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The Loan Application Interview
Prior to the advent of
Internet lending, once you had selected a lender, the next step would probably
have been a meeting with a loan officer or other lender representative, whose
job was to begin the collection of information the lender needed to approve the
loan. Now, you can get mortgage approval and financing online at your
convenience. You'll still have a contact person to answer your questions. They
will explain the types of mortgage loans available to you, the interest rates
and fees for each type and the qualification requirements The total cost of a mortgage
loan consists of the interest rate on the loan, origination fees, discount
points, and miscellaneous other charges. One point is equal to one percent of
the amount of the loan and is usually collected at the loan closing, or
settlement. The interest rate affects the amount of the monthly payment. While,
points affect the amount of cash you must have at closing. Most lenders offer a range
of interest rate/point combinations to meet your needs. In general, the higher
the interest rate, the lower the points. For example, if the current market
provides for a 6.5 percent interest rate with 2 points, a 7.5 percent rate may
be offered at no points. If you are a first-time home buyer, the larger monthly
payments on the 7.5 percent loan may be easier to handle than the 2 points that
will require additional cash at settlement. If you are a corporate transferee,
however, your company's relocation policy may pay all or part of origination
costs and the lower rate will have more appeal. The loan officer should explain
all of your options to you. When discussing the terms of
the loan, make sure you understand how and when the rate and fees on the loan
are going to be set. Most lenders will quote a rate and fee at the time the
application is taken and then will guarantee, or "lock" the rate quote
for a specified length of time. A rate lock protects you from rising interest
rates while the loan is being processed, but it also typically commits you to
close the loan at the rate and the fee even if rates decline prior to closing.
Lock periods may run from 10 to 60 days, with longer periods available in some
cases at an additional fee. The lock period must be long enough to get you
through the estimated closing date. A 30-day lock affords you no protection if
closing is at least 60 days away. You may have the option to
let the rate "float," getting the final rate and fees set nearer the
settlement date. If you believe rates are declining and are willing to run the
risk that interest rates could rise during the processing of your loan, you may
select this alternative. Before you take a floating rate, make sure that the
rise in interest rates will not create a problem for you because you have
insufficient income to cover the higher mortgage payments. In either case, make
sure you understand exactly the terms of the lock-in agreement.
Completing The Loan Application
The full loan application
asks for information on the property you are buying or refinancing, terms of the
purchase contract and the employment and financial history of all loan
applicants, including your spouse and/or other co-borrowers. You can complete
the entire application or choose to fill out a "Quick App" which gets
the process started. You can complete the loan
application process much more easily and accurately if you prepare for it ahead
of time. A great deal of detail will be asked about your personal finances,
including bank account numbers and balances, current loan amounts and payments,
and credit card account numbers. However, on-line applications are much less
detailed than traditional written ones. You will want to be thorough and precise
in your answers, so it will be to your benefit to assemble this kind of
information before the speaking with the loan officer. The following is a
summary of the major kinds of information required on the loan application, the
documents that may be needed and the questions that you should be prepared to
answer.
Because the property is
security for the loan, the lender will have an appraisal made of the property,
and you need to have the following information available:
All of this information
should be in the purchase contract. If not, consult your Realtor®.
The loan officer will want
the social security numbers of you and your spouse (or other co-borrowers), age,
number of years of schooling, your marital status, number and ages of dependents
and your current address and telephone number. If you have lived at your current
address less than 2 years, be prepared to furnish former addresses for up to
seven years. You will also be asked to detail your current housing expenses,
including rent or mortgage payments, real estate taxes and insurance (your
mortgage payment may include tax and insurance funds). You will need the name
and address of your landlord(s) or mortgage lender(s) for the past two years.
Your ability to make the
regular payments on the mortgage and to afford the costs associated with owning
a home are primary considerations in the lender's loan approval process and
should be your primary concern. Required information includes:
The loan officer will have
you sign a Verification of Employment (VOE) form. This will be sent to your
employer to verify your employment and earnings. One will be sent to previous
employers if you have been on the job less than two years. Many lenders now use
a general authorization form, which allows them to verify employment and other
financial information on the application. If you are relying on income
from other sources, such as rental property, social security or disability
payments, child support, etc., you must provide adequate proof of the source.
Appropriate documents could include canceled checks, copies of leases,
certificate of benefits, divorce decrees and similar evidence.
