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About The Mortgage Application Process
Understanding the basics
is essential, for example, what is the mortgage
process. Basiclly the are 6 steps throughout the
process and we will review each one below.
Establishing Goals
The mortgage process
begins with you. There are a number of questions
that will need answering when you begin. For
example, you may want to start by thinking about the
following:
• What is your price range?
• What is the amount of down-payment you would like
to invest?
• How much would you be comfortable paying on a
monthly basis?
• How long do you think you will live in the home?
Use the
Mortgage Calculator to help establish your
needs.
Obtaining Pre-Approval
There are two terms
incorrectly being used interchangeably in today's
marketplace: pre-qualified and pre-approved. They
sound similar, but their impact on a transaction is
quite different.
• Pre-qualification is an estimate of your borrowing
power. This estimate is based only on the
information you provide and is not verified by a
lender
• Pre-approval is a firm loan commitment issued by a
lender, subject to a satisfactory appraisal of a
property to be purchased. When you have been
pre-approved, your income, assets, and credit have
been reviewed to the satisfaction of the lender
Pre-Approval provides real benefit. Here are several
reasons to consider getting pre-approved early in
your homebuying process:
• Confidence: Knowing that you are pre-approved for
home financing allows you to search for properties
with confidence, having eliminated financing issues
• Credibility: Providing a pre-approval letter
increases the credibility of your offer in the eyes
of homeowners who often have several offers to
consider
• Agility: Knowing your financing capacity allows
you to respond quickly
• Focus: Getting pre-approved early in your
homebuying process allows you to focus on the most
important goal: finding the perfect home
1003 Loan
Application
Applying for a mortgage
is an important transitional phase in the process.
To this point, you may have begun to determine your
needs, and may have even become pre-approved online
- without the assistance of a mortgage professional.
Now, you are ready to formalize the process. Working
with a mortgage professional will help you:
• Identify all required documentation regarding your
income, assets, and liabilities
• Determine the most comfortable loan amount and
appropriate loan programs to meet your needs
• Prepare your loan application for underwriting
When you speak with a mortgage consultant, they will
need information concerning your employment history,
your financial assets, and your credit history. In
order to process your loan, we typically need to
obtain the following documentation at the time of
application:
• Copies of your most recent, consecutive pay stubs
(covering 30 days), or a copy of a signed offer
letter stating your new salary
• Most recent 2 years W2's
• Most recent 2 months consecutive bank statements
(all pages) to verify assets, including
checking/savings, mutual funds, and brokerage
accounts
• Miscellaneous information, such as copies of
resident alien cards, visas, divorce decrees, etc.,
may also apply, depending on your particular
situation; your mortgage consultant can advise you
about documenting any unique information
Additional information may be required if you fall
under one of the following categories
• Self-Employed Borrower
• Commissioned Income
For more detailed information, contact a mortgage
consultant
Mortgage Insurance (MI) protects the lender in the
event you fail to make your monthly mortgage
payments, having resulted in a foreclosure.
Typically, mortgage insurance is required if your
down-payment is less than 20% of the purchase price
of the property. You are not responsible for
obtaining mortgage insurance. It is the lender's
responsibility to order mortgage insurance from a
mortgage insurance company after your loan is
approved. The mortgage insurance premium is usually
added to your regular monthly mortgage payment.
It may be possible to eliminate mortgage insurance
by using a blended mortgage product. This is
accomplished by putting 10% down and issuing a first
mortgage for 80% of the purchase price. There is
then a second mortgage that makes up the remainder
of the loan balance.
A rate lock is a written agreement between the
lender and the buyer guaranteeing a specific
interest rate, provided the loan is closed within a
set period of time. The typical lock-in period is 60
days, but this can vary from lender to lender. What
this means is that a buyer can let the rate 'float'
waiting for the best rate possible. Once the buyer
decides to lock-in an interest rate, however, the
loan has to close before the rate lock expires. If
the loan does not close within the term of the rate
lock, the buyer can typically extend the rate lock
by paying a fee or accepting a higher interest rate.
You are not required to lock-in your interest rate
until five business days prior to closing on your
new home. This is referred to as floating your rate.
Remember that once you lock-in your interest rate,
the rate is locked whether the rates in the future
go up or down.
It is always in your best interest to confer with
your mortgage specialist about which options are
available to you on your particular loan, but no one
can accurately predict interest rate movements, and
the ultimate decision of when to lock your rate must
be your own.
