The Loan Process
Which Loan Program is Right For Me?
Overview of the Mortgage Process:
After you have selected a company to be your mortgage banking resource, it is now time to sit down with the loan officer and begin the application process. Just as wise stock market investors carefully research companies in which they plan to buy stock, careful mortgage lenders investigate the financial background of each loan applicant. In lending the prospective borrower the money to buy the home, the lender assumes a long term risk. The assumption is that the borrower is going to eventually repay the loan, and in the meantime make the loan payments on time.
After all the information is collected, the lender analyzes the risk of making the investment, and then decides whether or not to extend credit to the applicant.
There are no mandatory industry wide standards for underwriting; which is the entire process of preparing the conditions of the loan, determining the borrowers ability to repay, and deciding whether to give loan approval. However, most lenders follow standards set by the government and government related agencies, private mortgage investors, or institutional investors. Since lenders are in the business to loan money, it is their strong desire to approve as many qualified loans as possible.
Application
The important document that starts the whole process is the loan application. It asks in-depth questions in regard to your income, assets and liabilities, credit, legal history, and information on the property that you wish to purchase. The lender will verify the information that you provide on the application, before making the final decision. In order to expedite the process, your loan officer will tell you in advance what information to bring with you to the loan application meeting.
During the application meeting, you will be asked if you want to lock-in (guarantee) the current market interest rate, for the type of loan that you desire. If so, find out how long the rate is locked for, and get everything in writing to avoid future confusion.
Loan Processing
After the loan officer completes the application, all information is then submitted to the lenders processing department. The assigned processor is responsible for sending out verification letters; ordering an appraisal and credit report; and for assembling the remaining information that is necessary before the completed file can be forwarded to the underwriting department. During the mortgage review process, you will be directly communicating with the processor.
Underwriting
All final decisions regarding files are made in this department. If you are working with a mortgage banker, they will have a staff of their own underwriters. If you are working with a mortgage broker, your file will normally be sent to the underwriter at whichever investor your loan officer has selected for your proposed loan. Keep in mind that underwriters usually do not see your file until all the information has been gathered by the processor and submitted in its final form.
Remember it is an underwriters job to analyze the risk and determine an applicants credit worthiness. They approve, deny, or approve with conditions your loan request.
Closing
Once your loan is approved by underwriting, the final step is the closing of the loan. Closing document are prepared by the lender and sent to a closing agent of the lenders choice. The closing agent will run a title search and issue a title insurance policy, which insures that there are no outstanding liens attached to the property.
Settlement Statement: Itemizes the closing settlement charges for the buyer and seller
Truth-in-Lending:
Among other things, this statement discloses the annual percentage rate (APR), which reflects the true cost of your mortgage over the life of the loan. This rate may be higher than your actual interest rate, because it includes points, fees and other costs of credit.
Note:
The mortgage note represents your promise to pay the lender according to the agreed upon terms. It also details the penalties that will be assessed if you default or violate any of the terms.
Security Deed:
Property is pledged by the borrower to the lender, as security for repayment of the loan. The pledge ends when the loan is paid off.
Warranty Deed:
The seller must bring the document to the closing, properly signed and notarized. It is the document that transfers ownership from the seller to you.
Affidavits:
You will be asked to sign numerous affidavits. These may be required by state law, the lender, the attorney, and/or by investors who purchase mortgages.
