Borrowers Resources
In order to keep my clients informed about the many steps associated with obtaining a loan I’ve created a quick-reference page where they can learn about what to expect during the loan process, including the roles and responsibilities of the different parties involved in their transactions and a few do’s and don’t to help them insure a smooth transaction.
Sections:
Enjoy, and if you have any questions, please feel free to e-mail me
The Loan Process
The Pre-Approval Meeting
Before any borrower ventures out into the real estate market, they should get pre-approved for a mortgage so they know what type of loan program best fits their needs and what price range they should be searching in. While not an absolute necessity, being pre-approved for a loan before you begin to look at houses saves time in the long run, if only by helping you and your real estate agent narrow your focus.
Once you contact me to start the process, we will arrange to meet at a location that is convenient for you, generally at your house or apartment.
At the pre-approval meeting we will discuss desired monthly payment, downpayment, closing costs.
In order to start the pre-approval process, you’ll need to gather the necessary paperwork to help the lender make a decision about your creditworthiness, including pay stubs, tax returns, bank statements and retirement fund statements. I’ll help you to fill out the initial application and gather the information about your employment, debts and assets.
Before the meeting is over you will have a good idea of what your financing options are, the maximum you can borrow, what your financial commitment will be and what to expect through the loan process.
Time Commitment: Two hours
Expected actions from borrower: Gather all required paperwork, including:
For purchase transactions:
- Two most recent pay stubs for all potential borrowers
- Last two years W2 forms for all potential borrowers
- Last two years taxes for all potential borrowers (self-employed borrowers only)
- Most recent bank, stock or retirement statements for all potential borrowers
For refinance transactions
- Two most recent pay stubs for all potential borrowers
- Last two years W2 forms for all potential borrowers
- Last two years taxes for all potential borrowers (self-employed borrowers only)
- Most recent bank, stock or retirement statements for all potential borrowers
- Most recent statements for all mortgages
- Current hazard insurance information
Pre-Approval - Approval
After our first meeting I will enter the information from the initial application into my company’s loan software. It will render a decision based on the parameters we decided during out first meeting. I will also get a copy of your credit report to confirm the amount of debt load we discussed. I will send you a copy of your credit report, along with a good faith estimate (GFE) and truth-in-lending statement (TIL) that will outline the closing costs and prepaid items we discussed up to this point. At this stage the official pre-approval is issued and either we proceed with a refinance or if you are buying a property you proceed with your home search.
Time commitment: 24-hours for official pre-approval
Expected actions - loan officer: Credit report, good faith, and truth-in-lending statement provided to borrower
Loan Application Pre-processing
For purchase transactions:
Once you and you real estate agent find a house that fits your needs and budget, the official application is drawn up based upon the actual figures associated with the property you have chosen. Up to this point you have “made application,” and have been approved based on figures that were estimates. Now that you have chosen a home and wish to proceed, the actual figures associated with your chosen property are entered into the computer system, and a new approval is rendered along with a revised good faith estimate (GFE) and truth-in-lending statement (TIL); all documents will be mailed to you within three days of filing.
At this stage we will meet again in person to discuss your purchase and finalize the figures, including the down payment and monthly payment figures. An official application containing all appropriate actual numbers will be signed at this time. If more than 90 days have elapsed since your the last credit report was pulled, then another credit report will be obtained.
Also, if more than 30 days have passed since pre-approval, you’ll need to provide updated income and asset information. At this point we will also set up escrow, order a title report and appraisal.
For refinance transactions:
If you’re refinancing an existing loan, the standard searching period associated with looking for a property does not apply. If after the pre-approval meeting and the official approval it is determined that a refinance provides some tangible benefit to you, then we can move straight to submission process, at which time my company will obtain pay-off figures on all of the mortgages to be refinanced.
Time commitment: Two hours to discuss and sign the official application.
- Appraisal can take up to two weeks
- Obtaining the title can take up to one week
Expected actions - loan officer:
- Provide updated credit report, good faith, and truth-in-lending statement provided if required - (purchase transactions only).
- Order pay-off figure for all mortgages if refinancing.
- Order appraisal, title and escrow
- Prepare official application and have borrower(s) sign
Expected actions from borrower: Gather updated paperwork, if required.
Loan Submission - Processing and Underwriting, Phase One
Once the appraisal, title, updated paperwork have been gathered and the final application has been signed, then it’s time to submit the loan to the final lender. At this point, the loan will have been underwritten and approved by the lender. The lender’s underwriter has final say over the loan approval and may still decline the loan, but, usually by the time the loan file has made it this far, that is an unlikely proposition. The final underwriting can take between two and 45 days, depending on the type of loan, total industry loan volume, as well as the submission volume of the individual lender.
The more complete the paperwork in the file submission the faster the file will be completely underwritten. It is in everyone’s best interest to be timely in providing all of the necessary paperwork to speed things along.
