Home Loans 101

This is a fairly detailed descriptive of the steps in which the Borrower(s) and my Loan Team interact with each other. There are 14 steps to the typical loan process. This process covers the loan application, required documentation, property purchase contract, locking the loan interest rate, loan disclosures, underwriting and loan closing.

Step 1
  • Borrower(s) makes PreQual Loan Application
  • Credit Report is obtained upon completion of Loan Application, with permission given by Borrower(s)
  • Loan Officer discusses Borrower(s)'s home buying goals (max payment, amount of cash available to put towards purchase, etc), program desired and other matters associated with insuring Borrower(s) is matched up with the proper loan product
  • Loan Officer completes PreQualification and communicates decision to Borrower(s) and, if applicable, Realtor or Builder
  • Approved PreQualification is based upon supporting documents to verify information given during Loan Application
    • DigitalMortgage: Application has the option of Employment and Assets being verified digitally. This allows for quicker and more secure verification than sending documents for verification
    • DigitalMortgage instructions are given online during the loan application input at www.DLSmithTeam.com. If PreQual Application was taken over the phone or face-to-face, Loan Officer will send links for this option if desire
  • Time to complete: Loan Officer completes within 4 hours if received Monday-Saturday 8am - 6pm. If received weekends or holidays completion is within 8 hour
 
Step 2
  • Loan Officer requests and receives documents to support information received during PreQual Loan Application
    • Typical Documentation
      • Past 2 Years W2s
      • Most Current Paystub
      • If Self-Employed: Past 2 Years filed Tax Returns
      • Other documentation is requested at-this-time also but not necessary for PreQualification
    • Note #1: this documentation can be received via our "DigitalMortgage" platform
    • Note #2: if Borrower(s)  chooses to send documents instead of being digitally verified, uploading documents to our secure portal is preferred over email. To upload -

  • Loan Officer reviews documents and makes PreQualification determination

Step 3
  • If PreQualification is approved, Step 4
  • If PreQualification is not approved
    • Loan Officer discusses with Borrower(s) (s) necessary steps to obtain approval

Step 4
  • Loan Officer issue
    • PreQualification Letter
    • Loan Fee Estimate Worksheet(s)

  • Time to complete Steps 1, 2 and 3 can be as few as 4 hours depending upon Loan Officer's timeliness receipt of needed documents. Exception to this could by late evenings and Sunday mornings.
 
Step 5
  • Loan Officer, Borrower(s) and Realtor/Builder in discussions about
    • Qualification requirements
    • Programs
    • Additional Fee Sheets and PreQualification Letters specific to a sales price being considered.
  • Loan Officer's Team continues to collect other documentation needed in preparation of loan package
 
Step 6
  • Purchase Contract received by Loan Officer
  • Loan (typically) locked at-this-time
  • Disclosures sent to Borrower(s) Disclosures received by Loan Officer
  • Appraisal ordered. Borrower(s) pay for appraisal via online payment portal

Step 7 - Loan submitted Directly to Underwriting (DTU)
 
Step 8 - Underwriting decision received by Loan Officer and Processor
    • Processor communicates decision and Documents needed to Borrower(s)
Time to complete steps 6 through 8 vary depending upon Borrower(s) timeliness in reviewing/signing disclosures and providing needed documents. If borrower provides needed documents during PreQual stage and reviews/signs disclosures within 24 hours, Loan Underwriting Approval (subject to conditions) will be received within 5 days of Loan Officer's receipt of contract.

Step 9 - Processor gathers documents from Borrower(s) and re-submits for Final Loan Approval
  • Time to complete: your LoanTeam intends to receive a Clear-to-Close 10 days prior to the Purchase Contract date.

