Understanding the Mortgage Loan Application Process

Getting a new Mortgage Loan can be difficult. Even if you have done it several times you can still find the process complicated and intimidating, particularly when it comes to getting a new home mortgage. Countless qualification documents, unfamiliar terminology and uncertainty serve to temper the fun of buying a new home. But the good news is, Lenders have streamlined mortgage the process.

As soon as the purchase contract is signed, obtaining the financing for the purchase becomes important. If you understand the steps required to pre-qualify for a mortgage, however, much of the stress can be avoided.

Loan Applications Easier Online

You can save plenty of time if your Lender has an Online Application process. Complete the application early in the process.Once you have selected a lender, the next step will probably be a meeting with a loan officer or other lender representative, whose job is to begin the collection of information the lender needs to approve the loan. They will explain the types of mortgage loans available to you, the interest rates and fees for each type and the qualification requirements.

The total cost of a mortgage loan consists of the interest rate on the loan, origination fees, discount points, and miscellaneous other charges. One point is equal to one percent of the amount of the loan and is usually collected at the loan closing, or settlement. The interest rate affects the monthly payment amount, while points affect the amount of cash you must have at closing.

Make An Offer to Purchase

When making an offer to purchase a home, consider offering more “bottom line” money but ask the buyer to pay some of your fees or add in an insurance contract. A 3% Seller contribution is not out of the question. This is because your offer sounds higher to the seller so they will be more likely to accept it; however, you still save money.

When looking to buy your new home pay special attention to the kitchen. The kitchen is usually the center of family activity so this room is one of the most important in the house. Large kitchens are desirable, and so are modern appliances. It should be easy to get to your back yard from your kitchen, this is important for times when you may be grilling out or having outdoor parties.

The loan application form asks for information on the property you are buying, terms of the purchase contract and the employment and financial history of all loan applicants, including your spouse. The lender will verify or not to make the loan, so it is very important to make sure that it is complete and accurate.

Choose your Lender Based on Experience-Not Lowest Rate

You have a choice in a mortgage lender, so look around for the best fit for you. A lot of new buyers make the mistake of just going to their current bank and taking whatever mortgage they offer. Many times the Lender offering the lowest rate is inexperienced and when there is a small issue with the loan, they move on to others and forget you. Choose experience over rate.

You may consider a FHA home loan or even a VA home loan if you are a Vet. The advantage of these loans is an easier approval process and a lower than average interest rate and lower down payment.

The Purchase Agreement

Because the property is security for the loan, the lender will have an appraisal done on the property, and you need to have the following information available:

• A complete copy of the sales contract, including any addendum’s, signed by all parties, showing the full names of the sellers and buyers as they will appear on the new deed, the amount of earnest money deposit and who is responsible for closing costs, origination fees, etc.

The loan officer will want the social security numbers of you and your spouse (or other co-borrowers), age, number of years of schooling, your marital status, number and ages of dependents and your current address and telephone number. If you have lived at your current address less than 2 years, be prepared to furnish former addresses for up to seven years. The lender will pull your combined credit report.

Information and Documents you will need

• Recent paycheck stubs and Federal W-2 forms for two years (some lenders may require full Federal tax returns). If you are self-employed, full tax returns and financial statements for 2 years, plus a profit and loss statement for the current year to date.

When you are obtaining home financing you should understand how the interest is calculated. Your rate could be fixed or it could be adjustable. With fixed interest rates, your payment will usually not change. Adjustable rates vary depending on the flow of the market and are variable.

The loan officer will have you sign a Verification of Employment (VOE) form. This will be sent to your employer to verify your employment and earnings. One will be sent to previous employers if you have been on the job less than two years. Many lenders now use a general authorization form which allows them to verify employment and other financial information on the application.

Assets and Verification of Assets

A detailed listing of your personal assets is required on the loan application form. You will need to have the following information available.

