The Mortgage Process
Everyday in this country, thousands of people apply for mortgage loans. Unfortunately, many of these people know very little about the mortgage process. This lack of knowledge costs consumers millions of dollars each year in unnecessary costs for their loans. After reading this article, you should understand the industry and how it works. This knowledge translates into savings of thousands of dollars when you obtain your loan.
The first thing to do when thinking about applying for a mortgage loan is to find a good loan officer with whom to work. There are thousands of very good loan specialists in this country. However, just like any industry, there are also unscrupulous people out there who care only about how much they can make off of your loan and not how good the loan is for you and your needs. In over 20 years of being in the real estate/mortgage industry, we have found that the best way to find a good loan officer is to simply ask. Thatís right, ask. It is more important to be comfortable and informed about the person with whom you are working than about the company for which they are working. The most important thing is to find a loan officer who is interested in giving you the very best customer service. Again, we want to emphasize, there are thousands of excellent loan officers in this country, but it is up to you to find the right person to fit your needs. Ask for references of satisfied customers. Word of mouth is still the best reference possible.
When looking for a good loan specialist, ask friends, family and/or coworkers for the names of a specialist they have used in the past. Believe me, if someone in your circle has had a good or bad experience, they will tell you about it. Another good source for finding a reputable loan officer is your real estate agent or broker (if you're purchasing a new home and are working with an agent). Realtors and brokers have a vast network of referrals. They know the reputable and reliable loan specialists and companies. The power of networking cannot be overstated. Networking enables you to find the right person, the right company and the right loan that fits your needs.
A good mortgage specialist goes out of their way to make your mortgage qualifying process smooth and easy. The initial meeting usually involves pulling your credit and getting basic financial/employment information from you. At this point, the work begins for the loan officer. Most consumers do not realize how difficult it can be to get an individual qualified for a mortgage loan, especially in the aftermath of the lending practices which led to the rash of foreclosures in 2007 and 2008. If you are working directly with a bank or large mortgage company, your loan officer attempts to qualify you for one of their loan programs or "products" as they are often called. Working with a big bank or mortgage company may seem like the best way to go. However, that may not be the case.
Like most things, going with the large lending institution has its advantages and disadvantages. Let's discuss them. If you have "excellent" credit scores (over 720), then many times going to a large bank or credit union can be an advantage. Your overall fees for the loan can be lower and sometimes the interest rate can be lower. Many products from these lenders are designed for customers with very good to excellent credit, so even marginal credit can present problems for the applicant. If your credit score drops below 660 to 680, chances are you probably wonít get a loan with them at the interest rate for which you hope. Possibly you will not get the loan at all. There are always exceptions, but in most cases, the bank and credit unions deny your application if you don't have very good to excellent credit.
A mortgage broker or mortgage banker can expose you to a larger variety of loan products in the overall market. While a bank or credit union only has a small set number of loan products to provide to their customers, a mortgage broker or mortgage banker has hundreds of different products available because they are working with many different sources of funding, as opposed to a bank or credit union which is limited by their one source of funds.
Where you go for your loan depends on how good or how bad your credit score is. Someone with very poor credit finds the only way they are able to obtain a mortgage loan, in most cases, is to go through a mortgage broker or mortgage banker.
With the sub prime market having so many problems in the past couple of years, obtaining a mortgage through a mortgage broker has become more difficult. Most of the 100% loan programs are gone, and it is extremely difficult to find this kind of program today. However, there are still a variety of programs available in the mortgage market today. The big difference is that now buyers are going to have to come out of their pocket with at least a 5% down payment. New products come and go everyday, but for the foreseeable future, it looks like 5% down programs are here to stay.
Your credit score determines what kind of loans are available to you. Remember, the lower the credit score, the higher your interest rate, the higher your down payment, and the higher the cost for the loan. These kinds of loans are very difficult to find for the mortgage specialists, and it can take a lot of time researching the lenders across the country to even find someone who will do a good loan with a low score.
