Secure On-line Application
Prequalification
Pre-Qualification
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Pre-qualification starts the mortgage process. Once a mortgage lender has gathered information about a borrower's income and debts, a determination can be made as to how much the borrower can pay for a house. Since different mortgage programs can cause different valuations a borrower should get pre-qualified for each loan type the borrower may qualify for.
In attempting to approve Arizona homebuyers for the type and amount of mortgage they want, Arizona mortgage lenders look at two key factors. First, the borrower's ability to repay the loan and, second, the borrower's willingness to repay the loan.
Mortgage Programs and Rates
To properly analyze a mortgage program, the borrower needs
to think about how long he plans to keep the mortgage. If you plan
to sell the house in a few years, an adjustable or balloon loan may
make more sense. If you plan to keep the house for a longer period,
a fixed rate mortgage may be more suitable.
With so many Arizona mortgage programs from which to choose,
each with different rates, points and fees, shopping for a mortgage
can be time consuming and frustrating. An experienced and
licensed mortgage professional can evaluate a borrower's
situation and recommend the most suitable mortgage program, thus
allowing the borrower to make an informed decision.
The Application
The mortgage application is the true start of the loan
process and usually occurs between days one and five of the start
of the mortgage process. With the aid of a mortgage professional,
the borrower completes the mortgage application and provides all
Required Documentation.
The various fees and closing cost estimates will have been
discussed while examining the many Arizona mortgage programs and
these costs will be verified by the Good Faith Estimate (GFE) and a
Truth-In-Lending Statement (TIL).
Processing
Once the mortgage application has been submitted, the processing of the mortgage begins. The information on the application, such as bank deposits and payment histories, are then verified. Any credit derogatories, such as late payments, collections and/or judgments require a written explanation. The processor examines the Appraisal and Title Report checking for property issues that may require further investigation. The entire mortgage package is then put together for submission to underwriting for final approval.
The "No Surprises List" of Required Documents
It's a fact, in todays Arizona mortgage lending environment it takes a little more documentation and items to complete a mortgage application and file than it used to. But it doesn't have to take longer to process and finalize your mortgage as long as we are both prepared for which documents will be needed.
Please use the list below as a checklist for the documentation that you will need to provide us to get your loan process moving as quickly and efficiently as possible for both of us.
- Most recent 30 days paystubs
- Last 2 years W2's / 1099's / K1's
- Last 2 months bank statements for all checking and savings accounts
- Most recent mortgage statement (for each mortgage)
- Homeowners insurance and property tax information (for all properties owned)
- Homeowners Association statements (for all properties owned)
- Last 2 years Federal Tax Returns (all pages and schedules)
- Last 2 years Business Tax Returns (all pages and schedules)
- Proof of Retirement Income - 1 month
- Most recent 2 months or quarterly investment & retirement account statements
- Terms under which funds can be withdrawn from retirement accounts (if to be used for this loan)
- Social Security Award Letters (if applicable)
- Complete Divorce Decrees & Child Support Documents
- Rental Agreements for all rental properties owned
Hopefully this list will be everything we will need and there will be "No Surprises" for you. Unfortunately, I don't determine that but we will communicate any requests for additional documents to you as quickly as possible. It's your situation, loan program, loan to value, or other circumstances that will determine if additional items will be necessary. If required, please try to get any additional items to us as quickly as possible so we can continue to process and underwrite your loan to ensure your on-time closing.
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Credit Reports
Most people applying for a home mortgage need not worry about
the effects of their credit history during the mortgage process.
However, you can be better prepared if you get a copy of your
Credit Report before you apply for your mortgage. That way, you can
take steps to correct any negatives before making your
application.
A Credit Profile refers to a consumer credit file, which is made
up of various consumer credit reporting agencies. It is a picture
of how you paid back the companies you have borrowed money from, or
how you have met other financial obligations. There are five
categories of information on a credit profile:
- Identifying Information
- Employment Information
- Credit Information
- Public Record Information
- Inquiries
NOT included on your credit profile is race, religion,
health, driving record, criminal record, political preference, or
income.
If you have had credit problems, be prepared to discuss them
honestly with a mortgage professional who will assist you in
writing your "Letter of Explanation." Knowledgeable mortgage
professionals know there can be legitimate reasons for credit
problems, such as unemployment, illness, or other financial
difficulties. If you had problems that have been corrected
(reestablishment of credit), and your payments have been on time
for a year or more, your credit may be considered
satisfactory.
The mortgage industry tends to create its own language, and credit
rating is no different. BC mortgage lending gets its name from the
grading of one's credit based on such things as payment history,
amount of debt payments, bankruptcies, equity position, credit
scores, etc. Credit scoring is a statistical method of assessing
the credit risk of a mortgage application. The score looks at the
following items: past delinquencies, derogatory payment behavior,
current debt levels, length of credit history, types of credit and
number of inquires.
