The process of obtaining home financing can seem difficult. Conditions set by external sources outside the lending institution are strict and must be followed. Understood, however, they are more easily managed by you. This article will examine these regulations, as well as the criteria lenders use to determine loan approval.
Whether you obtain a loan in person or on the web (as is the trend today) the process is the same. Your application is taken on a national standardized form. Once complete, the lender (bank, or mortgage company) will need to verify the information you have provided. Specifically, they need to verify the borrower’s income, debts, available cash, job security, assets, and credit history. To do so, the lender will ask you to provide them with copies of the last two years’ W-2 or 1099 forms, recent pay stubs, current bank statements and verification of most of the assets you listed on the application.
You will also need to authorize a credit report. If you have received a cash gift to use as a down payment, the lender will need to verify the source of the gift and verify that the gift has transferred to you and there are no obligations to repay the gift.
At the same time, the lender will verify the market value and condition of the property. They will order an appraisal and title search. Each lender will want to use their appraisers of choice and will not likely accept one selected by you.
It is important that you give the lender very detailed information. If you are missing information, the process is slowed down or suspended.
The items that normally slow down a loan in process are:
- Employment verification: Provide the lender with the correct name and address of your supervisor or human resource department, AND alert these people that you are applying for a loan.
- Assets: Do not provide a partial address. Check your account to see if the mailing address for account verification is different from the address you normally use for correspondence. DO NOT MOVE, CLOSE, OR MERGE ACCOUNTS IN THE VERIFICATION PROCESS OR AFTER, AS THE ACCOUNT COULD BE VERIFIED AGAIN PRIOR TO CLOSING/SETTLEMENT.
- Debts: Provide the lender with the correct address and account number and DO NOT ADD BALANCES TO THESE ACCOUNTS DURING THE VERIFICATION PROCESS OR AFTER; AS THE ACCOUNTS COULD BE VERIFIED AGAIN PRIOR TO CLOSING/SETTLEMENT.
The approval process, also known as the underwriting period, occurs as the verifications are being compiled and checked. The lender will calculate that your income and debts fit into the formula set forth by internal and external conditions. These formulas are calculated based on the fact that given the monthly bills you currently have and your ability to accumulate more, “X” amount of your income needs to be used to cover the mortgage debt. (X is determined by the type of loan you seek.) In the end, your loan is either approved, declined or suspended. A loan can be approved with “conditions” or without.
Suspended: This normally means the lender was not provided with enough information to make a decision. You can clear up a suspension.
With conditions: In most cases, rather than “suspend” a loan, conditions are set. In other words, even though some information was missing, the underwriter proceeded. The hard part for the borrower to understand is “why did this come up so late”? The answer is that it really did not come up late; instead, the lender held all conditions until the end. If you look at the underwriting process like an editing process, several editors review the file; each of them may set a condition or find a mistake. Because you are finding out about these at the last minute, you will need to jump through hoops to get them done. It is in your best interest to work with the lender; you do not want to begin the process again.
External influences set on lenders are a result of loans being packaged and sold. Mortgage loans are assets of the lenders and, as such, it is beneficial for a lender to sell off assets to raise immediate capital. The buyers of these bundled loans set the conditions under which they will buy loans. Even if your loan is sold, the conditions of the loan do not change. Your payment terms will remain the same; where you mail the payment could change.
When all the conditions are met and reviewed, the mortgage documents are prepared for closing/settlement and readied for your signature.