Up-front Costs
NE Moves Mortgage does not charge an application
fee. At the time of applying, a fee for the
appraisal and credit report is collected. We may
also collect a fee at the time you lock-in your
rate. This fee is not an additional fee: it is
credited to your closing.
Costs at Closing
The total amount of money needed for cash to close
is comprised of your down-payment, closing costs,
and prepaid items for your initial insurance and
real estate tax escrow accounts and pre-paid
interest. NE Moves Mortgage will provide you with a
Good Faith Estimate of Settlement Costs at the time
of application. These fees vary from state to state.
We offer you three easy ways to get started:
• Electronically: Complete the Mortgage Pre-Approval
form or submit an online Instant Pre-Approval
application
• Over the phone: Contact us to schedule a call with
a Mortgage Consultant
• In person: Meet with the Mortgage Consultant in
your local Coldwell Banker Residential Brokerage
office
Additional Documentation If You Are A Self-Employed
Borrower:
• Sole-Proprietorship
• Partnership
• S Corporation
Sole-Proprietorship
• Most recent 2 years signed Federal Tax Returns (to
include all schedules)
• Current year-to-date Profit and Loss Statement
• Most recent 2 months consecutive bank statements
(all pages) to verify assets, including
checking/savings, mutual funds, and brokerage
accounts
Partnership
• Most recent 2 years signed Partnership Tax
Returns, to include Income on Schedule K-1
• Most recent 2 years Personal Tax Returns, with all
accompanying schedules and W2's
• Most recent 2 months consecutive bank statements
(all pages) to verify assets, including
checking/savings, mutual funds, and brokerage
accounts
S Corporation
• Most recent 2 years signed Corporate Tax Returns,
to include Compensation of Officers and Schedule
K-1.
• Most recent 2 years Personal Tax Returns, with all
accompanying schedules and W2's
• Most recent 2 years Personal Tax Returns, with all
accompanying schedules and W2's
Additional Documentation If You Receive Commissioned
Income:
• Most recent 2 years signed Tax Returns, to include
all schedules
• Copy of most recent consecutive pay stubs to cover
30 days, or copy of signed offer letter stating new
salary
• Most recent 2 years W2's
• Most recent 2 months consecutive bank statements
(all pages) to verify assets, including
checking/savings, mutual funds, and brokerage
accounts
Underwriting
Underwriting is the
process of evaluating your credit history, debts,
assets, income, and information about the property
you are looking to purchase, in order to make a
mortgage loan decision.
Collateral
The property's value is confirmed by an independent
appraisal comparing the subject value with at least
three properties that are similar and have sold
within the last three to six months in the area.
Capacity
The borrower's income and overall debt structure are
evaluated to determine that she/he has the ability
to pay the loan back on a timely basis.
Credit
The borrower's past credit history is evaluated to
make sure that she/he has a history of paying their
current obligations on time.
• Housing-to-Income and Debt-to-Income Ratios
• Credit History
• Ability to Repay the Mortgage
• Cash and Reserves
• Collateral
There are two sets of ratios that enable lenders to
evaluate whether you are able to afford a mortgage
payment in addition to your other financial
obligations. [Note: when determining your housing
expenses, you should include principal, interest,
real estate taxes, hazard insurance, and mortgage
insurance (if you are required to have it)].
The First Ratio (often referred to as the Front
Ratio): Your Housing-to-Income Ratio
This involves measuring your proposed monthly
housing expenses (housing) against how much you earn
(income). This ratio is calculated by dividing your
proposed monthly housing expenses by your gross
monthly income. Lenders typically require that this
ratio be 33% or less.
The Second Ratio (often referred to as the Back
Ratio): Your Debt-to-Income Ratio
This involves measuring how much you owe (debt)
against how much you earn (income). The
Debt-to-Income ratio is determined by dividing your
total monthly debt (to include your proposed monthly
mortgage payment, minimum payments on all revolving
credit accounts and monthly installment payments) by
your gross monthly income. Lenders typically require
that this ratio be 38% or less.
Generally, the lower your ratios, the better your
financial condition. As the ratios increase, so does
your level of risk. When the ratios are higher, the
lender will look for other compensating factors to
offset the risk. These compensating factors would
include such things as a large amount of financial
assets, stability of employment, higher down-payment
or interest rate, and good credit history.
Your credit plays an important role when lenders are
determining whether to lend and what interest rate
to charge. One of the first things a lender will do
is to order a copy of your credit report.
