The Loan Process
My document processing method and loan application software has been carefully designed to deliver the best mortgage solution for you, the borrower.
Through a well-constructed workflow process and utilization of technology, we are able to create a borrower experience that is unlike any other in the marketplace today.
My system includes real time email status updates, digital document transfer and uploading, and interactive online e-signature disclosures.
Whether you're in the market to purchase a new home or refinance one you already own; my process is set up to make it easier for you to get what you need,
faster than most other lenders can give it to you.
The Five Stages Of Obtaining a Loan
- Figure out how much you can borrow
- Select the right loan program
- Apply for a loan (You can do this online!)
- Begin loan processing and underwriting
- Close your loan
Step 1: How Much Can You Borrow?
The first step in obtaining a loan is to figure out how much you can borrow.
In the case of buying a home, you should ALWAYS determine how much of a home you can afford even before you begin looking for a property. Once you know how much of a loan
you can get pre-approved for, you (and your Realtor) can narrow down the search for properties which are within your range.
Getting pre-approved is essential for the following reasons:
- Pre-approval will make sure you are only looking for properties within your buying range
- Pre-approval will put you in a better position to have your offer accepted if the seller knows you are prepared
- You will close you loan (and escrow) much quicker since most of the document gathering will already be done.
More on Pre-Approval;
LTV and Debt-to-Income Ratios
LTV or Loan-To-Value ratio is the maximum amount of exposure (percentage of appraised value) that a lender is willing to accept in financing the property.
For conventional, owner-occupied purchases, most Lenders are prepared to lend a higher percentage of the value (sometimes over 90%) to more creditworthy borrowers.
Another consideration in approving the maximum loan amount for a particular borrower is the ratio of monthly debt payments to income (such as auto,
credit cards, student and personal loans).
A conservative approach to DTI is your combined monthly debt payments should not exceed 40% of your gross monthly income (as calculated per lender guidelines).
Some lenders will easily go up to 44% or more with ample post close liquidity (reserves). Recently I have even seen FHA accept ratios as high as 55%.
Therefore, borrowers with higher debt-to-income ratios will need to pay a higher down payment in order to qualify with a lower LTV ratio.
I can explain this in greater detail over the phone if you have any questions.
FICO Credit Score
FICO Credit Scores are widely used by almost all types of lenders in their credit decision. It is a quantified measure of creditworthiness of an
individual, which is derived from mathematical models developed by
Company in San Rafael, California. FICO scores reflect
credit risk of the individual in comparison with that of the general population. It is based on a number of factors including past payment
history, total amount of borrowing and debt, length of credit history, number of searches for new credit, and type of credit established. When you begin shopping
around for a new credit card or a loan, every time a lender runs your credit report it adversely effects your credit score. It is,
therefore, advisable that you authorize the lender/broker to run your credit report only after you have chosen to apply for a loan through them.
Self Employed Borrowers
Self-employed individuals often find that there are greater hurdles to borrowing for them than an employed (W2) person. For many conventional
lenders, the problem with lending to the self-employed is documenting an applicant's income. Applicants with jobs can provide lenders
with pay stubs, and lenders can verify the information through their employer. In the absence of such verifiable employment records, lenders rely on income tax returns,
letters of explanation and information from the borrower's CPA and/or Business Manager, or other third party source. Typically the underwriters will require tax returns from the
individual and each of their business entities from the previous 2 consecutive years.
Source of Down Payment and Other Funds
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Lenders usually expect borrowers to come up with sufficient cash for the down payment (and other fees) payable by the borrower just prior to
funding the loan. It is generally expected that these funds be the borrower's own savings, although a borrower may receive (non-returnable) gifts
towards down payment (and other loan fees). You may want to check with me in advance to get instruction on how to properly receive gift funds and prepare
your down payment funds for transfer to escrow.
Select The Right Loan Program
Home loans come in many shapes and sizes to fit the different borrower circumstances. Deciding which loan makes the most sense for your financial situation and goals means understanding the benefits of each.
Whether you are buying a home or refinancing, there are three basic types of home loans. Each type has different reasons for being the correct product for you.
Fixed Rate Mortgages (Most Conservative)
Fixed rate mortgages usually have terms lasting 15 or 30 years. Throughout those years, the interest rate and monthly payments remain the same.
You would select this type of loan when you:
- Plan to live in the home more than 10 years
- Like the stability of a fixed principal/interest payment
- Don't want to run the risk of future monthly payment increases
- Think your income and spending will stay the same
Adjustable Rate Mortgages (Most Volatile)
Adjustable Rate Mortgages (often called ARMs) typically last for 15 or 30 or in some cases 40 years, just like fixed rate mortgages.
However, during those years the interest rate on the loan may go up or down. Monthly payments may increase or decrease.
You would select this type of loan when you:
- Plan to stay in your home less than 5 years
- Don't mind having your monthly payment periodically change (up or down)
- Are comfortable with the risk of possible payment increases in future
- Think your income will probably increase in the future
Combination Rate Mortgages or "Hybrid ARMs" (Most Flexible)
Combination rate mortgages combine the two ends of the spectrum; fixed interest rates and adjustable interest rates. Lenders often refer to these loans as Hybrid ARM loans.
