Pre-qualification is an informal way to see how much you may be able to borrow. You can be pre-qualified over the phone with no paperwork by telling a lender your income, your long term debts and how large a payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house. Your credit report is pulled. Based upon this information we call tell if you are looking in the right price range and what your limits might be.
Pre-Approval is a lender’s actual commitment to lend to you. It involves assembling the financial records and going through a preliminary approval process. Pre-Approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying. A loan qualification is completed with all supporting documentation and signed disclosures. A full credit report is pulled an underwriter reviews your file and issues a pre-approval letter.
Mortgage Full Application
There are several documents that will be requested from you depending on the loan program you apply for and the financial institution.
Buying a home may be the most exciting, confusing and stressful financial transaction you ever undertake. Even if you have done it several times you can still find the process complicated and intimidating, particularly when it comes to a mortgage loan. Countless loan documents, unfamiliar terminology and uncertain serve to temper the joy of buying a home. As soon as the ales contact is signed, obtaining the financial for the purchase becomes paramount for the buyer.
The loan application Interview
A loan officer jobs begins with 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. During the interview the loan officer will fill out, or assist you infilling out,
- Records of dividends and interest from investments’
- If you are self-employed, full tax returns and financial statements for 2 years, plus profit and loss statement for the current year to date.
- A written explanation if there are gaps in your employment record, because of circumstances such as illness or layoffs, or for any other reason.
The loan officer will have you sign a Verification of Employment (VOE) form. This will be sent to you employer to verify your employment and earnings. One will be sent to previous employers if you have been on the job for less than two years.
If you are relying in income from other sources, such as rental property, social security or disability payments, child support, etc., you must provide adequate proof of the source. Appropriate documents could include canceled checks, copies of leases, certification of benefits, divorce decrees and similar evidence.
A detailed listing of your personal assets is required on the loan application form. You will need to have the following information available to complete the form:
- All bank accounts, both 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.
- Recent bank statements for at least two months
- Current market value of stocks, bonds, CD’s and other investments
- Vested interest in all retirement funds.
- Face amount And cash value of life insurance policies in force
- Make, model, year and value of life automobiles owned.
- Address and market value of all real estate owned along with the amount of rents collected, the mortgage on the property and the monthly payments (a profit and loss statement will be required for investment properties).
- Value of other personal property such as furniture.
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 you r correct balances.
THE LENDER WILL LOOK FOR THE SCOURCE 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 20 percent of the sales price as a down payment, you must provide at least 5% personally. Ant additional down payment may be a gift.
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 and credit 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.
The information you provide on the loan application will later be verified by a credit report ordered by the lender. Like employment and deposit information, differences between your figures and those on the credit report will raise questions and may delay the approval of your loan. It is to your advantage to take time to get your data right prior to filling out the loan application.
If you have had credit problems, you should inform the lender. Lenders recognize that unemployment, illness, martial problems or other financial difficulties can temporarily impair your credit rating. Provide a written explanation of the circumstances regarding the problem to be included with the loan application. The lender must consider such a written explanation as part of the underwriting analysis.
If you have been through bankruptcy or foreclosure proceedings within the past seven years, be prepared to give full details and copies of applicable documents regarding them.
You will also be asked to explain the details if you are obligated to pay alimony, child support or separate maintenance. Such obligations are treated like debt payments by most lenders and will be part of the underwriting process.
You will be asked to sign a section of the loan application from which contains your certification that the information you have provided is correct to the best of your knowledge; your promise to advise the lender of any material changes in the information on; and your consent to:
- Verification of the application data
- Submission of account history to credit reporting agencies
- Transfer of the loan servicing to successors to the original lender
The last part of the application form requests information on the race and gender of the applicants. The federal Government uses this data to monitor lenders’ compliance with the fair housing and equal credit opportunity laws. Providing this information is strictly voluntary on your part and has no effect on your loan application. The lender, however, is required by federal law to request the information.
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 very effort to collect all data at the outset, but cannot foresee every eventually. Requests for additional information are not necessarily bad omens and your primary concern should be in responding promptly with the information.
Based on the information collected in taking the application. The loan officer may be able to pre-qualify you for the loan requested, but cannot approve the loan. That is done by the lender’s underwriters after all the documents and information have been received and verified.
After the Loan Application – What is 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 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.
Within three business days after completing the application, the lender must provide you with a Good Faith Estimate 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.
Within the same three days you will receive a Truth-in-Lending Disclosure statement. This statement shows, among other things, the estimated monthly payment. The total cost of all finance charges on your loan is also shown, stated as an Annual Percentage Rate (APR). The APR represents the dollar amount of finance charges you pay either up front or over the life of the loan, converted to an annual interest rate. Since the APR includes origination fees and other charges as well as interest on the mortgage loan, the APR is usually higher than the interest rate on the loan.
TYPES OF LOANS
Fixed rate mortgages – payments remain the same foe the life of the loan.
3oyr – In the first 23 years of the loan, more interest is paid off than
Principal meaning larger tax deductions As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.
15yr – Loan is usually made at a lower interest rate. Equity is built up faster because early payments pay more principal.
- 15 – year
- 30 –year
- Housing cost remains unaffected by interest rate changes and inflation
Adjustable Rate Mortgages (ARMS): payments increase or decrease on a regular schedule with changes in interest rates; interest subject to limits.
An Arm may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren’t concerned about potential increases in interest rates.
- Balloon Mortgage – Offers very low rates for an Initial period (usually 5, 7 or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)
- Two-Step Mortgage – Interest rates adjusts only once and remains the same for the life of the loan.
- ARMS – linked to a specific index or margin
- Generally offer lower initial interest rates
- Monthly payments can be lower
- May allow borrower to qualify for a larger loan amount
Discount points allow you to lower your interest rate. They are essentially prepaid interest, with each point equaling 1% of the total loan amount. Generally for each point paid on a 30yr mortgage, the interest rate is reduced by 1/8 (or .125) of a percentage point. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase your home and you may be able to negotiate for the seller to pay for some of those.
CRDEIT REPORTING COMPANIES
- Experian 1-888-524-3666
- Equifax 1-800-685-1111
- Trans Union 1-800-916-8800
6. Building a Home.