Here are some information that may help you:
The Loan Process
Required Documents
Mortgage Glossary and Terminology
Finance Glossary
Mortgage/Loan Calculators
The Loan Process
From prequalification to closing, here’s the loan process made as simple and convenient as possible.
1. Pre-Qualification
2. Mortgage Programs and Rates
3. The Application
4. Processing
5. Required Documents
6. Credit Reports
7. Appraisal Basics
8. Underwriting
9. Closing
10. Summation
Pre-qualification starts the loan process. Once a lender has gathered information about a borrower’s income and debts, a determination can be made as to how much the borrower can pay for a house. Since different loan programs can cause different valuations a borrower should get pre-qualified for each loan type the borrower may qualify for.
In attempting to approve homebuyers for the type and amount of mortgage they want, mortgage companies look 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 income. Generally speaking, mortgage companies prefer 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 just renting it out? Willingness is also closely related to how you have fulfilled previous financial commitments, hence the emphasis on the Credit Report and/or your 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 couldn’t stay in business if they didn’t generate loan business, so it’s in everyone’s best interest to see that you qualify.
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 or balloon loan may make more sense. If you plan to keep the house for a longer period, a fixed loan may be more suitable.
Shopping for a loan is very time consuming and frustrating. With so many programs to choose from, each with different rates, points and fees, an experienced mortgage professional can evaluate a borrower’s situation and recommend the most suitable Mortgage Program, thus allowing the borrower to make an informed decision.
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. With the aid of a mortgage professional, the borrower completes an 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 a 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.
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 derogatory credit items, such as late payments, collections and/or judgments require a written explanation. 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.
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. 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 will need a “Use of Proceeds” letter of explanation. Provide a copy of any 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 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.
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:
- Identifying Information
- Employment Information
- Credit Information
- Public Record Information
- Inquiries
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.” Knowledgeable 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. BC 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:
- Pay your bills on time.
- Keep balances low on credit cards.
- Limit your credit accounts to what you really need. Accounts that are no longer needed should be formally cancelled since zero balance accounts can still count against you.
- Check that your credit report information is accurate.
- Be conservative in applying for credit and make sure that your credit is only checked when necessary.
A borrower with a score of 680 and above is considered an A+ borrower. A loan with this score will be put through an “automated basic computerized 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 620 may indicate underwriters will take a closer look in determining potential risk. Supplemental documentation may be required before final approval. Borrowers with this credit score may still obtain “A” pricing, but the loan may take several days longer to close.
Borrowers with credit scores below 620 are not normally locked into the best rate and terms offered. This loan type usually goes to “sub-prime” lenders. The loan terms and conditions are 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.
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 value 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.
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.
Once the loan is approved, the file is transferred to the closing and funding department. The funding department notifies the broker and closing attorney of the approval and verifies broker and closing fees. The closing attorney then schedules a time for the borrower to sign the loan documentation.
At the closing the borrower should:
- Bring a cashiers check for your down payment and closing costs if required. Personal checks are normally not accepted and if they are they will delay the closing until the check clears your bank.
- Review the final loan documents. Make sure that the interest rate and loan terms are what you agreed upon. Also, verify that the names and address on the loan documents are accurate.
- Sign the loan documents.
- Bring identification and proof of insurance.
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 are then made.
A typical “A” mortgage transaction takes between 14-21 business days to complete. With new automated underwriting, this process speeds up greatly. Contact one of our experienced Loan Officers today to discuss your particular mortgage needs or Apply Online and a Loan Officer will promptly get back to you.
Required Documents
These are the common documents required for loan programs. Different programs require varying amounts of documentation. The loan program you select may require more or less documentation.
For employed borrowers:
- Past two (2) years W-2 statements.
- Pay Stubs covering the last (30) thirty days.
- Most recent three months banks statements.
- Most recent transaction summary of 401K, IRA, or Mutual Fund Accounts.
- Photocopies of any stocks or certificates of deposits.
- Copy of the purchase and sale agreement.
- If you are currently renting, either 12 months canceled rent checks or the name and address of your current landlord.
- If divorced, a fully executed divorce decree.
- For a refinance, a copy of the deed, and most recent tax bill.
- A letter of explanation for any known credit problems.
For self employed borrowers, employed in sales, paid by commission, or owns rental real estate:
- Two (2) years signed personal tax returns- including all schedules.
- If self-employed through a corporation, last two years corporate returns as well as a year-to-date profit and loss statement and balance sheet.
Mortgage Glossary and Terminology
Words and terms commonly used in the mortgage industry.
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
- Abstract (of title)
- A written summary of the title history of a particular piece of real estate.
- Acceleration Clause
- A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.