Detailed Information About Credit Reports And Credit
History
• Information contained in a Credit Report
• Understanding Credit Scores
• Improving a Credit Score
• Obtaining a copy of your Credit Report
• Establishing a Credit History
• Obtaining a mortgage with a poor Credit History
The lender will try to determine your ability to
repay the loan by reviewing your employment
information. They will take into consideration how
long you have worked consecutively, your occupation,
and how much you earn. The lender will verify your
income by reviewing documentation such as recent pay
stubs, pension statements, income tax returns,
interest-earning statements, W2 forms, and/or by
contacting your employer. The lender will also
review your expenses; whether you pay alimony and/or
child support, along with the amount of your other
monthly obligations.
Do you have enough money for the down-payment,
closing costs and prepaid expenses and what money
will you have left after you've bought your home?
Lenders refer to the money you have left after
you've bought your home as 'reserves'. Reserves can
include money in your checking/savings, mutual
funds, retirement accounts, stocks, and bonds.
Typically, borrowers with a higher amount of
reserves are a lower risk. Lenders often look for
you to have a minimum of two months of mortgage
payments left in your account after the closing.
However, not all mortgage programs require that you
have reserves, so please check with your Coldwell
Banker Residential Brokerage Mortgage Consultant for
various options offered by different lenders.
A factor that is considered when evaluating your
mortgage application is the amount of money you plan
to invest or have invested in your home. Your equity
is the amount of your financial interest in your
home. If you are purchasing, it is the amount of
your down-payment. If you refinance your mortgage,
it is the difference between the fair market value
of your home and the amount that is still remaining
on your mortgage.
A factor that is considered when evaluating your
mortgage application is the amount of money you plan
to invest or have invested in your home. Your equity
is the amount of your financial interest in your
home. If you are purchasing, it is the amount of
your down-payment. If you refinance your mortgage,
it is the difference between the fair market value
of your home and the amount that is still remaining
on your mortgage. Lenders will make sure that the
value of the property is sufficient to support your
loan. The lender will order an appraisal of the
property in order to determine its value. The
loan-to-value ratio (the amount of your mortgage as
a percent of the value of your home) may offset
other risks that are identified in your loan
application. In other words, the more equity you
have in your home, the lower the risk.
Once your loan application has been underwritten,
loan processing can begin
Processing
The processing of your
loan involves the collection of all the outstanding
documents that are needed to satisfy the conditions
that were set forth by the underwriter in your
commitment letter. These conditions could include
verifying your income and assets, reviewing the
Purchase and Sale Agreement and appraisal, or
obtaining information or documentation to
substantiate past credit issues, child
support/alimony payments, receipt of gift funds,
employment information, etc.
The commitment letter is the formal loan approval,
issued by the lender, that sets forth the terms and
conditions under which the loan is made. The body of
the letter will specify your loan amount, loan
program, interest rate, and any conditions that must
be met prior to your closing.
The loan amount is the amount of money that the
lender is willing to finance for your home purchase,
and is equal to the purchase price of your property
less your total down-payment.
The loan program is the type of mortgage program
that you were approved under. Some examples would be
a 30 Year Fixed Rate, a 5 Year Adjustable Rate
(ARM), or a FHA/VA 30 Year Fixed Rate. The
commitment letter is specific to the loan program.
If you decide that you would like to change the loan
program, your loan will have to be re-underwritten
and a new commitment letter will be issued.
The interest rate is stated in the mortgage
commitment letter if you have a rate lock. If you
have not locked your interest rate, the commitment
letter will read 'to be determined'.
A condition is an item or a document, specified in
the commitment letter, that an underwriter requires
from the buyer prior to the closing of the loan. The
three types of conditions are generally related to
income/employment, assets, or credit:
• Income/employment conditions may include an
updated pay stub reflecting a salary increase, a
recent W2, or a signed offer letter from a new
employer.
• Asset conditions may include looking for the HUD 1
Settlement Statement from the sale of a previous
home, a source of a large deposit into a bank
account or sufficient liquid funds prior to closing.
The sufficient liquid fund's statement refers to the
paper trail of the liquidation of mutual funds or
stock accounts into a checking account.
• Credit conditions may require a letter of
explanation regarding derogatory credit or a copy of
a payment coupon to verify a payment that may not be
showing up on the credit report.
