Whether you are a first time borrower or an old hat, it is probably a good idea to see if your mortgage needs fit into the new world of real estate finance. The best thing is to have an experienced mortgage loan originator do an analysis of your current financial situation and your specific mortgage needs. In other words, we need to see the big picture. This is all a big conversation with a lot cries of “Ah-ha!” and “Oh!” After your initial discussion, an assessment of needs will be made.
What Happens First?
If you decide you want to move forward, the next step is the Short Form Loan Application and Menu of Documents.
The Short Form is an abbreviated version of the actual loan application. You fill in the information on your employment, income, assets and property and return via the secure link. The information on the form allows us to dig a little deeper and see your big financial picture. If we need more info or have to take care of something before we start the process (your credit score), it gives us more time. It also gives us enough information to complete the official loan application without bothering you too much.
The Menu of Documents shows you what you need to gather up for the application package. You have a nice neat list to work off of at your leisure. The documents are pretty standard but do vary based on the individual’s transaction. Again, Circle Mortgage is paperless and secure so please scan or send PDF’s via the secure doc transfer link.
Pre-qualification or pre-approval
Prequalification or pre-approval, that is the question! When you are shopping for a home, the first thing the realtor wants to know is if you have spoken to a loan officer and have been preapproved. Realtors tend not to want to take people out housing hunting unless they know the person can get a loan. It is a great exercise for both you and the realtor to be prepared before you start the home search.
What’s the difference? A prequalification is simply based on a conversation about your income, assets and a credit report. The loan officer may or may not require supporting documents but can give you a good idea of what you qualify for and a good range of purchase prices to look at. You will get a prequalification letter which doesn’t have much credence but shows you took the initiative to start figuring it out. A preapproval is a commitment letter with a property address to be determined. You go through the same process as if you were buying a home, but you don’t have one yet. You will sign a full application package; the loan will be reviewed by the lender and you will get a pre-commitment letter. Once you find the home, you will provide the property specific information, signed contracts and the lender will update the approval. You continue the process as normal.
When should you go for the more official preapproval? When you are planning on buying a home within 3-4 months- the commitment letter will last that long and you will simply update the income/asset docs. When you are in a hot market where things are going fast or there are bidding wars- this will put you out front as a strong buy. Or if you just want to be prepared and know you will be buying something some time soon.
At some point, but not in the very beginning, you will need to have a credit report run by your mortgage lender. They obtain what is known as a tri-merge credit report from an authorized credit agency. A tri-merge is a combination of the three major credit bureau reports, showing your payment history and credit score (also known as a FICO score) from each. The middle (numerical) score is the indicator of your rating. A review of your credit report provides the lender with information on how you manage your financial responsibilities. Using five different factors including payment history, amount owed, amount of time borrower has had credit, new credit being sought, and types of credit a borrower has, a credit score is determined. Based on this information, the lender can make an assessment regarding your ability to make payments. It is important to review your credit report annually and deal with any discrepancies as soon as possible in order to maintain a high credit rating. Your credit score will affect the mortgage programs available to you, the maximum loan to value, and your interest rate.
The loan application has changed over recent years. Most lenders have you esign the documents online in a secure portal throughout process. Before the lender of choice even receives the loan application, the mortgage loan officer prepares the initial loan application (sometimes known as the 1003); runs your credit, gathers your documents and reviews the package with you. Once everything is in order, the loan gets registered and you will get an email from the lender indicating they received your loan application from the broker and requests that you acknowledge your intent to proceed. Once you do, the process begins. You will electronically receive a package of documents to review and esign along with initial disclosures of fees and estimated closing costs. Please READ everything- its all important, albeit boring.
Once the lender receives the intent to proceed from you, the mortgage broker can upload the complete file to the bank through a secure portal. The loan will go to the processor who will review the documents, credit and anything special about the loan. The processor is trying to put the loan package together in perfect format, so the underwriter can review it the first time around and issue a timely approval. At this point, the loan officer may come back to you with missing items or questions. The key is completeness, so be prepared to help out and expedite this part of the process.
The lenders’ underwriters will receive a complete file with all necessary documents pertaining to you and the subject property. It is the underwriter who has the final determination of the loan approval. Typically if there is Fannie Mae or lender approval, the underwriter will simply make sure that your file has all the documents needed and whether you meet the criteria of the loan agreement. Additional information may be requested by the lender with a conditional loan approval.
An appraisal determines the market value of a property using the sales comparison approach. This approach involves an independently licensed appraiser evaluating and giving a value to your home by comparing it to three similar homes. These homes must be within one mile from your home and have been sold within the last six months. Your loan amount will be determined by the contract price or the appraised value, depending on which is lower. You are entitled to receive a copy of the appraisal from your lender.
According to the new rules for mortgages, an appraisal cannot be ordered before four business days from the borrower receiving the lender’s disclosures (typically sent by mail or email). Of course, it can be ordered any time after that. In addition, it is now customary for the lender to require the borrower to put the fee for the appraisal on a personal credit card. Ask your loan officer how much the cost is before you allow the charge. You will also receive a copy of the appraisal directly from the lender, the appraisal company, or your loan officer.
You will receive an actual “commitment letter” from the lender with a loan amount, expiration date, locked-in rate (if completed), and property address. Any outstanding conditions/items required by the underwriter will be listed in the commitment letter. This letter is good for at least sixty days and can be updated simply by updating your current assets and income information.
Any additional items requested by the underwriter and listed in the commitment letter must be obtained prior to closing. The underwriter is responsible for clearing these conditions. Homeowner’s insurance and title reports must be obtained prior to closing and should be forwarded to the lender at least two weeks prior to closing. This is the stressful part because lenders usually wait until the last minute to do final reviews and make requests. All parties will work together to smooth out the organized chaos, and it will close.
Once the lender is ready to close, we begins coordinating with all parties involved to set up a closing date and time. The bank’s attorney, the Title Company, the seller’s attorney, and your attorney will schedule the closing at a time convenient for everyone. Circe Mortgage acts as the point person for all parties and will request the closing date and docs when it is decided. Using the latest technology, documents may be ordered and downloaded within a few hours, and mortgage funds can be transferred the day before the closing. Your attorney will instruct you how much money in bank funds you will need to bring to the closing, and, typically, you will not know this information until the day prior to the closing. Do not forget to bring government-issued, active photo identification to the closing (i.e. driver’s license or passport), or else you will not be able to sign the required paperwork. Although this can be stressful, once you close, you will forget all about it.
Closing for refinance
The closing is more flexible with a refinance because there are usually no time constraints and fewer people involved. Even if the bank is ready to close, you can wait until you are ready or locked in at a good rate.
The lender will have an attorney, but you are not required to hire one to represent yourself. Circle Mortgage has a network of qualified bank attorneys and title closers that travel to closings and fully explain in detail the documents and process. Your final closing costs will be reviewed at the closing and will be taken directly the mortgage proceeds. Unless you need additional money, there is no need to bring checks to the closing.
With a refinance, there is a three day right of rescission. This means that you have three business days to review the documents and make sure the loan is right for you. After this waiting period, you give the closing attorney permission to release the documents and all monies. Do not forget your government-issued, active photo ID.
After the closing, everything is reviewed a final time for quality control purposes. The attorney will give you a package with copies of all documents signed at closing. Keep these documents in a safe place and give a copy of your closing statement to your accountant. Also, make sure that you receive a copy of your recorded deed. This can take up to six months depending on the county you live in.
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