Time commitment: Two -45 days, depending loan type and volume
Prior-to-document conditions
Once the loan file makes it’s way through underwriting, the underwriter will issue a certificate of conditional approval. At this point the loan file is approved, subject to a list of conditions. This certificate will list the conditions that the lender wants us to deal with before the file closes.
The next step will be for us to gather up whatever paperwork is necessary to satisfy the underwriter’s list of conditions. In some cases I will need to come to you to satisfy some of those conditions, and sometimes I can gather the paperwork without your assistance. Either way, it is very important to gather the items requested by the underwriter in a timely manner so as not to delay the underwriting of the loan.
Time commitment: One or two days, depending upon the number of conditions.
Expected actions from borrower and loan officer: Gather additional paperwork if required.
Underwriting, Phase Two
After the prior-to-document conditions are send back into underwriting, the underwriter will review the conditions and if nothing else is required, the lender will issue the final approval, and send the required loan documents to the chosen escrow company.
If for some reason the underwriter feels that additional paperwork is required, I will help you to gather the required paperwork.
Time commitment: One to two days, depending on the number of conditions.
Expected actions from borrower and loan officer: Gather additional paperwork if required.
Lender Documents
After the prior-to-document conditions have been reviewed and if there are no other conditions, the lender will issue a set of documents that will be sent to the escrow company and then on to you for final signing.
Time commitment: 1 to 2 days depending upon the lenders work load.
Signing
Once the loan documents have been received in the office of the escrow company The escrow closer will review those documents for accuracy and draw up a settlement statements. The settlement statement is roughly approximate to a balance sheet that contains an accounting of the fees, costs and moneys necessary to finish the transaction. Once that settlement statement is reviewed and approved by me, and the escrow closing agent it is sent to you for your review and approval.
After all parties agree that the settlement statement is accurate you will be called by the escrow company to schedule a signing date and time.
At the signing you will sign all the paperwork to finish the purchase or refinance of the property. A typical signing will take between a one and two hours depending upon the type of transaction. You will be required to bring your drivers license and a cashier’s check for the amount of your downpayment or other costs if they apply to your transaction.
Time commitment: One to two hours depending on transaction type.
Expected actions from borrower and loan officer: Review settlement statement
Prior to Funding Conditions - Funding Review
After you have signed your loan documents they will be send back to the lender for final review. If there are any missing items the lender will request those items and the loan will be set up for funding. Usually, at this point in the loan process nothing else will be need from you the borrower.
Time commitment or time frame: One to two days depending on transaction type.
Expected actions from borrower and loan officer: Provide any last-minute missing items
Funding - Closing
After the final funding review, the lender will wire the funds for the loan to the escrow company. The lender and the escrow company will balance their accounts and the loan will be closed. The transaction will be recorded at the county courthouse and you will receive your keys from your real estate agent. In the case of a cash-out refinance transaction, you will receive a cashiers check in the amount of the requested cash.
Special Note
The following timeline represents the average flow of time and paperwork. There are many reasons that a loan might close earlier or later than expected. A loan submission does not guarantee that your loan will be finally approved. The best way to be ensure that your loan application process smoothly is to provide all required paperwork in a timely manner and accurately disclose all known information about your income, employment, assets, debts and real estate.
Paperwork Requirements
For the convenience of my clients I have put together a basic list of paperwork requirements for several different loan types and situations. While this is not intended to be a complete list, it does represent a good starting point. Of course, a lender may ask for additional paperwork if they feel it is needed to determine you creditworthiness.
W2 Employee Borrowers:
- Two most recentconsecutive pay stubs
- Last two years W2s
- Most recent month’s or quarter’s statements for all assets. This includes checking and savings accounts, 401K accounts, retirement funds, stocks and other cash assets.
- Copy of photo ID for all borrowers
- Copy of social security card
- Copy of green card or work visa if not a US citizen
- Information about any outstanding mortgages, if applicable
- Information about current homeowner’s insurance,if applicable
- Landlord name and phone number, if applicable
- Name and phone number of homeowner’s association members or management company, if you own a condo
Self-employed Borrowers:
- Last two consecutive personal and corporate, including all schedules
- Year to date profit and loss statement prepared by tax professional
- 1099 form for the last two years, if applicableMost recent month’s or quarter’s statements for all assets.
- This includes checking and savings accounts, 401K accounts, retirement funds, stocks and other cash assets.
- Copy of photo ID for all borrowers
- Copy of social security card
- Copy of green card or work visa if not a US citizen
- Information about any outstanding mortgages, if applicable
- Information about current homeowner’s insurance,if applicable
- Landlord name and phone number, if applicable
- Name and phone number of homeowner’s association members or management company, if you own a condo
Additional paperwork for VA loans:
- DD-214 form
- Certificate of eligibility
- Certificate of indebtedness, if exempt from VA funding fee
- Information about child care expenses
Do you own rental properties?