A detailed listing of your
personal assets is required on the loan application form. You will need to have
the following information available to complete the form:
As with the Verification of
Employment, the loan officer will have you sign Verifications of Deposit (VOD)
for each of the institutions (or a general authorization) where you have savings
or checking accounts. Differences between the account balances reported by the
institution and the balance you give for the loan application have to be
reconciled, so be sure you have your correct current balances. The lender will look for the
source of funds with which you will make the down payment and pay closing costs
and fees. Gifts from a relative, church, municipality or non-profit organization
may sometimes be used, but must be verified in writing. If you are providing
less than 5 percent of the sales price, the donor must be a relative and must
provide a letter stating the donor's relationship to you, the amount of the gift
and the fact that no repayment is expected.
Liabilities are usually
taken directly from your credit report. If you have had credit
problems, you should inform the lender. Lenders recognize that unemployment,
illness, marital problems or other financial difficulties can temporarily impair
your credit rating. Provide a written explanation of the circumstances regarding
the problem to be included with the loan application. The lender must consider
such a written explanation as part of the underwriting analysis. If the problem
has been corrected and your payments have been made on time for a year or more,
your credit will probably be judged as satisfactory. Chronic late payments,
judgments or loan defaults, however, severely damage your credit standing and
may change the type of loan programs available or the rates charged. Almost
anyone can get a loan - it's just a matter of the price. If you have been through
bankruptcy or foreclosure proceedings within the past seven years, be prepared
to give full details and copies of applicable documents regarding them. You will also be asked to
explain the details if you are obligated to pay alimony, child support or
separate maintenance. Such obligations are treated like debt payments by most
lenders and will be part of the underwriting analysis.
You will be asked to sign a
section of the loan application form which contains your certification that the
information you have provided is correct to the best of your knowledge; your
promise to advise the lender of any material changes in the information; and
your consent to (1) verification of the application data, (2) submission of
account history to credit reporting agencies, and (3) transfer of the loan or
loan servicing to successors to the original lender. The last part of the
application form requests information on the race and gender of the applicants.
The Federal Government uses this data to monitor lenders' compliance with fair
housing and equal credit opportunity laws. Providing this information is
strictly voluntary on your part and has no effect on your loan application. The
lender, however, is required by federal law to request the information. Because of the particular
circumstances surrounding a loan application, the lender may require additional
information or documentation regarding you or the property after the application
has been submitted for approval. Loan officers make every effort to collect all
data at the outset, but cannot foresee every eventuality. Requests for
additional information are not necessarily bad omens and your primary concern
should be in responding promptly with the information. When you have completed your
application, you will be asked to pay in advance for the appraisal and credit
report. You can give us your credit card number on line or phone it in to us. After the on-line application is completed, you can see an analysis of the information that will give you a good idea whether or not you qualify for the loan based on income alone. This is not an approval, however. Preliminary approvals are usually issued within 48 hours or less. The underwriter issues final approval only after all documents and information have been received and verified.
After The Loan Application - What Next?
After the loan application
has been completed, it will be turned over to the our loan processing department
and then to the underwriter, where the decision to approve or reject the loan
will be made. Loan processors send out the Verifications of Employment and
Deposit and order the credit report, property appraisal and other documents. The
time it takes to receive these documents affects the length of time required for
approval of the loan. If you are transferring from out of the local community,
it may take longer to receive the credit and employment information. Processing
times vary from one lender to another, but the loan officer should be able to
give an idea of the processing time for your application. Within three business days
after completing the application, the lender must provide you with a Good
Faith Estimate of the anticipated closing costs. It will show costs
associated with the loan settlement, such as origination fees, mortgage
insurance, title insurance, escrow reserves and hazard insurance. Within the same three days
you will also receive a Truth-in-Lending Disclosure statement. This
statement shows, among other things, the estimated monthly payment. The total
cost of all finance charges on your loan is also shown, stated as an Annual
Percentage Rate (APR). The APR represents the dollar amount of finance
charges you pay either up front or over the life of the loan, converted to an
annual interest rate. Since the APR includes origination fees and other charges
as well as interest on the mortgage loan, the APR is usually higher than the
interest rate on the loan. After the lender has
approved the loan, you will usually receive a commitment letter that sets out
the terms of the loan and the length of time for which those terms are offered.
If the loan does not close within the specified commitment period, the terms are
subject to change. You usually must accept the commitment by returning a signed
copy to the lender within five to ten days and may have to pay part or all of
the origination fees at this time. The commitment may contain conditions that
you will still have to satisfy, so you should read it carefully. In cases where closing is
scheduled soon after approval, the lender may give you verbal approval instead
of a commitment letter. This is not unusual, but make sure you understand the
terms of the approval. Once the commitment letter
or approval has been received, you are assured the financing you need to
complete the purchase of your home and you need to turn your attention to
completing the details required for settlement. |
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Send
mail to randy@randydurham.com
with questions, comments or requests for info. Copyright © 1999-2008 Randy Durham ,LLC
Licensed in TN & GA (423) 664-1900
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