For the first few years (3-10), the interest rate is fixed. It remains the same and so does your monthly payment.
During the remaining years of the loan, your interest rate becomes adjustable and can vary. You would select this type of loan when you:
By carefully considering the above factors and seeking professional advice, you should be able to select the one loan that matches your present condition as well as your future financial goals.
- Want the stability of a fixed principal/interest payment in the short term
- Want to borrow more and/or get a lower monthly payment than a standard fixed rate loan
- Have a lot of consumer debt (these loans typically allow more because the payment is lower and it give you more room with your DTI ratio)
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Step 3: Apply For A Loan
You can apply for a loan with me directly through the secured portion of my website, the online WebCenter here.
The online application process will take approximately 15-20 minutes. The more thorough you are with your application, the more accurate your pre-approval will be.
Before you attempt to complete the application you should have the folloowing documents available;
- Social security number for all borrowers
- Employment information for all borrowers
- Best estimates of income, assets, and liabilities
Please note that your security and confidentiality are important to me, and you will never be asked to enter your social security number
or any other personal data anywhere on this website, unless it is in my secure WebCenter. The WebCenter has undergone a full SAS-70 and SSAE-16
Type 2 SOC 1 audit to ensure security protocols are up to current banking standards. The WebCenter is set up to safely transmit data and then track loan progress once in processing.
If you still have an issue with data security, we can arrange other methods for transmitting sensitive information.
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Step 4: Begin Loan Processing And Underwriting
Although most lenders tend to conform to standards set by government agencies such as Fannie Mae, Freddie Mac, or the FHA, loan approval guidelines vary
depending on the terms of each loan. In general, approval is based on two main factors: your ability and willingness to repay the loan (your creditworthiness),
and the value of the property (the bank's collateral).
Once your completed loan application has been received, we begin reviewing the application and all the support documents.
A loan processor will verify all of the information you supplied by an analysis of your tax returns, pay stubs, bank statements, etc.
If any discrepancies are found between your application and your personal documents, either the processor or I will troubleshoot with you and straighten them out.
The key points an underwriter will review are:
- Income/Employment Check
Is your income sufficient to cover monthly payments? Industry guidelines are used to evaluate your income and your debts.
- Credit Check
What is your ability to repay debts when due? Your credit report is reviewed to determine the type and terms of previous loans. Any lapses or delays in payment are considered and must be explained.
- Asset Evaluation
Do you have the funds necessary to make the down payment, pay closing costs and still have something left in reserve and where will those funds come from?
- Property Appraisal
Is there sufficient value in the property? The property is appraised by a licensed appraiser to determine market value. Location, condition, use and zoning play a part in the evaluation.
- Other Documentation
In most cases, additional documentation might be required before making a final determination regarding your loan approval.
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Step 5: Close Your loan
After your loan is approved, you are ready to sign the loan documents. You must review the documents prior to signing and make sure that the interest rate and loan
terms are what you were promised. Also, verify that the name and address on the loan documents are accurate. The signing normally takes place in front of a notary public.
There are also several fees associated with obtaining a mortgage and transferring property ownership which you will be expected to pay at closing.
Be prepared to wire transfer funds for the down payment and closing costs if required. Personal checks are normally not accepted.
You will also need to provide your homeowner's insurance policy, and any other requirements such as flood insurance.
Your loan will normally close shortly after you have signed the loan documents. On refinance loan transactions,
federal law requires that you have 3 days to review the documents before your loan transaction can be funded,
and it usually takes 1 more day to record the loan and close escrow.
This is important... A lot of things can happen during escrow that could change the underwriting disposition on your loan application.
For example; one of the borrowers could lose their job, get injured, or some other unplanned event. The more time there is between application and closing,
the more of a chance that one of these events could occur. We understand that sometimes, bad things just happen. However, there are things that you can plan for;
things within your control that can significantly improve your chances of closing your loan.
- Respond promptly to any requests for additional documentation especially if your rate is locked, or if your purchase/loan is set to close by a certain date.
- Don't buy a new car, trade-up to a bigger lease or co-sign for anyone else.
- Don't quit/change your job to change industries or start a new company.
- Don't switch from a salaried job to a heavily-commissioned / bonused position.
- Don't open new credit cards or credit lines -- even if you're getting 25% off.
- Don't transfer large sums of money between bank accounts with first discussing with me.
- Don't make random, undocumented deposits into your bank account.
- Don't accept and deposit a cash gift without first discussing with me and filing the proper "gift" paperwork.
- Don't forget to pay your bills -- even the ones in dispute.
- Don't forget to continue making your mortgage payments on properties being refinanced. If the expected close of escrow is near the date your next payment is due, please contact me to discuss BEFORE making the payment.
- Do not go out of town around your loan's closing date. If you plan to be out of town, sign a Power of Attorney to authorize another individual to sign on your behalf when your loan is expected to fund.
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Contact me for more info