Things to Expect When Getting a Mortgage or Other Loan

What to expect when applying for a mortgage

Congratulations! You are taking steps to refinance your home. To accomplish this, you will need financing and thus, begins the process of getting a mortgage loan.

Your loan officer is responsible for following the loan from the beginning of the application through the funding of the loan. He or she will keep you up-to-date throughout the whole process on the status of your loan and the anticipated closing, ask you for any additional information that may be needed to help speed things along, and answer any questions you may have.

The mortgage process is a series of steps that allows the lender to make an intelligent decision about lending their funds to you. These steps consist of interviewing and qualification, processing, underwriting, and closing.

Interviewing and Qualification

During the interview, your loan officer will begin by going through some preliminary qualifications with you that will allow him or her to determine your loan needs. Your loan officer will consult with you, answer your questions, and guide you toward your financial objective - to find the best loan. Qualification involves the determination of two ratios:

• Housing-to-income ratio: This compares all your monthly housing expenses to your monthly income.
• Total debt-to-income ratio: This compares all your monthly debt payments (credit cards, car payments, housing debt, etc.) to your monthly income.

After your preliminary qualification, a loan application is filled out which provides details about you and your financial position along with information about the subject property. The information you will be providing can be very personal, which may make you feel uncomfortable at times; however, it is crucial that you give accurate and truthful information throughout the whole process. This will speed your application along and help eliminate the chance of any unexpected "surprises" that could cause a delay or keep you from getting your mortgage loan.

Along with the application, you may be asked to provide other supporting documentation. This information includes such documents as: W-2s, tax returns, current pay stubs, and bank statements, to name a few.

In addition, your loan officer will provide you with a Good Faith Estimate of the settlement charges associated with closing your loan, a Truth in Lending disclosure which details what your payments will be along with the corresponding APR, and a settlement booklet that describes in greater detail the settlement process and the various fees associated with a mortgage loan. You may also be asked to sign documents for verifications that will be needed during the processing of the loan.

Processing

During processing, your loan file is examined to ensure that all information is complete, accurate, and meets marketing requirements. Verifications, appraisals, credit reports, and other necessary documents will be ordered at this time. The goal during processing is to gather accurate facts that can later be used for making decisions about your mortgage loan. Once the loan file is complete, the processor will turn the file over to an underwriter.

Underwriting

Underwriting involves the evaluation of all the documents that make up the file to determine if the loan should be approved or denied, based on the factual information presented. All of your loan documents will be verified and reviewed for completeness, accuracy and legibility. Your loan will be reviewed by an underwriter in terms of four important factors: collateral, capacity, character, and capital. Collateral: This refers to evaluating an estimate of the property's value and the property's physical condition, which provides a basis for the lender to establish the maximum loan amount that the property can secure. Capacity: This refers to the financial resources you have available and your ability to make the monthly housing payments. Qualifying ratios are calculated to support the loan file data and meet certain requirements. Character: This is based on the information from your credit report, which provides a history of credit performance regarding payments. This acts as a measurement of your motivation to make monthly mortgage payments. If you have a history of bad credit, it is not a basis for automatic denial. You may have already corrected the problem or may need to do so before loan closing can occur. Your loan officer will make you aware of any problems and can offer you possible solutions. Remember to be "up-front" to eliminate delays! Capital: This refers to the liquid assets which you have available for the downpayment of your loan (if necessary) and to meet closing costs. The underwriter evaluates the capital requirements and documents them in your loan file. After all underwriting factors have been carefully evaluated, the underwriter will make a decision to approve or deny the loan you have requested. If approved, the loan package is signed, dated, and sent off for closing. Your loan officer will inform you of the decision and confirm it with a written loan commitment. If your loan is denied, you will be informed in writing.

Closing

This is the final step to obtaining your mortgage loan. After your loan is approved, closing documents are prepared, assembled, signed, and recorded. Your mortgage is now created and funds will be disbursed. The title of the property passes from the seller to the buyer. At the same time, you will be making a legal obligation to repay the debt secured by the mortgage.

The total time frame from the application to funding will vary for different lenders and the types of loans they offer. Typically, if the process goes smoothly, you will have your loan within approximately 3-6 weeks.*