By now, most people have heard of credit scoring. The most common
score (now the most common terminology for credit scoring) is
called the FICO score. This score was developed by Fair, Isaac
& Company, Inc. for the three main credit Bureaus; Equifax
(Beacon), Experian (formerly TRW), and Empirica (TransUnion).
FICO scores are simply repository scores meaning they ONLY
consider the information contained in a person's credit file. They
DO NOT consider a person's income, savings or down payment amount.
Credit scores are based on five factors: 35% of the score is based
on payment history, 30% on the amount owed, 15% on how long you
have had credit, 10% percent on new credit being sought, and 10% on
the types of credit you have. The scores are useful in directing
applications to specific loan programs and to set levels of
underwriting such as Streamline, Traditional or Second Review.
However, they are not the final word regarding the type of program
you will qualify for or your interest rate.
Scoring has only been an integral part of the mortgage process for
the past few years (since 1999); however, the FICO scores have been
used since the late 1950's by retail merchants, credit card
companies, insurance companies and banks for consumer lending. The
data from large scoring projects, such as large mortgage
portfolios, demonstrate their predictive quality and that the
scores do work.
The following items are some of the ways that you can improve your
credit score:
- Pay your bills on time.
- Keep Balances low on credit cards, Ideally below 50% of the credit card max balance.
- Limit your credit accounts to what you really need.
- Check that your credit report information is accurate.
- Be conservative in applying for credit and make sure that your credit is only checked when necessary.
A borrower with a score of 680 and above is considered an A+
borrower. A loan with this score will be put through an "automated
basic computerized underwriting" system and be completed within
minutes. Borrowers in this category qualify for the lowest interest
rates and their loan can close in a couple of days.
A score below 680 but above 620 may indicate underwriters will
take a closer look in determining potential risk. Supplemental
documentation may be required before final approval. Borrowers with
this credit score may still obtain "A" pricing, but the loan may
take several days longer to close.
Borrowers with credit scores below 620 are not normally locked
into the best rate and terms offered. This loan type usually goes
to "sub-prime" lenders. The loan terms and conditions are less
attractive with these loan types and more time is needed to find
the borrower the best rates.
All things being equal, when you have derogatory credit, all of
the other aspects of the loan need to be in order. Equity,
stability, income, documentation, assets, etc. play a larger role
in the approval decision. Various combinations are allowed when
determining your grade, but the worst-case scenario will push your
grade to a lower credit grade. Late mortgage payments and
Bankruptcies/Foreclosures are the most important. Credit patterns,
such as a high number of recent inquiries or more than a few
outstanding loans, may signal a problem. Since an indication of a
"willingness to pay" is important, several late payments in the
same time period is better than random lates.
Appraisal Basics
An appraisal of Arizona real estate is the valuation of the
rights of ownership. The appraiser must define the rights to be
appraised. The appraiser does not create value, the appraiser
interprets the market to arrive at a value estimate. As the
appraiser compiles data pertinent to a report, consideration must
be given to the site and amenities as well as the physical
condition of the property. Considerable research and collection of
data must be completed prior to the appraiser arriving at a final
opinion of value.
Using three common approaches, which are all derived from the
market, derives the opinion, or estimate of value. The first
approach to value is the COST APPROACH. This method derives what it
would cost to replace the existing improvements as of the date of
the appraisal, less any physical deterioration, functional
obsolescence, and economic obsolescence. The second method is the
COMPARISON APPROACH, which uses other "bench mark" properties
(comps) of similar size, quality and location that have recently
sold to determine value. The INCOME APPROACH is used in the
appraisal of rental properties and has little use in the valuation
of single family dwellings. This approach provides an objective
estimate of what a prudent investor would pay based on the net
income the property produces.
Underwriting
Once the processor has put together a complete package with all verifications and documentation, the file is sent to the underwriter. The underwriter is responsible for determining whether the package is deemed an acceptable loan. If more information is needed, the loan is put into "suspense" and the borrower is contacted to supply more information and/or documentation. If the loan is acceptable as submitted, the loan is put into an "approved" status.
Closing
Once the loan is approved, the file is transferred to the
closing and funding department. The closing department prepares the
final loan documents and sends them to the title company. Once
received, the title company will prepare the final settlement
statement (HUD 1) and contact the client to schedule their signing
appointment.
At the closing the borrower should:
- Bring a cashiers check for your down payment and closing costs if required. Personal checks are normally not accepted and if they are they will delay the closing until the check clears your bank.
- Review the final loan documents. Make sure that the interest rate and loan terms are what you agreed upon. Also, verify that the names and address on the loan documents are accurate.
- Sign the loan documents.
- Bring identification.
After the documents are signed, the closing attorney returns the documents to the funding department who examines them and, if everything is in order, arranges for the funding of the loan. Once the loan has funded, the title company arranges for the mortgage note and deed of trust to be recorded at the county recorders office.
