The Loan Process
Pre-qualification can be the start of the loan process. Once a lender has gathered information about a borrower’s income, assets, and debts, a determination can be made regarding how much the borrower can afford to pay for a house. A pre-approval is a more in-depth examination and includes a full underwriting review. Regardless of which option you chose, having a pre-qualification or pre-approval helps to get the process started.
Mortgage lenders look at two key factors when deciding to approve a loan:
- Ability to repay the loan – The ability to repay the loan is determined by looking at your current employment, total income, how long you have been employed (2 years or more), and how long you have been in a particular line of work (3 years or more).
- Willingness to repay the loan – Willingness to repay the loan is determined by looking at how you plan to use the property (primary residence vs. rental or investment) and reviewing your past credit payment history.
Every borrower’s situation is unique and is handled on a case-by-case basis. We work hard on your behalf to find the right loan that will work your you. When we close loans, everyone is happy!
Mortgage Programs and Rates
To properly analyze a mortgage program, the borrower needs to think about how long they plan to keep the loan. If they plan to sell the house in a few years, an adjustable or balloon loan may make more sense. If they plan to keep the house for a more extended period, a fixed loan may be more suitable.
CMG has a large selection of loan programs to offer. Every program has different requirements and qualifications. One of our experienced mortgage professionals can evaluate your unique situation to determine which program makes the most sense. Many factors go into determining a mortgage interest rate. During the in-depth discussion with your loan officer, you will learn about points and fees. We believe in educating our borrowers to make the most informed decisions regarding the specifics of their mortgage.
The official start of the loan process is the application. With the aid of a mortgage professional, the borrower completes the application, online or in person, and provides all the required documentation.
The various fees and closing cost estimates will be verified by the Good Faith Estimate (GFE) and a Truth-In-Lending Statement (TIL). The borrower will receive these items within three days of applying.
Once the application has been submitted, the processing of the mortgage begins. The processor may order the Credit Report (if this was not done during the pre-approval process), Appraisal, and Title Report. The information on the application, such as bank deposits and payment histories, are then verified. Any credit derogatories, 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 underwriter.
If you are purchasing or refinancing your home and are salaried, you will need to provide the past two-year 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.
- The most recent copies of any stock brokerage or IRA/401k accounts, if applicable.
If you are requesting cash-out, you will need a “Use of Proceeds” letter of explanation. Provide a copy of the 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-1or L-1visa.
See our Mortgage Loan Checklist for all required items.
Many 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 applying for your mortgage. That way, you can take steps to correct any errors or derogatory entries before submitting your application.
A Credit Profile refers to a consumer credit file made up of data from various consumer credit reporting agencies. It is a picture of how well you managed your debt and 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
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 guide 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 issues 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.
By now, most people have heard of credit scoring. 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 inquiries
The most common score is called the FICO score developed by Fair, Isaac & Company, Inc. for the three main credit Bureaus; Equifax, Experian, and TransUnion.
FICO scores are simply repository scores meaning they ONLY consider the information in a person’s credit file. They DO NOT consider a person’s 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 have had credit
- 10% percent on new credit being sought
- 10% on the types of credit you have
The scores help determine loan program eligibility and setting levels of underwriting. However, they are not the final word regarding the type of program or interest rate.
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 need. Accounts no longer needed should be formally canceled 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
All things being equal, when you have less than perfect credit, the other aspects of your financial picture need to be in order. Equity, stability, income, documentation, assets, etc., can play a more significant role in the approval decision with a credit-challenged borrower.
An appraisal is a professional, unbiased opinion of the value of a home. Whenever a mortgage is required to purchase a home, an appraisal must establish the validity of the asking price. The lender needs to be sure the property is worth the asking price because it is the collateral for the mortgage.
A licensed appraiser will examine the home inside and out to determine its assessed value. It is essential to mention that some processes have changed due to COVID. Appraisers look at other comparable homes in the neighborhood that have sold within the last 12 months. They will also consider the features and location of the property.
Appraisers look for a variety of details, according to the Uniform Residential Appraisal Report form:
- The property’s dimensions and the year it was built
- Neighborhood characteristics, including zoning classification
- Construction details: type of foundation, a basement or attic, kind of driveway, car storage, materials of the interior walls and floors
- Utilities and amenities: public utilities or other off-site improvements (and whether these are typical for the market area), fireplace or patio, features such as energy-efficient appliances, types of plumbing, and lighting fixtures
- General condition and any needed repairs
Once the processor has put together a complete package with all verifications and documentation, the file is sent to the underwriter. 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 department. The closer notifies the loan officer and closing attorney. The closing attorney then schedules a time for the borrower to sign the loan documentation.
At the closing, the borrower should:
- Bring a cashier’s check for the down payment and closing costs, if required. Personal checks are not accepted
- Review the final loan documents. Make sure that the interest rate and loan terms are accurate. Also, verify that the names and addresses on the loan documents are correct
- Sign the loan documents
- Bring identification
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 been funded, the closing attorney arranges for the appropriate documents to be recorded at the county recorders’ office. Once the mortgage has been recorded, the closing attorney will make final disbursements.
The loan process typically takes anywhere from 30-45 days to complete. The time frame can vary depending on the quality of the loan file (complete with all documentation) and the loan volume (seasonal). CMG has automated many of the processes involved in loan approval to make your experience as fast and easy as possible. Contact one of our experienced Loan Officers today to discuss your particular mortgage needs or Apply Online, and a Loan Officer will get back to you promptly.