- ARM (Adjustable Rate Mortgage)
- A mortgage in which the interest rate is adjusted periodically, based on the movement of a financial index.
- Amortization
- Repayment of loan by installment payments. As the payments are made, the debt is reduced so that at the end of fixed period or term, no money will be owed.
- APR (Annual Percentage Rate)
- The annual percentage rate refers to the total cost of the loan, expressed as a yearly rate.
- Application Fee
- That part of the closing costs pre-paid to the lender at time of application to cover initial expenses.
- Appraisal
- A report made by a qualified person as to the value of a property as of a given date.
- Assessed Value
- The value placed on a piece of real estate by the taxing authority for the purpose of taxation. Also called an assessment.
- Assumption of Mortgage
- The purchaser takes over mortgage payments for the balance of the loan, assuming primary liability. Unless specifically released by the lender, the seller remains secondarily liable.
- Balloon Mortgage
- A mortgage with periodic payments that do not fully amortize the loan. The outstanding balance of the mortgage is due in a lump sum at the end of the term.
- Bridge Loan
- A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.
- Broker
- The person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.
- Buydown
- Money advanced by an individual (e.g. builder, seller, buyer, lender, developer) to lower monthly mortgage payments for a few years or the whole term.
- Cap (interest rate)
- The maximum interest rate increase allowable on an adjustable rate mortgage. Does not result in negative amortization. See Negative amortization.
- Cap (payment rate)
- The maximum payment amount increase allowable on an adjustable rate mortgage. May result in negative amortization. See Negative amortization.
- Certificate Of Title
- A statement that shows ownership of property, stating that the seller has clear legal title.
- Closing
- The concluding day of the real estate transaction, when title and deed pass from seller to buyer, the buyer signs the mortgage and pays the purchase price and closing costs.
- Closing Costs
- Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called “settlement costs.”
- Closing Statement
- A financial disclosure giving an account of all funds received and expected at closing, including the escrow deposit for taxes, hazard insurance and mortgage insurance for the escrow account.
- Commission
- An agent’s or broker’s fee for bringing the principals together and helping to negotiate a real estate transaction, often a percentage of the sales price or flat fee.
- Commitment
- An agreement, frequently in writing, between a lender and a borrower to loan money at a future date, subject to certain conditions.
- Comparables
- Refers to similar properties used for comparison purposes in the appraisal process. These properties will be reasonably the same size and location, with similar amenities and characteristics, so that the approximate fair market value of the subject property can be determined.
- Condominium
- Ownership of a single unit in a multiunit building or complex of buildings. Along with this goes a share of ownership of the common areas.
- Contingency
- A condition that must be met for a contract or a commitment to remain binding.
- Conventional Mortgage
- Any mortgage loan that is not insured by FHA, guaranteed by VA, of funded by a government authorized bond sale or grant.
- Convey
- To transfer real estate from one person to another.
- Credit Report
- The report to a prospective lender on the credit standing of a prospective borrower.
- Deed
- A legal written document by which title to property is transferred.
- Default
- Failure to fulfill the terms as agreed to in the mortgage of note.
- Down Payment
- The difference between the sale price of a property and the mortgage amount.
- Due-On-Sale
- A clause in a mortgage which gives the lender the right to require immediate repayment of a mortgage balance if the property changes hands.
- Earnest Money
- The deposit money given to seller or his agent by the potential buyer at the time of the purchase offer. If the offer is accepted, the money will become part of the down payment.
- Easement
- A right to the limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone’s property.
- Encumbrance
- Anything that affects or limits the title to a property, such as outstanding mortgages, easement rights or unpaid property taxes.
- Equity
- The value in which the owner has in real estate over and above the mortgages against it. When the mortgage and all other debts against the property are paid in full, the owner has 100% equity in his property.
- Escrow
- Funds and/or deed left in trust to a third party. Generally, a portion of the monthly mortgage payment is held in escrow by the lender to pay for taxes, hazard insurance and yearly mortgage insurance premiums.
- First Mortgage
- A mortgage that has a primary lien against a property.
- Fixed-Rates Mortgage
- A mortgage with an interest rate and monthly payments that remain constant over the life of the loan.
- Fixture
- Property, such as a hot water heater or plumbing fixture, that has become permanently attached to piece of real estate and goes with the property when it is sold.
- Flood Certification
- An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would then require a federally mandated flood insurance policy.
- Foreclosure
- A legal procedure in which property mortgaged as security for a loan is sold to pay the defaulting borrower’s debt.
- Graduated Payment Mortgage
- A fixed rate loan with monthly payments that start low, increasing by a fixed amount for a specific number of years. After that period, the payments typically remain constant for the duration of the loan.
