This is the first in a great series about the mortgage process from our own Gene Mundt.
There’s no doubt about it … the current mortgage transaction bares little resemblance to the transactionthat took place even a few years ago. The process has definitely evolved.
I liken these changes, to say Fred Flintstoneevolving into Iron Man. Initially fairlysimplistic, with few details … eventuallyturning intovery sophisticated and advanced. For clients that have navigated a mortgage process even a few years ago or prior, the current process may seem almost unrecognizable. They’ll face a vast learning curve when Refinancing or buying a new home now.
Much has been made of all the changes that have occurred. And I think that some of the talk has taken a toll on the psyche of those contemplating entering it. It might haven even scared a number of them off. That’s not good.
So, I decided a “Mortgage Anatomy 101” class regarding the mortgage process might be in order. Within my post, I’m going to try to break down andexplain the process from start to finish with the hopes that by doing so, it will take some of the fear factoraway. That potential Home Buyers (and those contemplating Refinance) will see that the process does NOT have to be painful or scarey.
I preface the following “Mortgage Anatomy 101” by saying that not all mortgage processes at all Lenders are identical. There is, however, a basic timeline for most new loans. Since the majority of all loans are Conventional, conforming (conforms toFannie Mae/Freddie Mac Guidelines), I will layout that process, and assume a Purchase transaction for the following.
I will also add that I personally believe that anyone even remotely considering a home purchase or Refinance should get in touch with a Mortgage Lender well in advance of starting their home search, especially if that Buyer is a First-Time Home Buyer.
My recommended sequence of steps allows Buyers ample time for Pre-Qualification … or at minimum a credit check, guidance for credit repair/improvement,and preparation to enter the financing process at maximized buying/credit potential at some point in the future. In most cases though, I find that the Realtor is still the first point of contact for those looking to Buy a Home … and the info provided below will reflect that.
“Mortgage Anatomy 101”
You’ve found a home! What next?
* Realtor(s) will guide you to a secure Contract.
* Your Loan Officer is notified.
* Should Pre-Qualification still be needed at this point, that is performed now.
* If Pre-Qualification has been done prior to this point, a Full Loan Application is now needed. Loan Application can be completed in a number of ways, if you’re my client … either by Mail, Internet, over the phone, or in person.
* Loan options, gathering of additional information, Contract Terms, Type and Structure of the Loan, and Loan Documentation will be gathered and/or discussed at this time.
* Mortgage Application should take place within 5 days after Contract Acceptance.
* Documents to be covered during the Application appointment will be: The Mortgage Application itself,the Good Faith Estimate, the Truth-in-Lending, and supporting disclosures (about 40 documents).
* The Application Fee/Appraisal Fee is collected at this time.
* The Loan Officer will gather ALL Borrower documents supporting:
E. Credit (if not already obtained)
F. Other relevant explanations (known as Letter of Explanation (LOX)
G. Bank Deposit History, etc.
Note: Other discussions between Loan Officer and Borrower will take place at this time. Those discussions can surround:
A. Escrow/No Escrow (Escrow required above 80% LTV)
B. Lock Rate -or- Float?
C. Term of Mortgage Loan (30 year, 15 year, etc.)
D. Cash needed for Closing
E. Total Monthly Payment
F. Homeowners Insurance Policy Requirements/Proof of Insurance/payment
Summary of Loan Application:
Well-prepared Loan Officers and well-prepared Borrowers equate to a smoother Mortgage Process and a shorter time for Loan Approval. It’s typically at this point that Loan Officers or their Assistants submit your file for Automated Underwriting Approval through the appropriate agency’s (Fannie Mae or Freddie Mac) Loan Approval System.
Getting “Approval” or “Acceptance” means it is okay to move your transaction and file forward to theLoan Processor … and eventually Underwriting, where a confirmation of the “accuracy” and “reality” of the data supplied at the time of your Application
and entry into the system, is performed.
During the Processing:
* Verifications of Employment, Deposits, Rent, Social Security Numbers, Credit Supplement, Earnest Money, Flood Certifications, Homeowners Insurance, Title (if not ordered by Seller’s Attorney), and Appraisal are all addressed now.
A second layer of review for Accuracy of Loan Application data, Borrower-supplied Tax Returns, W-2’s, Bank Statements, Paystubs, Identification, Divorce Decrees, Bankruptcy documents, Student Loan Payments, Mortgage verification (if applicable), is performed.
The Loan Processor assembles all of the ordered and received documentation and then advises the Loan Officer of any missing items, or items of concern BEFORE submitting the Loan File to Underwriting.
Remember: The ultimate goal for everyoneinvolved in the transaction is to provide ALL the necessary documentation required by an Underwriter, so they can make a well-informed decision toApprove, Suspend, or Deny a Loan Application … and do so in a logical and timely manner.
In “Mortgage Anatomy 101” … the Current Mortgage Process, Part Two, I will explain what awaits my clients (and referral partners) during the Underwriting portion of the mortgage process … andbeyond.