The appraisal is a professional opinion by a third
party who will determine the market value of the
property. The appraiser will search out a minimum of
three other like properties (same size, style, or
square footage) and compare them to the subject
property.
They use a process of addition and subtraction for
different physical attributes to obtain a bottom
line adjusted price. When determining a loan amount,
the lender will base it on the lower of either the
appraised value or the sales price.
The Purchase and Sale Agreement (P&S) is a binding
contract between the buyer and the seller that sets
forth the terms and conditions under which a
property is sold. The contract outlines specific
dates for performance, such as the mortgage
application date, the mortgage contingency date, and
the closing date. It also outlines any items that
may be included in the sale, as well as any repairs
to the property that need to be completed prior to
closing.
Buyer's Obligations
The buyer must meet specific dates for performance,
set forth in the Purchase and Sale Agreement:
• The dates that are important to the buyer include
the mortgage application date, the mortgage
contingency date (if applicable), and the closing
date
• The mortgage application date is the day by which
the buyer will have to formally apply for mortgage
financing with a lending institution
• The mortgage contingency (mortgage financing) date
is the last day that the buyer has to provide to the
seller with written mortgage commitment or denial
from the lender. If the lender is unable to meet
this date, the buyer can ask for an extension of
performance, but the buyer should understand that
the seller is under no obligation to agree to an
extension
• The closing date is when all of the mortgage
documents are signed and the title is officially
transferred from the seller to the buyer by
recording the deed
Seller's Obligations
The seller's obligations usually relate to the
condition that the property must be in at the time
of the closing. The agreement will usually outline
what items are to be included in the sale depending
upon the terms that have been negotiated into the
agreement. These items may or may not include such
things as appliances, window treatments, swing sets,
etc.
It may also outline what repairs, if any, the seller
has agreed to make to the property. It may, for
example, include the fixing of appliances, replacing
rotten wood on a deck, or any item that was
negotiated into the agreement. The buyer should keep
in mind, however, that the seller is under no legal
obligation to make any repairs to the property
unless it has been negotiated as part of the
agreement.
In order to close the mortgage, all buyer and seller
obligations must be met.
Closing
| The
closing step completes the process of obtaining a
mortgage. Because it often occurs at the same time
that you are purchasing a home, it can be a complex
and confusing step. The best strategy for a smooth
closing is to know what is involved, think ahead,
and get help.
The final days and weeks before closing can be a
very stressful period of time for both buyers and
sellers. There are major steps that need to be taken
before the closing can occur. |
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| Steps Required
For Closing |
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At the loan closing,
or settlement, your mortgage is activated, the title
(ownership) to the property is transferred from the
seller by recording a deed, and you are given the
keys to your new home. You will be required to sign
many papers, and to pay your closing costs, prepaid
finance charges, and the remainder of your
down-payment, in order to finally take possession of
your new home. The other attendees present at the
closing may include the seller, real estate agents,
closing agent, and, if applicable, the buyer's
and/or seller's attorney. The meeting can often take
an hour or more and will be held at the location
specified in the agreement, unless other
arrangements are agreed upon. |
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| Steps |
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Final Review:
The closing agent reviews the HUD-1
Settlement Statement with you and the
seller, answering any questions that arise.
The HUD-1 Settlement Statement itemizes all
of the closing costs and adjustments for
buyer and seller. |
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Document
Presented and Signed: Both parties sign the
HUD-1 Settlement Statement, and any
additional loan documents are signed, such
as the mortgage, promissory note and
Truth-in-Lending Statement. The required
insurance certificates and inspections are
presented, if not previously provided to the
closing agent. |
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Funds Exchanged:
After all paperwork is in order, you submit
a certified (or cashier's) check to cover
the balance of funds due (such as closing
costs, prepaid expenses, and remainder of
down-payment). The check from the lender,
covering the mortgage, is also submitted to
the closing agent. |
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| Documents |
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HUD-1 Settlement
Statement: The standard form detailing all
of the funds that are payable at closing. |
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Truth-In-Lending
Statement: The standard form, required by
law, disclosing the terms and conditions of
a mortgage, including the annual percentage
rate (APR) and other charges. |
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The Promissory
Note: The written undertaking, or promise,
to repay a specified amount over a specified
period of time. |
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The Mortgage:
The legal document evidencing the lender's
interest in a property to secure repayment
of debt. |
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The Deed: The
legal document transferring, or conveying,
title to a property. |
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Affidavits:
Sworn statements in writing by the borrower. |
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| Steps After
Closing |
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Recording of
Deed: After the meeting, the closing agent
will officially record the deed and the
mortgage at the registry of deeds or local
clerk's office. The closing agent usually
will not disburse the funds to everyone who
is owed money from the sale until the
transaction is recorded. When the deed is
recorded, you are officially the owner of
the home. |
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Escrow
Established: If the lender will be paying
your annual property taxes and homeowner's
insurance, the lender will establish an
escrow account when the closed loan package
is received by the lender. |
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| Closing Date |
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The
closing date is specified in the body of the
Purchase and Sales Agreement. The date is often
coordinated by and between all parties involved in
the transaction (i.e., the real estate
professional(s), the seller, the mortgage company,
the closing agent, and you). Keep in mind that, if
any changes occur, the closing should take place
before your interest rate lock (if there is one)
expires. Contact your mortgage consultant to find
out how long your rate lock-in is valid.
