• The Loan Process
• The First Step
• Types of Mortgages
• Types of Loans
• What are Closing Costs and Pre-Pays?

Applying for a loan is often a concept that remains shrouded in a mystery. Many people have gone through the process successfully, but can’t explain to others how it was done. We hope our brief explanation unveils some of the mystery surrounding the process.

 There are several criteria that lenders look at when "qualifying" an applicant for a loan.

Credit, is first because it is the most important. Since there is no way to accurately predict the future, the lender looks to the past. How you managed your credit in the past is of great concern to a lender. Has your credit been stellar; a perfect payment history, or have there been issues with late payments or worse? Credit history is so important that most of the weight of a loan decision is based on your credit history.

Income addresses the borrowers ability to pay as credit speaks to his or her willingness to pay back the loan. There needs to be a stable and ongoing stream of income. It can come from employment, investments, or benefits, i.e. Social Security. Your lender will have different rules for computing income depending on the source.

Assets show that you have sufficient funds to complete the transaction, and also gives the lender a snapshot of your total financial picture. Lenders like to see stability in a loan application, assets show that the borrower has the ability to generate an income and also is prudent enough to not spend it all.

How much weight and importance each criteria is given is dependent upon which loan program is being used. Since the concept of qualifying is particular to a single loan program, it is possible to "not qualify" for one program and yet be welcomed with open arms for another. 

Finding the right loan program for you is the responsibility of the loan officer, it is there job to review your unique financial situation and point you toward the loan that best suits your needs.

When you began the process of buying a home you need to get pre-qualified or pre-approved. You can usually get pre-qualified over the phone in a few minutes. A pre-qualification is not as beneficial as a pre-approval where you have to go through a more through process which includes verification of your credit, income, assets, and liabilities. 

It is highly recommended that you get pre-approved before you start looking for your new home.

Simply put, lenders fees and interests rates are based on risk i.e. the higher the risk, the more interest and fees you are going to pay. There are loan products out there for just about everyone, but not everyone will get the best rates and terms. 

Your credit rating is critical towards obtaining the best rate at the lowest cost. The better your credit, the better the terms of the loan. The loan officer you choose to work with will run a comprehensive credit report on both you and a co-borrower. 

Based on the credit scores you receive from your report along with the information on your loan application (income, debt, etc…) the loan officer will determine what type of loan product best fits your needs.

Lender-Required Documents Checklist  

This process can be a long one!  Your lender has a lot to take care of before he or she can assure you that you will get your loan.  

To make the whole experience easier on everyone involved, here is a list of things that you should be prepared to give your lender.  Be sure to have these documents ready, should your lender require them.  

This way, you are ready for what might be needed, there won't be surprises or time wasted while you're searching through boxes, and it will make this process a lot smoother!  

Keep in mind, some other things might come up, but these are the basics:

• Previous 2 years for all borrowers

• Current paycheck stubs covering one month period for all borrowers

• If self-employed: bonuses or commissions, 2 years tax returns with all schedules and a year-to-date profit/loss balance sheet

• If you own 25% or more in a corporation or partnership: 2 years personal tax returns plus corporate/partnership returns  (all K-1's) and year-to-date profit/loss balance sheet

• Last 3 month's statements for all asset accounts

• If receiving gift funds: gift letter, verification of donor funds and proof of transfer

• Written explanation for any derogatory credit or bankruptcy.  Additional information may be required when final credit report is received

• Complete bankruptcy papers and discharge petition (if applicable)

• Copy of leases on any rental property you currently own (if applicable)

• Fully executed divorce decree (if applicable)

• Signed and dated bank statement from teller at bank (just prior to closing)

Fixed Rate Mortgages: Payments remain the same for the life of the loan. The advantage here is that your payments are predictable and remain unaffected by interest rate changes and inflation.

Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates. The advantage is lower initial interest rates; lower monthly payments; allowing the borrower to qualify for a larger loan amount.

Balloon Mortgage: Offers very low rates for an initial period of time (usually 5,7, or 10 years) when time is expired the balance are due or you can refinance.

Conventional Loan: Any mortgage loan that is not insured by FHA, guaranteed by VA or funded by a government authorized bond sale or grant. Generally this loan is for people who can afford a larger down payment.

FHA Loan: Also known as the Federal Housing Administration, operates under the control of the Department of Housing and Urban Development (HUD) and has the primary responsibility for administering the government home loan insurance program. FHA loans require a smaller down payment than many other types of mortgages, and the lending guidelines allow you to have a slightly higher percentage of debt. This popular mortgage is a great way for first time buyers to acquire a new home.

Closing costs are expenses over and above the sale price of the property incurred by the buyer and seller in transferring ownership of property. They usually include but are not limited to the following:

• Attorney's or escrow fees (yours and your lender's if applicable)
• Loan origination fee (covers lender's administrative costs)
• Recording fees
• Survey fee
• First premium mortgage insurance (if applicable)
• Title insurance (yours and your lender's)
• Any documentation preparation fees

Pre-Pays are monies paid for in advance and usually include:

• Two months of hazard insurance
• Property taxes to cover tax period to date
• Interest (paid from the date of closing to 30 days before first monthly payment)