10 Step Mortgage Process
Your first contact with your loan officer will probably be a brief exchange of information – he or she will want to find out what you’re looking for in a mortgage and get some information from you like your full name, date of birth, present address and social security number. He will need that information to pull your credit, which will be analyzed along with your income to see what you qualify for.
Next, your loan officer will “shop” your loan, which means he will take your information to the best lenders to see what they can offer you. When he feels like he’s found what you’re looking for, he’ll call you back so you can make a decision together on your rate and loan program.
Your loan officer will prepare a loan application and disclosures for your signature. The loan application outlines the specifics on the loan including loan type, rate, property type, income and asset information etc. Disclosures are documents required by federal and state governments
Your loan officer will probably ask you to provide a few items in addition to your signatures on the loan application and disclosures. The items he’ll need from you include (among other things): 2 most recent pay stubs, W2s, bank statements, tax returns, etc. Your loan officer may call you at any time during the loan process for additional documentation. The faster you provide the documentation, the faster your loan will get finished.
Your loan officer will gather the loan application, disclosures and all the documentation you’ve provided and will send it, along with some items that he’s ordered (like the appraisal and title report) to the lender that you decided on in Step 2.
Once your file gets to the lender, an underwriter will take over. The underwriter’s job is to scrutinize the file to make sure it fits guidelines for the lender. Some things the underwriter will look at the closest are your appraisal, title report, income documentation and credit report.
*Please note: A lender who’s willing to finance someone else’s home takes a big risk, which is why underwriters are trained to be so thorough. The lender has to protect himself and his company against fraud and unqualified borrowers. He also wants to make sure he’s putting money into a property that will hold its value. He’s also protecting you, by making sure you’ll be able to make your mortgage payments. Please be patient while your file is in underwriting, and understand that the lender wants to protect his assets, just like you want to protect yours.
When your file is finished in underwriting, an approval will be issued, based on what was found in the file. The approval is based on the underwriter’s recommendation, and basically says “we will approve this loan and finance this property if you can show us documentation to support this, this and this.” At this point, your loan officer may come to you, asking for additional documentation, (letters of explanation), etc. Or he may be able to take care of it on his own. Items required in order for the loan to be approved are called “conditions”.
Once all the supporting documentation has been sent, the underwriter will review what the loan officer sent in and give you one of two answers: a) Your file has been approved and is ready to close b) More documentation is required (In this case, your file will repeat steps 7 and 8 until you reach approved status)
Your loan officer will order closing documents (often called “docs”), which will be emailed to the title company, where you will go to sign the documents. Once he finds out what works best for you, your loan officer will set the appointment for your closing at the title company.
If you’re purchasing, your funding will generally occur the day of or the day after you close. If you’re refinancing, your finding will occur after your 3 days right of rescission has passed, which means if you closed on a Monday, your loan will fund on the Friday of the same week. Monies from the funding will be wired to the title company, who will work out disbursement.
Frequently Asked Questions
Ideally, you should shop for a mortgage before you look for a house. It’s best to find the right company and get pre-approved. Sellers are often anxious to find strong buyers, and will be more willing to negotiate with you when you have a pre-approval in-hand.
For pre-qualification, a loan officer will analyze your income, assets and current debts to estimate what you will be able to afford on a home purchase.
Pre-approval is an approval for a specific loan amount, with or without a property address for purchase. The loan is underwritten and you get a commitment from the lender.
Pre-approval can be a great advantage to you when dealing with a realtor or homeowner. With a pre-approval in-hand, you are a much stronger buyer because you already have financing available.
Pre-approval also tells you the maximum loan amount for which you qualify, and allows your realtor to show you the most realistic homes for your price range and saves time in negotiating.
Of course! There are hundreds of lenders who are willing to close loans even for those with less-than-perfect credit. At Superior Lending Associates, we’re familiar with the most “creative” lenders in the industry, and in most cases we can find what you need.
Your loan officer will need the following documents for pre-approval, or loan application:
- 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
- Copies of any Stocks or Certificates of Deposits
- Copy of Purchase and Sale Agreement
- 12 months canceled rent checks or the name and address of your current landlord
- Fully executed divorce decree
- For a refinance, a copy of the deed, and most recent tax bill
- Letter of explanation for any known credit problems.
If you are self-employed, paid by commission or if you own rental real estate, addition documentation is required including:
- 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.
You can refinance to get a lower rate and/or payment, taking no cash out, which is called a “rate and term” refinance. If you’re looking for a way to get money out of your home without selling it, you can do what is called a “cash-out refinance”; if you have un-financed equity in your home, you can borrow against that equity for cash or debt consolidation. You may want to wrap your credit card, student loans and/or car debts into your mortgage; these debts will be paid off completely and you’ll be left with one tax-deductible payment. Proceeds from refinancing can also be used as down payments on investment properties, or you can pull out cash for home-improvement or business investments.
An interest-only loan can be a big advantage for many reasons, but is the best idea when the value of your property is guaranteed to increase either because of a rising market or home-improvement. In these cases, an interest-only loan provides lower payments because you’re not required to pay on the principle, but your equity still goes up because of the rising property value.
What does it mean to “lock-in” my rate?
To float your rate means that even though you’ve been approved at a certain interest rate, that rate is subject to change with the market until it has been locked-in.
Lenders generally require each loan to be locked before closing documents can be sent to the title company. However, you can float your interest rate as long as you want during the loan process. Once the rate is locked, it can no longer float. Your loan officer will discuss all your options and advise you as to the best time to lock your rate.