Step 10
  • Receive Final Loan Approval
  • Order Preliminary Closing Disclosure (CD)
    • Note - Preliminary CD can be ordered prior to Final Loan Approval provided certain documents have been received by Processor
  • Borrower(s) receive and sign CD

Step 11
  • Closing Documents are received by Title Company
  • Title Company and our Closing Department balance CDs
  • Final CD is received by Borrower(s)
 
Step 12
  • Closing Department communicates how to Borrower(s)
    • how to provide funds for closing
    • Confirmation of closing time
 
Step 13
  • Loan closes with Title Company
  • Loan funds

Step 14 - Borrower(s) receive keys to home
 

Time to complete all 14 steps can be as little as 17 days without a "rush" request.
 
Some Do's and Don'ts as you're preparing to buy a home
 
Do
  • Do Keep originals or be able to access on your employer/ bank sites all pay-stubs, bank statements and other important financial documents.
  • Do Be prepared to provide a copy of your Earnest Money Deposit clearing your bank account from your own personal bank account or acceptable gift funds.
  • Do Be aware the underwriter is required to document any deposits made into your bank statement.
  • Do Provide all pages of all documents requested, even if blank
  • Do If you've recently sold a property, provide all documentation associated with that sales.
  • Do Let us know if plan to receive gift funds for closing. Gift funds are acceptable in most cases but certain criteria must be met. Please know that advances from credit cards for down payment / closing costs are never acceptable.
  • Do Notify us of any employment changes  such as recent raise, promotion, transfer, change of pay status, for example, salary to commission.
  • Do Be aware that a new credit report could be pulled just prior to closing.
 
Don’t
  • Don't Allow any inquiries on your credit report until after loan funding and you have your keys.
  • Don't Transfer funds between accounts without asking us about the proper documentation required for your loan. Documentation of any transfers will be required.
  • Don't Deposit any monies outside of your automated payroll deposits. Federal guidelines require substantial documentation as to the source of these deposits.
  • Don't Change jobs/employer without inquiring about the impact this change might have on your loan.
  • Don't make major purchases prior or during closing such as new car, furniture, appliances, etc. This may impact your qualifying amount and could cause your loan to be denied.
  • Don't Open or increase any liabilities, including credit cards, student loans or other lines of credit during the loan process as it may impact your qualifying amount.
 
When gathering your documents
  • Preferably, all documents sent to us are in a "pdf" format. We can convert most documents to a PDF but it can delay submission to underwriting.
  • We will send you a list of needed documents. Please provide all pages of documents, even if some pages are blank. When a document says Page "X" of "X," all pages must be sent to us.
  • Documents must be properly identifiable. This includes names, dates and account numbers. Be particularly aware of this when pulling bank statements online.
  • We only request tax returns for certain loan types such as USDA, Down Payment Assistance, Jumbo and when a borrower is self-employed or receives large amounts of income from commissions and bonuses.
  • We will need all pages and schedules of tax returns. If your tax returns indicates you've received K1s, include those K1s.
 
Other points
  • We will need to know where you've lived for the past 24 months. In most cases we don't have to verify you payment history, but we do have to know where you've lived.
  • We do have to verify your past 24 months job history. If there have been extended gaps in that job history, let us know the reason.
  • VA Loans. We can normally obtain your Certificate of Eligibility (COE) via the VA portal. In the event we cannot, we'll need a copy of your DD214 or DD256 (reservists). Don't be concerned about finding that document until you've checked with us about our ability to obtain the COE online.
  • If you have other property, we'll need
    • Tax returns to verify rental income
    • Copy of current mortgage statement
    • Copy of Homeowners Insurance declaration page showing the amount of premium
    • Copy of most recent Tax Statement
  • If the loan you're applying for is a refinance, we'll need
    • copy of current mortgage statement
    • Copy of Homeowners Insurance declaration page showing the amount of premium
    • Copy of most recent Tax Statement
  • If you receive child support, we'll need
    • Copy of divorce decree
    • Child Support Statement from Attorney General's Office showing history of payments for the past 12 months - this can be pulled via your log-in with the AG's Officer
What Determines Your Interest Rate?
There are many factors that determine the interest rate you qualify for when purchasing or refinancing a home. Your interest rate is determined by
  • Your credit score
  • The term of the loan
  • The loan amount
  • The Loan to Value ratio
  • The type of property
  • Your down payment
  • Your debt to income ratio
  • Your employment history
  • Your location

