The Complete
Loan Process Guide

Loan Preparation
Pre-approval vs. Pre-qualification
Tips for a Fast, Stress-free
Loan Application
The Mortgage Loan Process
Funds to Close

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Loan Preparation

Whether you're a first-time home buyer who has been waiting for the perfect chance to make your move—or someone who is getting ready to move to a larger or smaller home, it's a good idea to be prepared for the loan process beforehand. Here are some guidelines on the information that needs to be submitted with your application:

  • Residence History
    Your previous addresses for the last two years and how long you lived at each location. If you currently rent, your landlord's name and address (for the last 12 months).

  • Employment History and Income History
    The names and addresses of all your employers for the last two years; the dates you worked at each place of employment; and a letter explaining any gaps in your employment in the last two years. You will also need original pay stubs for the last 30 days, most recent two years of W-2's and most recent two years of 1040's. If self-employed, you'll need a year-to-date profit and loss statement and current balance sheet. If you were a student in the last two years, bring a transcript or diploma. If retired or disabled, bring award letter and copy of your most recent check for retirement, social security, or disability income.

  • Outstanding Loans and Credit Cards
    All coupon books or most recent statement for every account you have open.

  • All Savings, Checking, and Investment Accounts
    The name and address for each financial institution and the account number, the current balance or value, 3 months bank statements on all accounts and 3 months statements for any IRAs, Keoghs 401Ks or profit sharing you have.

  • All Personal Property Currently Owned
    The net cash value of your life insurance, the make, year and value of your automobiles and the value of your furniture or other personal property.

  • All Real Estate Currently Owned
    The property address, the estimated market value, outstanding loan balance, and the amount of your monthly payment. If applicable, the amount of your monthly rental income.

 

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Pre-approval vs. Pre-qualification
Tips for a Stress-free Loan
The Mortgage Loan Process
Funds to Close

Pre-approval vs. Pre-qualification

Pre-approval presents a powerful tool for you toward the purchase of that new home with a minimum of surprises and disappointments. It presents you as a "cash" buyer to the seller.

Anyone who wants to buy a home today should go to their lender first. The understanding of how much can be borrowed presently reduces the possibility of disappointment later. Your lender can provide guidance as to how to prepare and position later on for a home that is currently out of reach.

A realistic understanding of how much loan you can reasonably expect to qualify for is a good first step toward the goal of home-ownership. And, a letter of pre-approval can be the mechanism that makes that happen. There is a distinct difference between a letter of pre-qualification and a letter of pre-approval, and it is important that you be aware of this distinction.

PRE-QUALIFICATION means that loan calculations are being made to show how much you "may" be able to borrow. While pre-qualification can reduce the processing time for home loans, indicate how much house you can afford, and provide a certain leverage in bargaining power, it doesn't necessarily guarantee that such a loan will, in fact, be made by the lender.

PRE-APPROVAL means you actually have a loan waiting, subject only to finding the home and the home appraising at the sales price. The "pre-approval" letter represents an actual commitment on the part of the lender. In order to secure such a letter, it is necessary to complete a formal loan application and pay the associated fees. Credit, salary, and bank funds will be checked, and, if the loan is a good investment, the lender will issue a pre-approval letter, which provides a commitment for a limited period of time, subject to a satisfactory property appraisal and title search.

 

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Loan Preparation Guide
Tips for a Stress-free Loan
The Mortgage Loan Process
Funds to Close

 

The Mortgage Loan Process

Following are the basic steps in the mortgage loan process:

Step 1: Application is Taken
At the initial interview, every effort is made to obtain the necessary documentation from you to help avoid any problems and delays.

Step 2: Documentation is Ordered
Following the application, a request goes out for a credit report, property appraisal, verifications of employment and deposits, mortgage history or landlord rating and any other supporting documentation that is needed.

Step 3: Documentation is Reviewed
On receipt of the documentation, a review is made for any problems that may arise and to see if any additional items are needed. Current programs are reviewed to assure the best rate and terms for your loan.

Step 4: Loan is Submitted
When all documentation is received and reviewed, your loan package is submitted to the underwriter for approval.

Step 5: Loan is Approved
You are notified of the approval. In the case of loan conditions, they must be received prior to the loan closing.

Step 6: Documents are Drawn
The loan documents are completed and sent to the title company. When the papers are ready for signature(s), the escrow officer calls the borrower(s) to advise how much money will be needed to close the loan and arrange for a meeting to sign papers.

Step 7: Funding Check is Issued
After you have signed the loan documents, the documents are returned to the lender. Once the lender reviews the package and determines that all the forms have been properly executed, the check is issued to fund the loan.

Step 8: Closing is Closed
The lender sends the check to the title company. The title company then records the note and deed of trust at the County Recorder's Office. This officially ends the closing process with the security for your loan becoming a matter of public record.


