What do lenders look for?
When a lender makes a decision about a mortgage application, they consider two basic factors: your ability to repay the loan and your history of fulfilling your financial obligations.
Affordability comes down to your ability to make the proposed payments based on your current income and assets. A lender uses debt ratios to numerically analyze this question. Your proposed house payment is added to your other bills in order to determine your monthly debt total. This figure is then compared to your monthly gross income. This number is called your debt to income ratio and is used to determine how much you can afford. And because income is a key factor in determining ability to repay debts, a lender typically wants to verify current employment with the same employer, or at least the same line of work, going back 2 years.
Willingness to repay is determined by how you have paid previous bills, which is why lenders review your credit history. It is important to remember that there are no set rules and each applicant is handled on a case-by-case basis. Many applicants come up a little short in one area, but make up for it with other strong points. These compensating factors may include a large down payment, solid employment, or overall financial health. Remember that lenders are in the business of making loans so that people can buy homes, and it is in their interest to help as many people as possible to qualify.
Pre-qualified vs Pre-approved:
Prequalifying is a simple process where you provide information on your income, assets and bills in order to determine a quick estimate of your borrowing capacity. Often your mortgage consultant will pull a credit report at this time. This can all be done over the phone before any supporting documentation (such as pay stubs or bank statements) has been provided. Consequently, a prequalification can only be regarded as an estimate of what sales price and payment your mortgage consultant thinks you are likely to be approved for.
To be pre-approved, the lender needs to review all supporting income and asset documentation, a current credit report, and a complete loan application, so that all information can be verified. At that point, the lender can determine for certain what loan amount and payment you qualify for and issue a loan approval subject to you finding an acceptable property.
Why should you be pre-approved?
1) You know for sure what purchase price and payment you are approved for. That way you can focus on finding the right home for your budget and situation.
2) Realtors know that you are serious, prepared and qualified to buy a home up to your specified purchase price. This will enable them to focus their attention on you and narrow your search to properties that match your needs.
3) Sellers will see you as a strong buyer because your financing is already in place. A pre-approval letter helps to remove a seller’s fear that you aren’t a serious or qualified buyer, so you are much more likely to have your offer accepted.
4) Once you have an offer accepted, the lender commitment comes faster because most of the work was done up front. This enables you to close faster, and to stop worrying about the purchase so you can focus on the packing!
At Consumer’s Choice Mortgage, we offer same day pre-approvals on many types of loans so that you have the strongest bargaining tool when shopping for a new home!
The loan process
The first step in obtaining a loan is to give us a call! Your mortgage consultant will be more than happy go through the pre-qualification process with you where you review basic qualifying information, such as income, employment history, and assets, and discuss your credit history. The next step is to meet with your mortgage consultant to complete your application and examine all the supporting documentation (such as pay stubs, tax returns, etc).
Within three business days after completing your application (and often at the time of application), your mortgage consultant will provide you with loan disclosures. You'll get a statement that shows your estimated monthly payment, the cost of your finance charges, your estimated closing costs, and other facts about the mortgage you have applied for. This is called a "Good Faith Estimate", and is required by law.
Once your application is complete, the loan underwriter will verify the information you provided and compare your application against the requirements for the particular loan you are requesting.The lender will then send us a loan approval, along with a list of any conditions that must be satisfied before they will draw up the legal documents and fund the loan. These conditions are typically paperwork items, such as an updated pay stub, a current appraisal or a bank statement. Your mortgage consultant and loan processor will work as a team with the lender to make sure that these conditions are satisfied as quickly as possible.
When all loan conditions are met, the loan documents (often referred to as ‘docs’) are sent to the title company, where you will meet your escrow officer to sign all the legal paperwork. The escrow officer then sends the docs back to the lender for a final review by the funder. Next the funder wires the money to the title company , and the title company records the transaction into the county records. This last step is called ‘going on record’ and determines the day that the legal change in ownership officially takes place and the escrow closes.
The entire process can take anywhere from a few days to several weeks, depending on how much time it takes to gather all the loan conditions, including verifications and the appraisal. During this process you will receive regular updates on the progress of your loan and answers to any questions you may have.