Mortgage Process

1. Pre-Qualification
 

Pre-qualification starts the loan process. Once we have gathered information about your income and debts, a determination can be made as to how much you can afford to pay for a home. Since different loan programs can have different terms and requirements, you should get a prequalification for each loan type you may be interested in. In attempting to approve homebuyers for the type and amount of mortgage they want, we look at two key factors. First, your ability to repay the loan, and second, your willingness to repay the loan. Ability to repay the mortgage is verified by your current employment and total income.

Generally speaking, mortgage companies prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years. Willingness to repay is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Willingness is also closely related to how you have fulfilled previous financial commitments based on a review of your Credit Report and your rental or mortgage payment history. It is important to remember that there are no rules carved in stone. Every loan request is handled on a case-by-case basis. While you may not qualify for all loan types available, we will work with you to find a loan that works for your situation.

2. Mortgage Programs and Rates
 

To properly choose a mortgage program, you need to think about how long you plan to keep the loan. If you plan to sell the house in a few years, an adjustable rate loan may make more sense. If you plan to keep the house for a longer period, a fixed loan may be more suitable.
 

With so many programs from which to choose, each with different rates, points and fees, shopping for a loan can be time consuming and frustrating. Our Loan Professionals can evaluate your situation and recommend the most suitable mortgage programs, thus allowing you to make an informed decision.

3. Application
 

The application is the true start of the loan process and usually occurs between days one and five of the start of the loan process. With the aid of your Suburban Mortgage Loan Professional, you complete the application and provide all Required Documentation.
 

The various fees and closing cost estimates will have been discussed while examining the many mortgage programs and these costs will be shown on the Loan Estimate (LE) which you will receive within three days of the submission of the application to Suburban Mortgage.

4. Processing
 

Once the application has been submitted, the processing of the mortgage begins. The Processor orders the 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 may require a written explanation. If any additional documentation is needed, the Processor may request that information from you.  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 Underwriting.

5. Required Documents
 

If you are purchasing or refinancing your home, and you are salaried, you will generally need to provide the past two-years W-2s and most recent 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. You should also provide the past two months' bank, stock and mutual fund account statements. Provide the most recent copies of any stock brokerage or IRA/401k accounts that you might have.  Make sure to provide all pages of all documents.

If you are requesting cash-out, you will need a "Use of Proceeds" letter of explanation. Provide a copy of your 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-1 or L-1 visa.
 

While some of the documentation requested may seem excessive at times, these are needed documents to ensure your loan process moves efficiently.  If your Loan Professional or Processor requests any documents, it is important that you provide them as quickly as possible to keep your loan on-track.

6. Credit Reports
 

Most 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 you apply for your mortgage. That way, you can take steps to correct any negatives before making your application.
 

A Credit Profile refers to a consumer credit file, which is made up of various consumer credit reporting agencies. It is a picture of how you paid back the companies you have borrowed money from, or 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

  • Inquiries
     

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 your Mortgage Professional who will assist 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 problems 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.
 

The mortgage industry tends to create its own language, and credit rating is no different. 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.

By now, most people have heard of credit scoring. The most common score (now the most common terminology for credit scoring) is called the FICO score. This score was developed by Fair, Isaac & Company, Inc. for the three main credit Bureaus; Equifax (Beacon), Experian (formerly TRW), and Empirica (TransUnion).

FICO scores are simply repository scores meaning they ONLY consider the information contained 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, and 10% on the types of credit you have. The scores are useful in directing applications to specific loan programs, however, they are not the final word regarding the type of program you will qualify for or your interest rate.

Many people in the mortgage business are skeptical about the accuracy of FICO scores. Scoring has only been an integral part of the mortgage process for the past few years (since 1999); however, the FICO scores have been used since the late 1950's by retail merchants, credit card companies, insurance companies and banks for consumer lending. The data from large scoring projects, such as large mortgage portfolios, demonstrate their predictive quality and that the scores do work.

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 really need. Accounts that are no longer needed should be formally cancelled 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 derogatory credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation, assets, etc. play a larger role in the approval decision. Various combinations are allowed when determining your grade, but the worst-case scenario will push your grade to a lower credit grade. Late mortgage payments and Bankruptcies/Foreclosures are the most important. Credit patterns, such as a high number of recent inquiries or more than a few outstanding loans, may signal a problem. Since an indication of a "willingness to pay" is important, several late payments in the same time period is better than random lates.

7. Appraisal
 

An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights to be appraised. The appraiser does not create value, the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. Considerable research and collection of data must be completed prior to the appraiser arriving at a final opinion of value.
 

Using three common approaches, which are all derived from the market, derives the opinion, or estimate of value. The first approach to value is the COST APPROACH. This method derives what it would cost to replace the existing improvements as of the date of the appraisal, less any physical deterioration, functional obsolescence, and economic obsolescence. The second method is the COMPARISON APPROACH, which uses other "bench mark" properties (comps) of similar size, quality and location that have recently sold to determine value. The INCOME APPROACH is used in the appraisal of rental properties and has little use in the valuation of single family dwellings. This approach provides an objective estimate of what a prudent investor would pay based on the net income the property produces.

8. Underwriting
 

Once the Processor has put together a complete package with all verifications and documentation, the file is sent to the underwriting. 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.

9. Closing
 

Once the loan is approved, the file is transferred to the closing and funding department. The funding department notifies the broker and closing attorney of the approval and verifies broker and closing fees. The closing attorney then schedules a time for the borrower to sign the loan documentation.

At the closing the borrower should:
 

  • Bring a cashiers check for your down payment and closing costs if required. Personal checks are normally not accepted and if they are they will delay the closing until the check clears your bank.

  • Review the final loan documents. Make sure that the interest rate and loan terms are what you agreed upon. Also, verify that the names and address on the loan documents are accurate.

  • Sign the loan documents

  • Bring identification and proof of insurance
     

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 funded, the closing attorney arranges for the mortgage note and deed of trust to be recorded at the county recorders office. Once the mortgage has been recorded, the closing attorney then prints the final settlement costs on the HUD-1 Settlement Form. Final disbursements are then made.

 

A typical "A" mortgage transaction takes between 14-21 business days to complete. With new automated underwriting, this process speeds up greatly. Contact one of our experienced Loan Officers today to discuss your particular mortgage needs or Apply Online and a Loan Officer will promptly get back to you.

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