Do you have disability income or alternate sources of income?
- Copy of your pension award letter
- Social security award letter
- Child support award letter with divorce decree
Are you currently separated or planning a divorce?
- Copy of filed separation agreement or divorce decree with parenting plan
Dos and Don’ts of Home Financing
To help my clients have a stress-free experience when buying or refinancing their home, I have compiled this list of dos and don’ts to help you keep from making common oversights and errors which can potentially delay your closing.
Do let your agent or mortgage professional know if you are planning to travel while applying for a loan.
Going out of town during the process of securing home financing can create havoc with the closing of your loan. If you are planning to be out of town let both your real estate agent and mortgage professional know early enough so they can plan accordingly. Planning the closing of your loan transaction around your trip can be easily done if your agent and mortgage professional are aware of your travel plans.
A good rule of thumb is to let them know three weeks in advance. Emergency trips do happen, and if you need to be out of town on an emergency basis please let your agent and mortgage professional know as soon as possible so appropriate planning can take place.
Please also provide a way that you can be contacted so if you are required to provide paperwork, or if paperwork needs to be sent to you, it can easily be done while you are out of town.
Do continue making your payments on your mortgages or other loans during the underwriting process.
This one may seem quite obvious but, some borrowers wrongly assume that if they are selling a home, refinancing a home mortgage, or paying off debt with a debt consolidation mortgage, those loans will soon be eliminated so the necessity to keep those payments going is also eliminated. Not keeping up on all of your payment could result in a late-payment penalty.
It is very important to keep up on all payments during the loan process to keep any negative information from being reported to the credit agencies and potentially damaging your credit score.
Don’t apply for any new credit during the underwriting process.
Some borrowers can get caught up in a buying fervor when purchasing a house. They want to furnish their new home and get appliances for their new kitchen. Some are temped to apply for new credit. Every time someone applies for credit, the new creditor will obtain a copy of your credit report to establish creditworthiness.
These inquires can adversely effect a borrower’s credit score, which in turn may adversely effect the underwriting of your loan, and possibly the final rate of your mortgage.
It is very important not to apply for any new credit during the underwriting process. If there are any questions or doubts as to whether applying for new credit will affect your mortgage application, please be sure to ask your mortgage professional before applying.
Don’t incur any new debt during the underwriting process.
This don’t is a continuation of the last one. When you apply for and obtain new credit you create a underwriting double-whammy. Not only have you incurred an unnecessary credit inquiry on your credit report, you have increased your debt load, which can adversely affect your debt-to-income ratio.
If your loan is at the edge of the lender’s allowable debt-to-income ratio and you apply for and obtain new credit, that new debt may be just enough to result in a loan denial. The best rule of thumb is to resist the urge to buy new furniture or appliances until after your mortgage transaction has closed.
Don’t co-sign for any auto loans or other debt any during the underwriting process.
Some borrowers are under the mistaken assumption that co-signing or endorsing a note will not effect their debt load, and that type of new debt will not affect their credit or their ability to obtain a mortgage. Any debt for which a borrower co-signs will affect their credit and their ability to obtain a mortgage.
Although someone else may have promised to make the payments on the new debt, you are ultimately responsible for the other party’s payments if they cannot make them. In the eyes of the lender and the underwriter you and the borrower are equally responsible for the payments.
Also, when you co-sign for another person and they obtain new credit, it’s another underwriting double-whammy. Not only have you incurred an unnecessary credit inquiry on your credit report, you have increased your debt load which can in some cases adversely effect your debt-to-income ratio.
Don’t list a property for sale while in the process of refinancing.
When a lender provides funds for a refinance, the lender expects that the new loan will remain in place for a reasonable period of time. While there is no exact length that defines this “reasonable period of time,” most lenders like their loans to remain active for at least three months and some up to six months.
If a lender notices that the property they are refinancing is listed for sale during the underwriting process, they will decline the loan because the likelihood of the loan remaining active for three to six months is unlikely.
Do provide all requested paperwork in a timely manner.
Not all borrowers are well organized and some have trouble finding all the required paperwork. While there is no exact definition for “timely,” it is in everyone’s best interest to act responsibly when gathering the necessary paperwork in order to quickly complete the underwriting of a loan, especially when other buyers and sellers are depending upon a timely closing.
The longer it takes to gather paperwork to satisfy the lender’s conditions, the longer it takes to successfully close your loan. If you have any difficulty gathering paperwork or documentation, please inform your mortgage professional quickly so an alternate strategy can be devised to ensure a successful closing.
Do keep all of your bank statements and pay stubs that come in during the underwriting process.