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| Closing Agents |
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The
closing agent or 'settlement' agent's job is to
coordinate, prepare, and record the closing
documents, and then to disburse the funds.
Attorneys, title companies or escrow companies
usually conduct the closing. If you obtain mortgage
financing through us, Inc., then we will select the
closing agent after a Purchase and Sales Agreement
is executed. The closing agent is there to represent
the lender in the transaction and their fee will be
included in your total closing costs. You may choose
to hire your own personal attorney to negotiate and
review your sales contract before you sign it, and
to represent you at closing. Your personal
attorney's fee will not be included in your total
closing costs, so you will need to budget for this
expense separately.
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| Title Services |
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If
you are obtaining mortgage financing to finance your
home purchase, the closing agent will take care of
the following:
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Title Search: A
title search is required by the lender in
order to protect them against the
possibility of a fraudulent sale. Any liens,
legal claims, and lawsuits involving the
property will be uncovered in the title
search. It is the lender's responsibility to
order the title search. |
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Title Insurance:
The lender will require you to buy title
insurance to further protect against any
unforeseen complications that arise after
you have purchased the property. There are
two types of title insurance policies: the
lender's policy and the owner's policy. The
buyer usually pays for both types of title
insurance, but only the lender's policy is
required in order to close on the property.
The lender's policy is required in order to
protect the lender in the event a flaw in
the title is detected after the property has
been purchased. It is your decision whether
or not to protect yourself, in the event of
a flaw in the title, and purchase additional
owner's title insurance. The lender's title
insurance fee will be included as part of
your total closing costs, and is different
in every state; ask your Mortgage Consultant
for an estimate for your state. |
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Property Survey:
The lender may require a survey, or plot
plan, of the property before closing. A
survey is done to confirm that the
property's boundaries are as described in
the Purchase and Sales Agreement. The survey
fee will be included as part of your total
closing costs. The required Plot Plan is an
estimate of the boundary lines, and is not
typically based upon a full instrument
survey. |
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| Homeowner's
Insurance |
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Homeowner's (or 'hazard') insurance is required in
order to protect you and the lender from loss in the
event your house is damaged or destroyed. Typical
coverage must be in an amount equal to the higher of
the loan amount or 80% of the full replacement cost
of the insurable improvements, as long as it equals
the minimum amount required to compensate for damage
or loss on a replacement cost basis. A
representative from Coldwell Banker Residential
Brokerage Insurance Agency can assist you with any
questions and can provide you with various quotes
specific to your particular needs.
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| Getting your
Certificate of Occupancy |
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If you
are purchasing a newly constructed home, a
certificate of occupancy needs to be provided at
closing. Typically the builder will obtain the
certificate from the city or county. Usually an
inspection is required to verify the property meets
local building codes.
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| Mortgage
Conditions |
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If you
obtain mortgage financing through us, make sure you
read and understand any conditions of the loan offer
that are stated in your commitment letter as issued
by us. Most conditions must be met at least five
days before closing. The name of the Mortgage
Consultant who can answer questions that you may
have about these conditions is located on the first
page of your commitment letter.
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| Final Walkthrough |
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| It is
advisable to take advantage of any contractual right
that you may have to inspect the property prior to
closing. This is your opportunity to ensure that the
property is in the condition that was agreed upon.
If you notice any major problems, you may have a
right to delay the closing but you should only do so
after consulting with legal counsel.
If you are purchasing
your home without mortgage financing, make sure you
understand who is responsible for each closing step;
it would be wise to obtain legal assistance.
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Buying A Home