- Gross Income
- Normal income, including overtime, prior to any payroll deductions, that is regular and dependable. This income may come from more than one source.
- Hazard Insurance
- Insurance protection against damage to a property from fire, windstorms, and other common hazards.
- Homeowner’s Insurance
- An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability.
- HUD-1 Form
- See Real Estate Settlement Statement.
- Income Property
- Real estate that is owned for investment purposes and not used as the owner’s residence.
- Interest
- A charge paid for the use of money.
- Interim Financing
- See Bridge Loan.
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- Land Contract
- When the buyer agrees to make payments directly to the seller at pre-negotiated terms. The seller agrees to deed the property to the buyer upon completion of the agreement. The buyer becomes the owner of equity in this type of sale. (Also see Owner Financing.)
- Lien
- A legal claim on a property used as security for a debt.
- Loan-To-Value Ratio
- The relationship between the amount of the mortgage and property value, usually shown as a percentage.
- Market Value
- The price at which a property will sell, assuming a knowledgeable buyer and seller, both operating without undue pressure.
- Mortgage
- A contract in which a borrower’s property is pledged as security for a loan which is to be repaid on an installment basis.
- Mortgage Note
- A written promise to pay a debt at a stated interest rate during a specified term. The agreement is secured by a mortgage.
- Mortgagee
- The lender in a mortgage contract.
- Mortgagor
- The borrower in a mortgage contract.
- Negative Amortization
- A loan in which the outstanding principal balance goes up instead of down because the monthly payments are not large enough to cover the full amount of interest due. Also called deferred interest.
- Offer to Purchase
- A written proposal to buy a piece of real estate that becomes binding when accepted by the seller. Also called a sales contract.
- Origination Fee
- A fee charged for the work involved in the evaluation preparation and submission of a proposed mortgage loan.
- Owner Financing
- A purchase in which the seller provides all or part of the financing.
- PITI
- An acronym for payments to lender that cover principal, interest, taxes and insurance on a property.
- Plat
- A map of a piece of land showing boundary lines, streets, actual measurements and easements.
- Point
- A fee paid to the lender on closing day to increase the effective yield of the mortgage. A point is one percent of the amount of the mortgage loan. Also called a discount point.
- Prepayment Penalty
- A charge paid to the lender by the borrower if a mortgage loan is repaid before its term is over.
- Pre-Approval
- A commitment by a lender to extend credit provided that specific conditions are met.
- Pre-Qualification
- A preliminary assessment of a buyer’s ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. This is not a guarantee or commitment by a lender to extend credit.
- Prime Rate
- The interest rate charged by banks to their preferred corporate customers, it tends to be an estimator for general trends in short term interest rates.
- Principal
- The amount borrowed or remaining unpaid; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.
- PMI (Private Mortgage Insurance)
- Insurance written by a private mortgage insurance company to protect the lender against losses caused by mortgage default. This is commonly required on loan transactions involving less than a 20% down payment or equity position.
- Qualifying Ratios
- Guidelines used by lenders to determine how much of a loan a home buyer qualifies for. Often referred to as debt-to-income ratios (or DTI).
- Real Estate Settlement Statement
- Final settlement statement often referred to as the HUD-1 form, used to itemize buyer, seller, broker, and lender charges and credits at closing.
- Realtor
- A real estate broker or sales associate affiliated with the National Association of Realtors.
- Recording Fee
- The charges made by the register of deeds to record the legal documents.
- Refinancing
- Repaying a debt with the proceeds of a new loan, using the same property as collateral or security.
- Second Mortgage
- A loan issued on property that is already encumbered by an existing mortgage (ie: the first mortgage). The second mortgage is subordinate to the first.
- Secondary Mortgage Market
- The market wherein home loans are sold by the lender after closing to Fannie Mae, Freddie Mac or a variety of other institutional investors.
- Survey
- A map prepared by an engineer or surveyor charting a particular piece of real estate.
- Title
- Ownership of a property. A clear title is one without any outstanding liens or encumbrances. A cloud on title refers to any outstanding liens or encumbrances which could impair the title.
- Title Insurance Policy
- A policy designed to protect the buyer or lender after closing from financial losses arising from any defects in the title that may have occurred prior to purchase.
- Title Search
- A check of public record to disclose the past and current facts regarding ownership of a particular piece of property.
- Transfer Tax
- In some areas city, county or state taxes imposed when property passes from one person to another.
- Truth-In-Lending
- Federal law that requires lenders to disclose the terms and conditions of a mortgage, including the APR, based on certain charges incurred by the borrower. If the charges were $0, the APR would be equal to that actual interest rate on the loan.
- Underwriting
- The process of evaluating a loan application to determine the risk involved for the lender.
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