mortgage program ensuring that you, the borrower, are able to make an informed decision.

The Application

The true start of the loan process is the application. It is the beginning of the loan process. With the aid of your mortgage professional at Mesa Mortgage, you will complete the application and provide all Required Documentation.

While examining the many mortgage programs the various fees and closing cost estimates were discussed and these same costs will be verified in the Good Faith Estimate (GFE) as well as a Truth-In-Lending Statement (TIL); which the borrower will receive within 3 days of submitting the loan application.

Processing

After loan submission, the mortgage process begins. The Credit Report, Appraisal and Title Report are ordered. Application information is verified, such as: bank deposits, payment histories, income, etc. The Processor then examines the Appraisal and Title Report to identify property issues that would require further attention. All the information is then compiled into a mortgage package for submission to the lender.

Required Documents

For individuals purchasing/refinancing a home who are salaried, two years of W-2s and one month of pay-stubs are required. For individuals purchasing/refinancing a home who are self-employed, the past two years of tax returns are required. To speed up the approval process, borrowers can provide their past three months of financial account statements (including bank, stock and mutual funds). Also provide the most recent copies of your stock brokerage or IRA/401K accounts, if applicable.

Additional items:

Cash-out borrowers should be prepared to submit a “Use of Proceeds” letter.
If applicable, provide a copy of the divorce decree.
If you are not a US citizen, provide a copy of you green card, front and back.
If you are not a permanent resident, provide a copy of your permanent resident card.
If you are subordinating the second lien (HELOC) you must provide a copy of the note on the second (HELOC) Mortgage.
If you are applying for a Home Equity Loan (HELOC) you need to provide a copy of the note on your first mortgage.

Credit Reports

The majority of borrowers do not need to worry about the effect their credit history will have on their mortgage application. But it is advisable to get a copy of your Credit Report before submitting an application so you are prepared. This will ensure you will be able to follow the procedure for taking care of any negatives on your report before the mortgage process begins.
A Credit Profile is a clear record of your consumer past. It is made up of a variety of consumer credit reporting agencies. It allows lenders to see your history of payment to companies you have borrowed money from in the past; how you fulfilled your financial obligations. It contains information from five categories:

Identifying Information
Employment Information
Credit Information
Public Record Information
Inquiries

The following information is NOT included on your credit profile: race, religion, health, driving record, criminal record, political preference, or income.

Be prepared to discuss problematic credit history with your mortgage professional; they will assist you in writing your “Letter of Explanation.” Professionals in the mortgage industry are aware that there can be legitimate reasons for derogatory credit marks such as illness, financial difficulties, unemployment, etc. If you had problems that have since been corrected (reestablishing your credit) and your payment history reflects on time receipt for a year or more, your credit record could meet the lender’s standards.

There are many terms that are distinct to the lending industry and particularly when it comes to credit rating. The statistical assessment of the credit risk of any mortgage application is called credit scoring. The credit score incorporates any past delinquencies, past negative payment behavior, amount of current debt, the length of credit accounts, types of credit accessed, and the number of inquiries made on behalf of the individual borrower.

Most people have heard the phrase “credit scoring.” The most common (and the most common reference used by the public for credit scoring) is the FICO score. The FICO score was developed by Fair, Isaac & Co., Inc. for the use of: Equifax (Beacon), Experian (formerly TRW), and Empirica (TransUnion), the three main credit bureaus.

FICO scores consider limited information. They do not consider any information other than what is contained in the individual’s credit file. Factors not considered include: income, savings, and down payment amount. The credit score is based on 5 factors:

Payment History comprises 35%
Amount Owed comprises 30%
Credit History length comprises 15%
Number of Inquiries comprises 10%
Types of Credit comprises 10%

The credit score is useful in determining which direction borrowers should look for the correct loan programs as well as setting levels of underwriting, for instance, Streamline, Traditional or Second Review. But the credit score is not the only factor regarding the type of program or interest rate for which individuals will qualify.

FICO scores are often called into question by people in the mortgage industry. The process has only depended upon credit scoring since 1999. But FICO scores have been in use since the 1950’s for consumer lending purposes. The predictive quality of the FICO score has been shown through large scoring projects.

