Loan Process

  1. Eligibility
  2. Mortgage Programs and Rates
  3. The Application
  4. Processing
  5. Required Documents
  6. Credit Reports
  7. Appraisal Basics
  8. Underwriting
  9. Closing
  10. Summation

           

Getting Started

Mortgage companies base the decision to approve a mortgage on a set of four criteria specific to the loan applicant. These are known as the ‘4 C’s of Underwriting: Capacity, Credit, Cash and Collateral.

 

  • Capacity refers to the applicants’ ability to repay the mortgage. It is measured by several factors including current employment and total income compared to their proposed debt. Generally speaking, mortgage companies prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years.
  • The credit aspect of an underwriting decision takes into account the applicants’ past factors such as payment history, total debt vs. available debt, revolving credit and outstanding installment debt. This is typically defined as a credit score with higher scores representing a lower risk to the lender.
  • When underwriters consider the cash part of this equation, they are actually looking at two separate components: The size of the down payment and the amount of money a borrower retains in reserve after the loan closes. The larger the down payment, the smaller the lender’s perceived risk, and the more cash reserves a borrower has, the smaller the chance of a default due to unforeseen financial difficulties.
  • Collateral refers to the home the applicant intends to purchase. An appraisal is used to verify the home’s value, as well as how the property will be used. For instance, will you be living there or just renting it out?

 

It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, your stronger point could make up for the weak one.

 

Mortgage Programs and Rates

To properly analyze a mortgage program, borrowers need to think about how long they plans to keep the loan. If planning to sell the house in a few years, an adjustable loan may make more sense. If keeping 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 confusing. 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

The application is the true start of the loan process. With the aid of a mortgage professional, the borrower completes the application and provides all required documentation. A loan estimate will be provided within 3 business days of receiving your completed application.

 

Processing

Once the application has been submitted, the processing of the loan request begins. The processor orders the credit report, appraisal and title report. 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 issues that may require further investigation. The entire mortgage package is then put together for submission to the underwriter.

 

Required Documents

If you are purchasing or refinancing your home, and you are salaried, you will need to provide the past two-years W-2s and two months of pay-stubs: OR, if you are self-employed you will need to provide the past two years’ tax returns. If you own rental property you will need to provide rental agreements. You will also need to provide the past three months' bank, stock and mutual fund account statements. Provide the most recent copies of any stock brokerage or IRA/401k accounts that you might have.

 

If you are requesting cash-out, you will need a "Use of Proceeds" letter of explanation. 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.

 

NOTE: The documents listed above represent the most common requirements. Actual scenarios vary, and requirements may differ.

 

Credit Reports

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 well you have repaid borrowed money based on agreed upon terms, 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 can assist you in writing a "Letter of Explanation." 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 most common credit score 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 percent of the score is based on payment history, 30 percent on the amount owed, 15 percent on how long you have had credit, 10 percent on new credit being sought, and 10 percent on the types of credit you have.

 

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 underwriting a loan, but most loan programs do have minimum credit scores. Late mortgage payments and bankruptcies/foreclosures have the greatest negative impact on credit. 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, having several late payments in the same time period is less harmful than the same amount occurring randomly.

 

Appraisal Basics

An appraisal of real estate is an opinion of that real property’s value to the lender as collateral. As the appraiser compiles data pertinent to a report, consideration must be given to the terrain and amenities as well as the physical condition of the dwelling. Considerable research and collection of data must be completed prior to the appraiser arriving at a final opinion of value.

 

 

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 and a closing disclosure is prepared for your review. 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 a cashiers check for the down payment and closing costs if required. personal checks are not accepted.
  • 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 and proof of insurance.

 

After the documents are signed, the closing 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 recorders office.

 

Summation

Contact one of our experienced loan officers today to discuss your particular mortgage needs or apply online and a loan officer will promptly get back to you.

 

 

Contact Us

PHH Home Loans, LLC
22 West Padonia Road, Ste. A-100
Timonium, Maryland 21093

Phone: 410-808-5791

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