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 Pre-approval vs. Pre-qualification
Tips for a Stress-free Loan
The Mortgage Loan Process
Funds to Close

Tips for a Fast,
Stress-free Loan Application

Before you start shopping for a house, consider this: The best way to buy and finance a home is to arrange the mortgage first. Then, go shopping for your home, confident that you have already been pre-approved and can obtain financing panic-free.

There are several basic home finance techniques:

NEW MORTGAGE. This is today's most common home finance method. New low down payment Conventional, FHA and VA mortgages are readily available.

ALL CASH. Most home buyers can't afford this method. And even if you can, paying all cash usually isn't smart. Cash buyers lose leverage advantages. Usually the only time to pay cash for a home is if it will result in a rock-bottom bargain purchase price.

EXISTING MORTGAGE. A buyer can assume or take title subject to an existing mortgage already on the home. If the home's existing mortgage has attractive terms, ask if you can take it over. Many older VA and FHA mortgages lack "Due on sale" clauses and home sellers eagerly pass them on to buyers.

SELLER FINANCED. If the home seller has a large equity and needs income, the seller can carry back a first or second mortgage. Free and clear houses for sale by elderly sellers, who need more retirement income, are the best seller finance candidates.

COMBINE THE ABOVE. For example, if you can take over an existing mortgage, the seller might carry back a second mortgage to finance your home purchase. Or, you can get a new first mortgage and the seller may carry back a second mortgage. If you need a new mortgage to buy your home, get the best loan for your personal situation.

Here are the steps to take before shopping for a home:
  • Get a copy of your credit report. Be sure to notify the credit bureau of any errors in the credit report you receive.

  • Before shopping for your home get pre-approved so you know the maximum mortgage you can obtain. Read the conditions carefully. Your pre-approval should only be contingent on appraisal of the home you decide to buy.

  • Decide if a fixed-rate or adjustable-rate mortgage (ARM) is best. If you plan to stay in your home less than seven years, an adjustable-rate mortgage (ARM) can save you interest.

  • If you plan to keep your home over seven years, a fixed-rate mortgage is usually safest. Should interest rates plummet, you can refinance. Should interest rates rise, a fixed-rate mortgage protects you because your payment cannot increase.

  • When shopping for an ARM, ask about the index used, the margin, maximum annual payment and interest increases, lifetime "cap" maximum interest rate, and if the ARM is assumable by a future buyer of your home. The slowest-moving ARM index is usually the "cost of funds index" whereas the most volatile are the "treasury bill indexes." A margin, such as 2 percent, is added to the monthly-changing index rate to arrive at the ARM interest rate.

  • When comparing mortgages, be sure to obtain the APR (annual percentage rate) which includes any loan fee.

 

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Pre-approval vs. Pre-qualification
The Mortgage Loan Process
Funds to Close

 

 


Funds to Close

There is usually some confusion about the form of the funds needed to close a loan. The following will outline the process.

Good Faith Estimate

You will be provided a Good Faith Estimate within three days of your loan application. This is an estimate of what your closing costs will be based on the loan program for which you are applying for at that time. You may use this as a guideline as to what funds will be necessary at closing. If for some reason your loan program changes, you may want to ask for another Estimate so that you will have a more accurate picture of what your required funds will be at closing.

Gifts

If you will be receiving a gift from a relative as part of your down payment, you need to do the following.

  1. Please call our office and ask us to supply a gift letter. This may be faxed to your relative, but keep in mind that we must receive an original signed gift letter prior to closing your loan.

  2. You will also need to make a copy of the cashiers check (DO NOT USE PERSONAL CHECKS) and the deposit slip prior to depositing the gift into your account. It will be much easier on you to paper trail everything up-front rather than trying to backtrack later.

Prior to Closing

Keep in mind that prior to the closing of your loan, it will be necessary to document where your funds to close are coming from. You will need to provide copies of any withdrawal slips and receipts involving your funds to close. If your funds to close are transferred to another account, you will need to provide copies of all transfer information. It will be necessary to document where the money came from as well as where it went. If the funds are coming from a 401K account, you will need to provide a copy of the check from your plan and the deposit slip prior to depositing the money into your account. Keeping a paper trail of your funds will help to ensure your loan closes on time. Remember, it is better to err on the side of providing extra information than not enough!

Closing

When funds are required to close your transaction, you will need to obtain a cashier's check payable to the title company. After the title company has received your documents, they will create the closing statement that will determine the exact amount you need to close your loan. Usually, your documents will be received by the title company the day before you need to sign. Therefore, you will have a short amount of time to obtain your cashier's check. Being prepared will save you from unnecessary stress.

 

If you are still unclear about
which funds to close, please call
our office immediately.


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