There are many ways in which individuals can improve their credit score:

On time bill payment.
Maintain low balances on credit cards.
Periodically verify that information contained in your credit report is accurate.
Be careful who accesses your credit report; don’t apply for credit frivolously.

Being an A+ borrower means you have a score of 680+. A+ borrower loans are put through an automated basic computerized underwriting system that can be completed within minutes. A+ borrowers qualify for the lowest rates and are able to close quicker.

Scores between 620 and 680 encourage underwriters to take a closer look to determine potential risk. Additional documentation may be required prior to loan approval. Borrowers with scores falling in this range are still eligible for A pricing, but the process may take up to several days to complete prior to closing.
Scores that come in below 620 are not typically eligible for the best interest rates and/or terms being offered. More time is required to find the borrower the best rates possible so these loans will require more time prior to closing.

Derogatory credit requires that every other aspect of your loan documentation be in perfect order. Assets, all necessary documentation, income requirements, stability, equity, etc. all play a more important role in the approval decision. There are various combinations that can be used when determining your grade, but the worst thing that can happen is that your grade will be pushed to a lower credit grade. The most important negative factors are: bankruptcies, collections and foreclosures. Another highly significant negative factor is credit patterns: large number of recent inquiries or several outstanding loans. In relation to late payments, several late payments in the same time period is a better situation than random late payments throughout your history. This could indicate a lack of willingness to pay whereas several late payments in one time period could be due to extenuating circumstances in spite of a willingness to pay.

Appraisal Basics

In real estate, an appraisal means a valuation of the property. The appraiser becomes the interpreter of market value; the appraiser does not create value. He/she provides an educated value estimate based upon the property specified. Included in the data compiled for the final appraisal report are: site, amenities, and physical condition of property. The appraiser is responsible for a considerable amount of research and data collection before the arrival at the final appraised value of the property.

The estimate of value is typically determined through three common approaches: Comparison Approach, Income Approach and Cost Approach. The Cost Approach method hinges on the actual cost of replacement for existing improvements in the current market as of the date of the appraisal.

Physical deterioration results in a deduction to the total as do features that are outdated functionally and/or economically. The second method is the Comparison Approach. The Comparison Approach uses other properties of similar size, quality and location that have recently changed hands to formulate an average value that can be applied. The Income Approach is used specifically in the appraisal of rental properties. It has little use in the appraisal of single family dwellings. It provides an objective estimate of the value to an investor based on the net income production.

Underwriting

The file is conveyed to the lender only after the processor has compiled a complete package with all the necessary documentation and verifications completed. The underwriter holds the responsibility for determining the acceptability of the package for a loan. If it is determined that more information is needed the loan is put in “suspense” and the borrower is advised to provide further information or documentation as necessary. If the loan is deemed acceptable as originally submitted it is approved.

Closing

After approval, the loan is transferred to the closing/funding department. The broker is contacted by the funding department and title company of the approved status and broker fees and closing fees are verified. The loan signing is then scheduled by the title company.
At the closing borrowers should complete the following basics:

Deliver a cashier’s check for the exact amount of the down payment plus closing costs, as specified in closing documentation. (Personal checks are not usually accepted).
Review of final loan documents. Check the interest rate and loan terms and verify that they are as agreed upon. Always verify that the names, social security numbers and addresses are complete and accurate on all loan documents.
Sign the loan documents necessary for closing.
Always bring identification.

After the signing, the title company will deliver the documents to the lender. The lender examines the closing documents and arranges for the funding of the loan as soon as they deem the paperwork “in order.” Once the loan is funded, the title company will make arrangements to have the mortgage note and deed of trust recorded at the county recorder’s office. After it is recorded, the final settlement costs are printed by the title company on the HUD-1 Settlement Form and only then are final disbursements made.

Summation

The common “A” mortgage process takes between 14-21 business days to complete. New automated underwriting often allows the process to be expedited. Get in touch with Mesa Mortgage today to discuss your mortgage needs or Apply Online. An experienced Mesa Mortgage loan officer will get back with you quickly.

Mesa Mortgage, INC

Loan Process

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