•  Two months of all pages of statements on all bank accounts, checking and savings, and money market accounts, with the name and address of the institution, name(s) on the accounts, account numbers and current account balances.
• Two recent paycheck stubs for all Borrowers

As a note, one of the worst ways to prevent the purchase of a potentially good home is to over analyze the home. Over analyzing property causes you to have doubts about it. When you have doubts about the property, you will begin to second guess yourself and decide against buying something good.

• Current market value of stocks, bonds, CDs and other investments.

• Vested interest in all retirement funds.

Having a high credit score means you will get a better rate. Check to see what your score is and that the credit report is correct. Banks typically don’t approve anyone with a score of less than 600 today.

Make sure to do research regarding prices of homes in your neighborhood. Setting your selling price too high can prevent sellers from even wanting to look at your home. Ask your real estate agent what the typical home in your neighborhood goes for, and set your home in that price range, unless your home is spectacular.

Make sure you have a large down payment saved up. It is always better to put a larger sum down when you get a home mortgage. The more money you have to put down on your house, the lower your payments will be in the future. That means more spending money each month.

As with the Verification of Employment, the loan officer will have you sign Verifications of Deposit (VOD) for each of the institutions (or a general authorization) where you have savings or checking accounts. Differences between the account balances reported by the institution and the balance you give for the loan application have to be reconciled, so be sure you have your correct current balances.

The lender will look for the source of funds with which you will make the down payment and pay closing costs and fees. Gifts from a relative, church, municipality or non-profit organization may sometimes be used, but must be verified in writing. If you are providing less than 5 percent of the sales price, the donor must be a relative and must provide a letter stating the donor’s relationship to you, the amount of the gift and the fact that no repayment is expected.

If you’re buying real estate as an investment, you cannot assume what other people may want. People’s desires change depending on the state of the market, so always opt for low-priced property over property you feel to be more desirable to people. The object is to sell for a profit, not to leave a house sitting on the market for years.

Be realistic when choosing a home. Just because your lender pre-approves you for a certain amount doesn’t mean that’s the amount you can afford. Look at your income and your budget realistically and choose a home with payments that are within your means. This will save you a lifetime of stress in the long run.

Personal Debt to Income

You will be asked to itemize all of your current bills, loans and other debts, including current balances and monthly payments. Debts include automobile loans, credit cards such as Visa, Mastercard and other retail store accounts, finance company, bank a and credit union loans and existing mortgages, including home equity loans. You should be able to give the account or loan number, the monthly payment, the number of payments remaining and the outstanding balance.

Setting a monthly budget is a great way to ensure that you always have enough to cover your mortgage. The last thing you want is an eviction notice, so make sure that you’re taking stock of what you make vs. what you owe, including groceries, insurance payments, energy costs, and other bills.

Because of the particular circumstances surrounding a loan application, the lender may require additional information or documentation regarding you or the property after the application has been submitted for approval. Loan officers make every effort to collect all data at the outset, but cannot foresee every eventuality. Requests for additional information are not necessarily bad omens and your primary concern should be in responding promptly with the information.

After The Loan Application – What Next?

After the loan application has been completed, it will be turned over to the lender’s loan processing department and then to the underwriter, where the decision to approve or reject the loan will be made. Loan processors send out the Verifications of Employment and Deposit and order the credit report, property appraisal and other documents. The time it takes to receive these documents affects the length of time required for approval of the loan. If you are transferring from out of the local community, it may take longer to receive the credit and employment information. Processing times vary from one lender to another, but the loan officer should be able to give an idea of the processing time for your application.

Good Faith Estimate GFE

Within three business days after completing the application, the lender must provide you with a Good Faith Estimate, called a GFE of the anticipated closing costs. It will show costs associated with the loan settlement, such as origination fees, mortgage insurance, title insurance, escrow reserves and hazard insurance.

The best advice we can give you is be patient, work with experience and plan carefully. We are an experienced mortgage lender here to help you get the home of your dreams. We offer an EZ online mortgage approval process and a handy mortgage payment calculator. If you are looking to get a new home loan or even refinance home loan, give us a call 877-244.9190.