In today's market, what is a low score? Our connections tell us that the customer needs, at a very minimum, a score of 620 or higher. Even that will not necessarily get them a good rate. A low score is what gets the consumer into the crazy, far out programs which too often result in the borrower going into foreclosure a few years later. A good loan professional always puts the borrower first and will not put someone into one of these loans without an escape hatch. A plan of action is necessary. A truly concerned loan specialist only puts someone into a high risk loan for a very short period of time and during that time the loan officer works with the borrower to ensure the customer is getting their credit back in order, so that when the time comes to refinance, the customerís credit score has come back up into the high 680's or higher.
It's a good idea to get a free copy of all three (3) of your credit reports before you sit down with a loan specialist. You can call all three bureaus and obtain a free copy at lease once per calendar year. Residents of
Many programs require minimum credit scores. If you have bad credit, in today's market you want to get your scores up to at lease 620. Your mortgage specialist pulls what is called a "tri-merge" credit report through their service provider. These "tri-merge" reports basically take the information from all three credit bureaus and merge them into one report. Your mortgage specialist uses this tri-merge credit report to determine if you are able to qualify for a mortgage.
There are many loan programs in the market, and they all have different underwriting criteria. Your credit score is the first of those criteria. The tri-merge report gives your loan specialist three (3) separate credit scores. Each credit bureau has their unique score. The lender uses the "middle" score. They do not average the scores. For example, if one score is 575. The next score is 650, and finally, the third score is 620. Then the middle score would be 620. That is the score the lender uses to determine if you qualify for that particular loan program and also to determine your interest rate. Interest rate calculation will be discussed in our e-book.
Based on your middle credit score and certain other basic information, your loan specialist can usually give you a "pre approval" letter. This letter is required by most real estate agents for them to work with you in your search for a property you wish to purchase. An agent's time is very valuable, so they naturally want to know they are not wasting time showing property to a buyer who cannot purchase the property. Pre-qualification assures the real estate agent that you have met with a lender and it appears you are capable of closing on an appropriate property.
Please refer to our "Questions and Answers" Section for more details on the topic of being pre qualified.
With your pre qualification letter, you are now well prepared to go looking for your new home. Once you've located the property you want to buy, you need to contact your loan specialist again to let him know you're ready to move forward into the qualification stage of your loan process. At this point, your loan specialist will ask you to provide all necessary documentation for him to submit to his underwriting department for final approval. The required documentation can vary widely from program to program. A typical list includes things like your W2s, 1099s, check stubs, bank statements, tax returns, copies of checks to show timely payments on rent history, explanation letters, payoff letters, lien releases, employment verification letters, etc. The above list is not necessarily exhaustive and each lender can ask for more, but will seldom ask for less, documentation.
The time required to go through underwriting and be approved can also vary greatly. Loans can be approved in a matter of days or in other cases it can take a month or more. Governmental programs such as FHA and VA loans typically take longer simply because there is more paperwork to complete and underwriters can take longer due to backlogs of cases. The normal time period is about 30 days to get approved and closed.
The mortgage qualifying process can be made simpler and easier by a good loan specialist, so it's always best to take your time in finding the person with whom you feel comfortable in a working relationship. Many people tell me that finding the right loan specialist made all the difference to them. Having a loan person (notice we did not refer to them as a "specialist") that does not know what he or she is doing can turn your qualification experience into a nightmare. Years ago, we had a lady come to us in tears because her loan officer had promised her a loan, with "no problem", but by the time he got through with her, she was homeless. No mortgage, no new home. He dropped the ball big time and left her with no where to go. His only comment was "just give me a little more time." Fortunately, she had enough sense to realize this person did not know what he was doing. We referred her to a true mortgage specialist, who had her loan closed in seven days. Yes, 7 days! So, the one thing we want you to know is that the loan specialist you choose can make all the difference in your having good memories about your purchase or having a nightmare experience.
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