The Basic Loan Process

Loan Process

Step 1: Find Out How Much You Can Borrow

The first step in obtaining a loan is to determine how much money you can afford on a monthly basis. In case of buying a home, you should determine how much home you can afford even before you begin looking. By answering a few simple questions, we will calculate your current buying power, based on industry guidelines and current mortgage interest rates.

You may also elect to get pre-approved for a loan which requires verification of your income, credit, assets and liabilities. It is recommended that you get pre-approved before you start looking for your new house so you:

  • Look for properties within your range.
  • Be in a better position when negotiating with the seller (seller knows your loan is pre-approved).
  • Close your loan quicker.

Step 2: Select The Right Loan Program

Home loans come in many shapes and sizes. Deciding which loan makes the most sense for your financial situation and goals means understanding the benefits of each.  Whether you are buying a home or refinancing, there are 2 basic types of home loans. Each has different reasons you’d choose them.

Fixed Rate Mortgage

Fixed rate mortgages usually have terms lasting 10, 15, 20, 25 or 30 years. Throughout those years, the interest rate and monthly  Principal  & Interest payments remain the same.  You would select this type of loan when you:

    • Plan to live in the home more than 7 years
    • Like the stability of a fixed principal/interest payment
    • Don’t want to run the risk of future monthly payment increases
    • Think your income and spending will stay the same
Adjustable Rate Mortgage

Adjustable Rate Mortgages (often called ARMs) typically last for 30 years, just like fixed rate mortgages. However, during those years the interest rate on the loan may go up or down AFTER the initial handful of years. Monthly Principal & Interest payments increase or decrease.  You would select this type of loan when you:

    • Plan to stay in your home less than 7 years
    • Don’t mind having your monthly payment periodically change (up or down)
    • Comfortable with the risk of possible payment increases in the future
    • Believe your income will increase in the future

By carefully considering the above factors and seeking our professional advice, you should be able to select the one loan that matches your present situation as well as your future financial goals. However, there are many other loan options and things to consider, which we will help you understand.

Step 3: Apply For A Loan

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Step 4: Begin Loan Processing

Although lenders conform to standards set by national and government agencies, loan approval guidelines vary depending on the terms and variables of each loan. In general, approval is based on two factors: your ability and willingness to repay the loan, and the value of the property.

Once your loan application has been received we will start the loan approval process immediately. Our loan processor will verify all of the information you have given. If any discrepancies are found between the verbal information you have given and the financial documentation you submitted, either the processor or your Mortgage Advisor will troubleshoot to straighten them out.  This information includes:
Income/Employment verification.
Assets to cover the cost of closing.
Credit review to confirm no other past-due obligations.
We follow Industry guidelines to evaluate and determine your income will cover of all your debts.

Credit Check

What is your ability to repay debts when due?  Your credit report is reviewed to determine the type and terms of previous loans. Any lapses or delays in payment are considered and must be explained.  A Mortgage Lender is considering extending you the largest amount of debt, for the longest period of time.  How you have dealt with previous credits could be an indication of how you will act in the future.

Asset Evaluation

Do you have the funds necessary to make the down payment, pay closing costs and potentially have “reserves” after closing?  There are multiple sources where you can secure these funds.

Property Appraisal

Is there sufficient value in the property? The property is appraised to determine current market value. Location and zoning play a part in the evaluation.  A Mortgage Lender will extend you credit based on your qualifications, but it’s also because you are pledging your property as collateral.  Determining the current market value is very important.

Other Documentation

In some cases, additional documentation might be required before making a final determination regarding your loan approval.

In order to improve your chances of getting a loan approval:

  1. Fill out your loan application completely. You may use our online forms to expedite the process.
  2. Respond promptly to any requests for additional documentation especially if your interest rate is locked or if your loan is to close by a certain date.
  3. Do not move money into or from your bank accounts without a paper trail. If you are receiving money from friends, family or other relatives, we will need to prepare a gift letter so contact us before you deposit the money.
  4. Do not make any major purchases until your loan is closed.  Purchases cause your debts to increase and might have an adverse impact on your current application.
  5. Do not go out of town around your loan’s closing date. If you plan to be out of town, we need to discuss the possibility of executing a Power of Attorney.

Step 5: Close Your Loan

After your loan is approved, you are ready to sign the final loan documents. You must review the documents prior to signing and make sure that the interest rate and loan terms are what you were promised. Also, verify that the name and address on the loan documents are accurate. For purchase transaction, the signing normally takes place at a title company and lasts about an hour. For refinances, the location is a bit more flexible, but typically takes place at our office.

There are also several fees associated with obtaining a mortgage and transferring property ownership which you will be expected to pay at closing. Bring a Cashier’s check for the down payment and closing costs if required. Personal checks are NOT accepted. You also need a valid (not expired) form of identification.

Your loan will normally close shortly after you have signed the loan documents. On owner occupied refinance loan transactions federal law requires that you have 3 days to review the documents before your loan transaction can be finalized. These three days do NOT include Sundays or holidays.