What is an Interest Rate and an APR?
The interest rate is a percentage of the loan amount that is charged for borrowing money. Once you tack on the associated fees, you have your actual APR (Annual Percentage Rate). The APR is the total cost of the loan. To calculate your APR, we begin with your interest rate and add the lender fees required to finance the loan. An APR is higher than the interest rate because it includes the associated fees. Questions? I know this can be confusing. Please call me and I can give you more details.

What you need to know about an Escrow Account
Home ownership not only brings joy and a place to create new memories, but also new responsibilities. One of the many questions we receive is about Escrow Accounts.
What — An escrow account (also known as an “impound account”) is a separate account set up by your lender to collect the funds needed to pay property taxes and insurance premiums on  your behalf. These amounts are typically paid in a lump sum to your taxing authority and insurance company once or twice a year.
With an escrow account, instead of you making a large payment at that time, your lender divides the annual cost into a monthly amount that is collected along with your mortgage payment. Since taxes and insurance premiums often change annually, your lender will collect an additional amount of money each month to cover any temporary shortfall when the premiums are due. When the tax or insurance bill is due, your lender will make this payment on your behalf from the escrow account funds that were collected each month.
Most homeowners appreciate the convenience of an escrow account, as its monthly premiums can be easily incorporated into a monthly budget.
When — An escrow account is necessary for most loans if the down payment amount is less than 20%.
Why — There is an additional fee if you are allowed and chose to opt out of an escrow account. Having an escrow account ensures that a sufficient reserve has been built up to pay the amounts due for taxes and insurance. Because they realize that making large tax and insurance payments once or twice a year can be a substantial burden on homeowners, lenders are concerned about the additional risks assumed by both homeowner and lender when the homeowner opts out of an escrow account.
Who — Although your lender is collecting the funds to pay the taxes and insurance on your behalf and is obligated to make the payments on time, you are still legally responsible for these payments. For this reason, you should ensure that your lender is aware of any changes to your property tax obligations or insurance premiums so that your escrow account can be effectively managed.  In addition, federal law requires that your lender review your escrow account each year and provide you with a detailed analysis. This helps to ensure that your taxes and insurance premiums are being paid correctly. If required, your monthly escrow payments will be adjusted, based on changes to your taxes and/or insurance premium.
  • If your annual escrow statement reflects overpayments made during the year,  you will receive a refund for these.
  • If your annual escrow statement reflects any shortages, your lender may add an additional payment amount to cover any shortfalls caused by unanticipated increases in the tax or insurance premium amount due.
 
Peace of mind:  After your loan closes, you will be able to sign-up to manage your account online, and register for services such as:
  • Recurring Electronic Payment allows you to have your mortgage payment electronically debited from your  checking or savings account every month so you have peace of mind that your payment is received on time.
  • eStatements provide you with immediate, online access to your mortgage statements. Your Loan’s information will appear on your monthly statements for any future mortgage needs or questions as well.
  • Bi-weekly payment options: If you’d like to make additional payments to your mortgage, you’re free to do so at any time. We have a bi-weekly mortgage payment option that may be beneficial to budgeting borrowers. Customer can set up bi-weekly electronic drafting to be processed.  Customers must be a full month ahead on payments in order to set up this process. This allows the borrower to make one additional principal payment each year by drafting 26 half payments. 
  • These services are not available for all products. Contact me today to learn more.
 
Danny Smith, CMPS
Loan Officer
NMLS ID 138873
Danny@DLSmithTeam.com

www.DLSmithTeam.com

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