The underwriting process is not always predictable or logical. It is not always a smooth progression from loan submission to closing. More often than not, an underwriter may ask for additional pay stubs or bank statements, even though you have provided similar paperwork earlier in the underwriting process.
As a rule, avoid discarding any paperwork that is pertinent to the processing of your loan, especially pay stubs and bank statements, until your transaction is closed. If you have a question as to whether a certain piece of paperwork is pertinent to your transaction, simply ask your mortgage professional.
Do remember to cancel all automatic payments for mortgages and other debts while completing a refinance transaction.
One of the most overlooked tasks a borrower forgets is to cancel their automatic payments or auto drafts for mortgages and other debts that they have paid off as a part of their refinance transaction.
If a borrower forgets to cancel the automatic payments with former creditors it is likely that the former creditor will continue to debit the borrowers accounts, even thought the accounts have been paid off.
Depending on the former creditor, it can be a struggle to get those erroneous payments refunded. To keep all of your accounts straight, it is best to remember to cancel your auto payments two weeks before the refinance is scheduled to close.
To be on the safe side, if you are paying off mortgages or debts as part of a refinance with auto payments, you should contact your creditors and ask them what they recommend as the best method to cancel those auto-payments so your accounts are not debited incorrectly.
Don’t spend funds you would have normally used for a down-payment or closing costs.
Emergencies do come up and in some rare cases money that was earmarked for a down-payment or for closing costs must be used for an emergency. If an emergency does happen, let your mortgage professional know immediately so alternate strategies can be devised to keep your transaction on track.
Loan approvals are based upon a specific set of circumstances, and if any of those circumstances change then the loan has to be re-underwritten and your loan could be denied. When in doubt, it is best to err on the side of communication with your mortgage professional.
Don’t move large sums of money into different accounts or move money unnecessarily.
When processing a loan, underwriters like to see clearly which accounts the funds for the down-payment and closing costs are coming from. If a borrower is in the habit of moving funds from one account to another, the accounting of the funds used to close the loan become more difficult to track and document. This leads to more underwriting time and more work on your part, as you may be asked to provide further explanation and documentation of your banking transactions in order to close the loan. While it is unlikely that your loan will be denied for this reason, it does slow down the underwriting process and leads to more time-consuming work for both the mortgage professional and the borrower.
When in doubt, simply avoid moving funds unnecessarily. If you absolutely need to move funds from one account to another, consult your mortgage professional on how best to approach this problem so a documentation strategy can be devised before you move your funds.
Do thoroughly document any gifts.
On most transactions your are allowed to receive gift funds from family members for the purchase of a new home. However, those gift funds do need to be documented throughly to avoid delays in underwriting. If you are planning to receive gift funds for the purchase of your house, please contact your mortgage professional for advice, as it is much easier to properly document the movement of funds from the donor to the borrower before the funds have been transferred than to document the movement of the funds after the fact.
Do remain employed during the loan process.
Again, this one may seem incredibly obvious, but borrowers have been known to quit their jobs during the loan process without considering that that their lack of employment would adversely affect the closing of their loan. They wrongly assume that, since they were already “in underwriting” or that their loan was already “approved,” they were in no danger of a loan denial.
All mortgages are only conditionally approved until the day of closing, and part of the final approval process is a verbal verification of employment. On the day of closing the underwriter will call the borrower’s employer to confirm that the borrower is still employed. If the underwriter calls your employer and they cannot confirm your employment status, your loan will be put on hold until your employment status can be determined.
Don’t take a voluntary leave of absence, a cut in salary or go on maternity leave while going through the underwriting process.
Sometimes borrowers mistakenly assume that a leave of absence or other unpaid leave is still acceptable to a lender during underwriting because their job is still intact during the leave.
If the borrower is not earning income on the day of funding then the loan will not be closed for the same reasons mentioned above.
Do inform your mortgage professional of any real estate that you own either solely or jointly that is not mortgaged.
Its very important that your mortgage professional know about any properties that you own, either solely or jointly, even if those properties are not mortgaged. These properties may be second homes, vacation homes, co-ops or time sharing properties.
Even though you may not have mortgages on a property, you may still have obligations for property taxes, hazard insurance and/or homeowner’s association dues. These payment will have to be calculated into your debt-to-income ratio.
As mentioned previously, if your loan is at the edge of the lender’s allowable debt-to-income ratio, the extra monthly funds required to service property taxes, hazard insurance and or homeowners dues could adversely affect your debt-to-income ratio just enough to result in a loan denial. It is better to disclose all owned properties up front in order to ensure that your mortgage professional is able to properly structure your loan.
Do inform your mortgage professional of any private notes, loans, or debts that do not appear on your credit report.
As with the previous “do,” if your loan approval is at the edge of the lenders allowable debt-to-income ratio, the extra monthly payments on the undisclosed debt could effect your debt-to-income ratio in a similar manner to the previous example, resulting in a loan denial.