Mortgage Application Processing Steps
Lenders follow a specific process, called underwriting, and certain guidelines to determine whether you are a good risk for a loan. They are primarily interested in the property you plan to buy, your current financial situation and credit history. After applying for a loan, you should understand:
The steps your lender follows
How the lender views your application
What to do if your loan is denied
Mortgage Application Processing Steps
Understanding the steps your lender follows in processing your loan is important and to make the approval process move along as quickly as possible, you should:
Make sure all information is current and bring it to the loan application meeting
Be up front about any past credit problems
Get documents to your loan processor promptly
Mortgage Application Fees
As you plan to meet with your loan officer, you should bring your checkbook to the loan interview because most lenders require you to pay an application fee, a credit report fee, and in some cases a separate appraisal fee at the time of your loan application. Remember, costs and terms vary among lenders.
Mortgage Application Costs You Pay
Application fee:
The application fee covers the lender's cost to process the information on your loan. Often the fee includes the appraisal.
Credit Report Fee:
The credit report fee covers the lender's cost for ordering a credit report on you. This report will verify information that you supply on your application and will supply additional information from the credit agency's own files and from the public record.
Appraisal Fee:
The lender will arrange to have a professional appraiser estimate the market value of the house you plan to buy. An appraiser, a person certified to estimate the value of real and personal property, usually charges one fee for a single-family home and slightly higher fees for a two-family, three-family, or four-family home. Appraisals for government-insured loans need to be done by specially certified appraisers and may cost less than those for other types of loans.
In evaluating your loan application, your lender will do the following:
Obtain a Property Appraisal
The lender will arrange to have a professional appraiser estimate the market value of the house you plan to buy. The appraiser evaluates the property's age, structural soundness, and other physical characteristics, as well as location. The lender wants to ensure that the value of your home would support the amount of your mortgage because it serves as collateral for the loan. In some circumstances, the lender may require certain repairs or improvements.
Tip: Factors such as surrounding homes, access to transportation, and zoning may affect the property's future value. Your lender will not loan you more than a given percentage of the value of the property (called the "loan-to-value ratio"). Usually, the amount of your loan can be no more than 95% of the appraised property value or 95% of the sales price of your home, whichever is less.
Tip: If the appraised value is less than the purchase price you have agreed on, the amount of your mortgage may be smaller than you anticipated, and you will have to come up with a larger down payment or renegotiate the home price with the seller.
Order and Examine your Credit Report
Your lender orders a credit report on you and your co-borrower to verify information you've already supplied on your application and to see how you've handled past debt and credit accounts. A credit report supplied by a credit reporting agency can tell the lender how much you owe, how often you borrow, and whether you pay your bills on time. Your lender may ask you for a written explanation of any problems that appear on your credit report. Even one late payment on just one account may require an explanation from you.
Tip: In recent years, many lenders have been more flexible about this than you might expect, and a few credit problems may not bar you from a loan, particularly if you've revealed them frankly at the outset.
Verify Your Employment and Assets
Your lender will verify information about your jobs and savings and checking accounts. Usually, the lender sends forms to your employers asking about your job history and current salary and to your banks asking about your assets.
Verify Your Housing Payments
If you currently rent, your lender will send a Rental Verification Form to your past landlords to inquire about your rent payment history. If you currently have a mortgage, the lender will send your current mortgage lender a Request for Mortgage History Rating.
Obtain Approval of a Mortgage Insurer
If your down payment is less than 20% of the purchase price of your home, your loan generally will require mortgage insurance, in which case the loan will also have to meet the underwriting standards of the mortgage insurer. If you are obtaining a Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or Rural Housing Service (RHS) loan, the loan must also meet those standards.
How the Lender Views Your Application
Your mortgage loan file is designed to provide information your lender needs to evaluate the risk involved in lending you money – the likelihood that you will or will not repay the loan. Lenders look at the "four Cs" of credit:
Capacity: Can you repay the debt?
Credit history: Will you repay the debt?
Capital: Do you have enough cash for the down payment and closing costs?
Collateral: Will the lender be protected if you default on the loan?
Lenders also follow industry guidelines that specify how much of a mortgage you can qualify for. These guidelines are flexible and may be increased somewhat, depending on your situation and the type of loan program you apply for.
Under those guidelines, your monthly mortgage payments should be no more than 28% of your gross monthly income and your monthly debts (including your mortgage) should be no more than 36% of your gross monthly income.
Things you can do to help this process:
Providing information to the residential mortgage credit reporting agency when they call you to verify information concerning your credit history.
Responding promptly when the appraiser contacts you to set an appointment to view the property.
