Your Initial Meeting with a Mortgage Professional
The loan approval process generally begins with an initial interview where you and your loan officer discuss the potential loan.
You may prefer to talk with your loan officer before house hunting to determine in advance how much you can afford and the mortgage amount for which you can qualify. This step is called pre-qualification and can save you time and trouble by making certain you are looking in the correct price range.
To complete the 1003 Mortgage Application, you will need to gather:
- A purchase contract for the house (if you have one)
- Your bank account numbers and the address of your bank branch, along with checking and savings account statements for the previous 2-3 months
- Pay stubs, W2 withholding forms, tax returns for two years, or other proof of employment, and income verification
- Information on consumer debt such as car loans, student loans and credit cards
- Balance sheets and tax returns, if you are self-employed
Having these items on hand when you visit with your loan officer will help speed up the application process.
After the Mortgage Application
We will begin the work of verifying all the information you've provided.
The amount of time this process takes depends on the type of mortgage you choose and other factors such as appraisal, etc. Within three business days after your signed application, we will give you a loan estimate of your closing costs. This loan estimate also shows your estimated monthly payment, the cost of your finance charges, and other facts about your mortgage.
Stay in touch with us to speed up the application process. Some home buyers find the closing process to be one of the most intimidating aspects of buying a home because it's so unfamiliar. If this is a concern for you as well, ask us what to expect at your closing.
Once you receive your approval, and you're waiting to close on the sale of the home, don't go on a shopping spree. The bank may do a final check of your credit report or bank accounts to make sure you're not assuming more debit or spending your cash reserves.
Speed Up the Mortgage Process
Once complete, your applicaiton will be given to a processor at the bank who will organize your paperwork and may verify your employment, bank balances, and other information.
Be sure to respond promptly to requests for information while processing is taking place.
Commonly requested items during processing that may not have been collected during the applicaiton include:
- The final puchase contract for the house (if applicable).
- Divorce settlement papers, if applicable
- Updated account statments for listed assets in the application that may have changed in value.
- Information about debts or credit report items that may have been delinquent or not accurate.
- Evidenece of your mortage or rental payments, such as canceled checks.
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Any gift letters, if you are using a gift from a parent or relative or other organization to help pay the down payment and/or closing costs. This letter simply states that the money is in fact a gift and will not have to be repaid.
- Hazard insurance policy with one year premium paid must be received by the bank prior to closing.
Two Key Factors in Qualifying
When a lender makes a decision about a mortgage applicaiton, they consider two basic factors: 1) your ability and 2) your willingness to repay the loan.
Ability to repay the mortgage is determined by verifying your current employment and analyzing your total income. Lenders 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. Your proposed monthly payment will be compared to your monthly income and debt.
Willingness to repay is influenced by how you have paid previous loans and by exmaning how the property will be used. Willingness can be gauged by your credit report and previous commitments to pay rent and/or utility bills. There is also a greater tendency to stick with your payments if you live in a house as opposed to a rental property or vacation home.
It is important to remember that there are no set rules and each applicant is handled on a case-by-case basis. Many applicants come up a little short in one area, but make up for it with other strong points. These compensating factors may include a large down payment, solid employment, extensive educational background or overall financial health.
For applicants who need to make a lower down payment, mortgage insurance is protection for the lender in case you stop making payments. This allows low and moderate income families to become homeowners with low down payment programs.
Your Credit Report
Your credit report provides informaiton to current and prospective creditors to help you make purchases, secure loans, pay for college educations, and manage your personal finances. Credit reporting makes it possible for stores to accept your checks, banks to offer credit and debit cards, businesses to market products, and corporations to better manage their operations to benefit the world's economy. Maintianing good credit is important.
Credit grantors send updates to each of the credit reporting agencies, usually once a month. These updates include information about how their customers use and pay their accounts.
Under the Fair Credit Reporting Act, you may be entitled to recieve a free copy of your personal credit report if you have been declined credit, housing, or employment in the last 60 days. To request your free copy, contact one of the credit reporting agencies directly.
Other Credit Factors
Mortgage companies look at other information besides your credit score and credit profile before deciding whether to approve your mortgage. They also consider:
- Income stability
- Employment history
- Monthly debts in relation to your income
- Savings amount and methods
- Mortgage type
- Property type and value
- Down payment amount
- Timeliness of rent and utilities payments
Escrow Account Basics
Mortgage escrow accounts are special accounts set up in which money is held to pay property taxes, fire and hazard insurance premiums, mortgage insurance premiums, and other escrow items.
Escrow accounts ensure that these items are paid in a timely fashion. They guarantee that there is always enough money to pay these bills when they are due so that the homeowner avoids the risk of lapsed insurance coverage or delinquent taxes. With escrow accounts, homeowners do not have to worry about coming up with several large, lump sum payments each with a different due dates, throughout the year.
With escrow accounts, unexpected increases are taken care of. It is the responsibility of the mortgage company to allow for possible increases in tax or insurance premiums. Mortgage companies typically cover shortages when tax or insurance payments increase. It is very common for mortgage companies to pay taxes and insurance premiums when they are due even though all the money for these bills has not yet been collected from the homeowner.