The Loan Process





				The Loan Process To some, the loan transaction process may seem long and arduous; to avoid this situation, we have outlined the steps involved in securing a loan for the purchase or refinancing of a home. It is through better understanding and clear communication that we can help to make the experience a rewarding and memorable one. There are three overall phases to the loan process: Completion and Submission of a Loan Application Package Underwriting Approval Closing Completion and Submission of a Loan Application Package The Loan Application A loan starts with an agent conducting an interview to find out a borrower's objectives and to gather information on the borrower's property, assets, employment and credit information. This is one of the most crucial steps to the whole process. By thoroughly completing the loan application and gathering the associated documentation, your loan officer can work with you to e nsure a smooth and timely transaction. Choosing a Loan Program After the Application is filled out and a C redit R eport pulled, the loan agent will analyze your information and your objectives and compare that against the various programs from the available lenders. Next, the agent will provide you several choices with options on interest rates, points and loan features. The borrower can then choose what works best for their situation. The Loan Package Once the loan program is chosen, the loan agent will "lock" the chosen rate with the lender, (usually for 30 days) and compile a "Loan Package" for submission. If an " A ppraisal" is needed, it will be ordered as well as a " P reliminary T itle R eport". These together with standard required " D isclosure" forms and other documents on income and assets will be submitted to the lender. ( By law the lender will send you the various government "disclosures" within three days of application. If your interest rate is locked, these disclosures will be quite accurate. If your interest rate is not locked, the disclosures are largely based on estimates and often change substantially up until close of escrow). Underwriting Approval Conditions After complete review of the credit package, the lender will issue a formal written approval; usually within 24 to 72 hours. The closing typically will be conditioned upon the receipt of additional documentation (" C onditions") to complete the picture. These can include something as simple as verification of hazard insurance or much more. How the Underwriter Looks at Your Loan When your loan package is submitted, it goes directly into the hands of an underwriter whose job it is to determine your "creditworthiness" or your ability to repay the loan. The underwriter must take all of the following into consideration when making the decision to approve or disapprove your loan: Your Employment History A consistent history of employment in the same line of work is considered ideal. "Job-hopping" is not looked upon favorably because it may lead to unstable income. However, if you have switched jobs within the same line of work for advancement in that work, there should be no problem. Your Income The underwriter looks carefully at your "capacity" to repay the loan. Your job stability and gross income (in relation to your expenses) are critical in this regard. Most income must be verified as having been received for at least two years to be used for qualifying purposes. Your Credit History Your credit history is an indication of your "character" or your willingness to repay the loan. To determine this, the underwriter looks closely at your past payment record (your credit report). Any consistent patterns of late payments collections, etc. are not looked at favorably. Bankruptcies must be discharged for at least two years with re-established credit and the reason for the bankruptcy must be fully explained. Good explanations for all derogatory credit will need to be obtained. All outstanding collections, liens and judgments will have to be paid off through escrow. (Consult your Loan Officer about any credit questions you may have.) Your Assets The money you have available for the down-payment, closing costs, cash reserves (monies left over after close of escrow to cover 2-3 months mortgage payments) and other liquid assets is your net worth or "capital". The underwriter wants to see your ability to save money and manage your financial affairs. They also need to see the "source of funds" or where the money for the down payment, etc. is coming from. They may need to verify that you have had the money (or the asset) for a two to three month period. Once the loan process has begun, never move money around (pay off bills, get a gift, etc.) without first consulting your Loan Officer about the best way to do is since it can seriously affect the underwriter's view of your loan. Your Debts The underwriter is concerned with the amount of debt you currently have because it affects your qualification and your ability to repay the loan. Any excessively heavy use of credit is not looked upon favorably. The Property Because the property is the lenders "collateral" for the loan, the value, marketability and condition is extremely important. The underwriter looks at the appraisal for this information. Closing How does the escrow process work? The escrow officer takes instructions based on the terms of your Purchase Agreement and the lender's requirements. The escrow officer can hold inspection reports and bills for work performed as required by the purchase agreement. Other elements of the escrow include hazard and title insurance, and the grant deed from the seller to you. Escrow cannot be completed until these items have been satisfied and all parties have signed escrow documents. The Closing Process During this phase of the home financing process, the lender will generate loan documents which are forwarded to the title company in preparation for the buyer and seller to sign and execute all necessary documents. After signing, the papers are returned to the lender for final review. It is not unusual for other "conditions" needing to be satisfied appearing at this time. The loan typically funds 24 to 72 hours after signing and records the day after funding. NOW the home is officially yours!! Refinance transactions require a 3 day right of recession and CAN NOT fund until 3 working days have passed after document signing.