The Loan Process

Pre-qualification is simply a statement based only on your stated income and debt payments and credit history. A pre-approval means your documentation has been verified and you will be approved by the Automated Underwriting System (AUS).

Pre-approval does not necessarily guarantee you will be approved and get the loan. After AUS approves you and you have given notice of your intent to proceed, then underwriting begins and a human underwriter will begin reviewing your file. Most likely the underwriter will discover items that need clarification. 

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.

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. 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.

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.
• Limit your credit accounts to what you really need. Accounts that are no longer needed should be formally cancelled since zero balance accounts can still count against you.
• 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.

All things being equal, when you have derogatory credit, all of the other aspects of  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 or spread late payments.

To properly analyze a mortgage program, the borrower needs to think about how long he plans to keep the loan. 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 loan may be more suitable.

With so many programs from which to choose, each with different rates, points, and fees, shopping for a loan can be time consuming and frustrating. An experienced 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 is the next step of the loan process. With the aid of a mortgage professional, the borrower completes the application and provides all Requested Documentation.

A loan application is not considered complete until you have given us at least the following information: (1) Your name, (2) Your income, (3) Your Social Security number (and authorization to check your credit), (4) The address of the home you plan to purchase or refinance, (5) An estimate of the home's value and (6) The loan amount you want to borrow.

Your processing team here at Certus will be the liason to assist you in gathering the requested documents. The underwriter is only accessible to the loan team. Imagine there is a brick wall between you and the underwriter. Only the loan processing team or mortgage officer can go back and forth  through the door to the other side of the wall.

Once a 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 loan programs can cause different valuations a borrower should get pre-qualified for each loan type the borrower may qualify for.

A Loan Estimate is a three-page form that you receive after applying for a mortgage. The Loan Estimate tells you important details about the loan you have requested. We will deliver this to you with in 3 days of your fully completed loan application. The Loan Estimate provides you with important information, including the estimated interest rate, monthly payment, and total closing costs for the loan.

The Loan Estimate also gives you information about the estimated costs of taxes and insurance, and how the interest rate and payments may change in the future. In addition, the Loan Estimate will also indicate if the loan has special features that you will want to be aware of, like penalties for paying off the loan early (a prepayment penalty) or increases to the mortgage loan balance even if payments are made on time (negative amortization).

The form uses clear language and is designed to help you better understand the terms of the mortgage loan you’ve applied for. All lenders are required to use the same standard Loan Estimate form. This makes it easier for you to compare mortgage loans so that you can choose the one that is right for you.

When you receive a Loan Estimate it does not mean that your loan has been approved or denied. The Loan Estimate shows you what loan terms we can offer you if you decide to move forward.

After you receive your Loan Estimate, it is up to you to decide whether to move forward with us or not. If you decide not to proceed with an application for a particular loan, you don’t need to do anything further. If you do intend to proceed with us, you must take the next step and tell us in writing or by phone that you want to move forward with the application for that loan.

All lenders are required to honor the terms of the Loan Estimate for 10 business days. So, if you decide to move forward more than 10 business days after you receive a Loan Estimate, please realize that market conditions may make it necessary to revise the terms and estimated costs and provide you with a revised Loan Estimate.

Once the processor has put together a complete package with all verifications and documentation, the file is sent to the lender. The underwriter is responsible for determining whether the package is deemed an acceptable loan based on any additional items needed for review.

Once the application has been submitted to the underwriter, they will issue a "conditional approval", which means you are approved for the loan PENDING certain conditions that must be met. Usually this means additional documentation to support the underwriting decision.

Then processing of the mortgage begins. The Processor orders the Appraisal and Title Report. The information on the application, such as bank deposits and payment histories, are then verified. Any derogatory credit marks, such as late payments, collections and/or judgments require a written explanation. 

Once you get to this stage of the loan process, we will give you a specific set of documents that we will need for your particular loan.

If you are requesting cash-out, you will need a "Use of Proceeds" letter of explanation. Provide a copy of the divorce decree if applicable. If you are not a US citizen, provide a copy of your green card (front and back), or if you are NOT a permanent resident provide your H-1 or L-1 visa.

If you are applying for a Home Equity Loan you will need, in addition to the above documents, to provide a copy of your first mortgage note and deed of trust. These items will normally be found in your mortgage closing documents.

*The appraisal fee is paid upfront to an appraisal management company. That amount is credited towards your closing costs.

An appraisal of 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. For residential purchases, the appraisal needs to be deemed an "AS IS" value based on the sales comparison approach. If an appraiser deems the property to be valued at a certain amount "SUBJECT TO", then repairs will need to be made so that the appraiser can return to the property and verify the repairs. Then they will change the appriasal report to read "AS IS" and then we are good to go provided the value is at or above the purchase price. If not, then you and your realtor will return to the bargaining table with the seller to work out an adjusted price.

For commercial properties all three values below are considered.

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 "benchmark" 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.

* The survey payment is negotiable between the buyer and seller. It is paid at closing as part of the closing cost to which ever party is repsonsible for it. If an existing survey is available, the title company may accept it by having the seller submit a T-47 form attesting that there have not been any material changes since the last survey was made.

Reasons for the survey:

Lender Requirement: Lenders often require a,survey to ensure the property is a safe investment, verify its value, and confirm that the,legal description of the land is accurate.
Identify Encroachments: A survey reveals if a neighbor's fence, building, or driveway crosses onto the property, or if the borrower's,structures cross onto neighboring land.
Locate Easements: It clearly marks easements, such as utility lines or access rights, which allow others to use part of the,property.
Verify Boundaries: It ensures the,exact boundaries of the,property are known, preventing future disputes with,neighbors.
Confirm Property Size: A survey checks that the acreage or square footage matches the legal description in the,loan documents.
Ensure Zoning Compliance: It verifies that any,improvements (buildings, pools, decks) meet local,setback requirements and,zoning laws.
Title Insurance Requirements: Title companies frequently require a,survey to identify risks and issue proper coverage for the,loan. 

The Closing Disclosure is a five-page form that provides final details about the mortgage loan you have selected. It includes the loan terms, your projected monthly payments, and how much you will pay in fees and other costs to get your mortgage (closing costs).

We are required by law to give you the Closing Disclosure at least three business days before you close on your mortgage loan. This three-day window allows you time to compare your final terms and costs to those estimated in the Loan Estimate that you previously received from us. The three days also gives you time to ask us any questions before you go to the closing table.

Once the loan is approved, the file is transferred to the closing and funding department. The funding department notifies the broker and closing attorney of the approval and verifies broker and closing fees. The closing attorney then schedules a time for the borrower to sign the loan documentation.

At the closing the borrower should:

• Bring identification
• Bring a cashier's 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.

After the documents are signed, the closing agent/attorney returns the documents to the lender who examines them and, if everything is in order, arranges for the funding of the loan. Once the loan has funded, the closing attorney arranges for the mortgage note and deed of trust to be recorded at the county recorder's office.