Below are some questions that will help you determine your current situation and find what you’re looking for. Discuss these items with your Superior Lending loan officer to help you find what you need:
- How long do you expect to stay in the house?
- How likely is it for your income to increase or decrease in the next 3-5 years?
- According to your current situation, which is more important, a low rate and payment or low closing costs?
- Are you looking for a lower monthly payment?
- Are you prepared and able to make higher mortgage payments?
- For refinance: do you plan to sell your home in the next 1-5 years?
A fixed rate mortgage guarantees the same interest rate and payment for the duration of your loan, while an adjustable rate loan (ARM) has a fixed rate for a determined period of time (usually 3-7 years), after which time, the rate becomes variable and subject to change at pre-determined intervals. There are advantages to both kinds of loans.
A fixed rate loan never leaves you guessing; you’ll always know what your payment will be.
If you choose an ARM, your interest rate will generally be lower for the 3-7 year fixed-rate period (up to 1% lower). When the rate becomes adjustable, it will follow the market, and re-adjust as often as every month or as infrequently as every 7 years. (You will decide the adjustment period with your loan officer before closing.)
A loan with a balloon is a fixed-rate payment for the first five to seven years of the loan. The payments are amortized (or divided) over 30 years; however at the end of the fixed-rate payment period of five to seven years, the balance of the loan is due in one big payment, called a balloon payment.
A conforming loan fits all the requirements and guidelines set by Fannie Mae and Freddie Mac. (Fannie Mae and Freddie Mac are the two congressionally funded companies that buy mortgage loans from lenders. They ensure that mortgage funds are available at all times and in all locations.)
A non-conforming (sometimes known as a “jumbo” loan) does not fit the Fannie Mae/Freddie Mac requirements, most often because the loan amount is too high; both companies will only purchase loans up to a certain limit.
PITI represents the payments that are generally wrapped into your monthly mortgage payment:
Principal Interest Taxes & Insurance.
There are different kinds of points; origination points and discount points. One (1) point is equal to 1% of the loan value. For example, on a $100,000 loan, one point equals $1,000. A loan officer can charge 1-5 points for origination.
Borrowers also have the option of paying for discount points. Discount points represent additional money you can pay at closing to lower your rate. Generally your rate will be lowered by .125% for each point that you pay. For example, if your interest rate is 7.50% for a $100,000 loan, depending on your lender, you may be able to pay $1,000 and lower your interest rate to 7.375%. The longer you plan to stay in a loan, the more sense it makes to pay for discount points.
Points charged by the broker or lender for loan origination.
There are thousands of different loan programs, lenders, rate options and other factors that affect the loan process. Loan officers generally go through several options, taking into consideration their borrowers’ circumstances and needs. During this process, loan officers compare and re-compare rates and programs and other variables between different lenders. The loan officer then originates a loan for the borrower. The entire process is called loan origination.
Loan-To-Value; what you’re borrowing in a single loan versus the value of the property. Generally lenders have a maximum LTV and CLTV (see below) for each loan program. For example some programs allow borrowers an LTV of 100%, which would be no-money-down programs. Others will only lend to 80% of the property value.
Cumulative-Loan-To-Value; the total amount (1st and 2nd mortgages) of what you’re borrowing versus the value of the property. Generally lenders will not loan over 100% CLTV.
Note: A lender has to be careful about the properties in which he chooses to invest his money. The higher the LTV and CLTV, the higher the risk for the lender. Similarly, a lender will not approve a loan for more than the appraised value of the property; he will not be willing to invest more money than there is value to support.
How much will I need for a down-payment?
Your down-payment depends on several variables. Generally, the higher your down-payment, the lower your interest rate, however, there are several lenders that offer NO DOWN PAYMENT loan programs.
Note: A lender takes a risk by lending money, the more you put down, the lower his risk in lending you money. That’s why lenders are more willing to give lower interest rates when you have a high down-payment.
You can discuss your options and down-payment requirements with your Superior Lending loan officer.
The dictionary definition for “lien” is the legal right to keep or sell someone else’s property as security for a debt.
When you finance a home (or other piece of property – like a car or a boat), the lender places a lien against that property. The lien gives the lender legal right to the property if payments are not made as agreed.
Private as well as public liens can be placed on a property. For example, the state can place a lien on your home for unpaid property and income taxes, or a private debtor can place a lien on your home for unpaid debts. Liens are reported and recorded on the title report for each property. Because a title report is issued, reviewed and re-assigned with each transaction on the property, all liens must be satisfied before refinancing the property. If the property is sold, the title company is required to use sale proceeds to automatically pay off any liens.
Hazard insurance is the insurance that protects the investment in your home, and compensates you in case of property loss or damage. Lenders require hazard insurance on each loan to ensure that neither you nor they will lose their investment in the property.
Fees that both the buyer and seller must pay at closing, including:
- Loan origination Fee
- Appraisal Fee
- Credit Report
- Processing Fee
- Underwriting Fee
- Admin Fee
- Tax Reserves
- Insurance Premium and/or Reserves
- Title Closing Fee
- Title Insurance
- Endorsements and Reconveyance
- Recording Fee
- Courier Fee
- Other Fees
You can find all these and other fees with their specific costs on your Good Faith Estimate.
In general, the entire loan process takes about 3 weeks. However, it can be done much faster, or it can be drawn out. We understand that time is important to you and critical in your investments. Your Superior Lending loan officer will work with you to decide when your loan needs to close, and work to get it done in that time frame.