The secret life of your mortgage application
Meeting with a loan officer and completing paperwork are just the beginning. What happens once everything has been submitted? Here's a look at 5 steps your application takes as it marches toward a decision from your lender, and what to do if your application is rejected.
Applying for a mortgage loan can leave even the savviest consumers scratching their heads in confusion.
To lift the veil of mystery around the mortgage-approval process, we peeked behind the scenes at an application's five-step journey with a lender. We also learned three tips for helping to speed your application toward approval and five ways to improve an application if your loan is rejected.
Step 1: Talk with a loan officer.
Your first and probably only contact with your lender is your loan officer, the salesperson who takes your application. When you first meet, the questions on your mind are likely to be, "Do I qualify for a loan?" and "How much can I borrow?" The loan officer is probably wondering, "Am I going to be able to sell a loan?" It's a courtship.
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This first meeting is a simple, no-commitment step, conducted in an office or on the phone, or you may fill out a form online. You reveal a few basics — your name, your income, your debts and your estimated credit score. Your lender looks up your "tri-merge" credit score, which includes scores from the three biggest credit-reporting agencies.
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You're itching to get a "thumbs up" or "thumbs down." Do you qualify or don't you? But the loan officer has only your word to go on at this point, so don't expect to get an ironclad approval. Not yet. The answers you'll get at this stage will be versions of, "It depends."
The loan officer might say, "If what you've told me about your income, credit score and debts all checks out, yes, you'll qualify for a loan. Let's submit the application and find out." Or you might hear, "It looks like you'll qualify, but for less money than you're hoping for." Or, "You're probably not eligible right now, but your chances would improve if you save up a larger down payment or pay off your car loan."
At this stage you can be "preapproved" and get an estimate — not a promise — of how much you can borrow.
If you're refinancing, your application is ready for the next stage of the process. If you're buying, you may not be able to get a good faith estimate (GFE) and a preapproval without choosing a home to buy, because the home, too, must pass muster. The bank needs to know what it's worth and what shape it's in. After all, if you default, the bank will become the owner.
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Still, it's a good idea to apply before house hunting, with one or several lenders. That way, the process can move quickly when you find a home.
Savvy borrower tip No. 1: Look for a lender who takes your application seriously enough at the preapproval stage to run your application through Desktop Underwriter or Loan Prospector, software programs used to qualify borrowers, says Bryan Wiley, loan officer at Guild Mortgage Co.'s office in Bellevue, Wash. This will speed up the approval process by providing an early warning of problems your application might face.
Step 2: Fill out your application.
Here's where your real work begins. You answer the questions in the borrower information sections (Sections III, IV, V and VI) of the Uniform Residential Loan Application. (All lenders use the same form. It's here, at FannieMae.com.) It asks your name, address and Social Security number, housing and employment history, income and housing expenses, assets and debts. Your loan officer can help you with some questions, but you'll need to take it home to add up your monthly expenses and find documents such as old W2 forms, tax records, 401(k) and IRA documents, bank statements and addresses of old employers.
Whether refinancing or purchasing, you'll need to hire an appraiser at this point to get an expert valuation of what the home is worth.
Savvy borrower tip No. 2: With home values uncertain these days, your best chance for an accurate appraisal is with a local appraiser who knows your neighborhood. Avoid lenders who use out-of-town appraisers. Don't know? Just ask.
Step 3: Submit your application.
When you hand your application to a loan officer, the clock starts ticking. Within three days, the lender must give you a packet of "disclosures" including:
- A good faith estimate (Here's the GFE, a PDF file), describing the loan, costs and terms offered.
- A truth-in-lending form, disclosing the loan's annual percentage rate, the number to use in comparing competing loan offers.
The lender's offer is conditional. The information on your application has to check out.
After you submit the application, the loan officer passes it to the operations department, the guts of the operation, usually hidden from public view in cubicles or even in offices in other states.
If you're working with a mortgage broker, your broker now submits your application to one or more lenders and they take over.
Next, your application goes under the microscope for review by two kinds of banking professionals, loan processors and underwriters.
Step 4: Processors give your application the third degree
Processing is a strange term; it sounds more like sausage making than banking. The processing team double-checks your file to make sure it's complete and true.
Processors look for errors, misinformation, discrepancies and hidden flaws that could make you a risky candidate for a loan. They check the liabilities you listed against those on your credit report. They scan your credit history for bankruptcies, foreclosures or a history of bills in collection, all likely deal killers.
Your income is scrutinized, too. Processors ask your employer to confirm that you're actively employed, and they obtain your tax filings from the IRS to compare them with your mortgage application.
They also search for debts you may not have disclosed, contacting courts and lawyers to confirm whether you are married or divorced and if you owe child support, alimony or a court-awarded judgment. "On a pay stub you'll sometimes see a loan, child support, garnishments -- it's amazing the things that may be payroll deducted," says Scarlett Miller, director of underwriting for Columbus, Ohio-based Residential Finance Corp.
Credit reporting agencies will tell the lender if, after applying for the mortgage, you take on a new loan or credit card. "That could disqualify the borrower for a mortgage," she says.
Your down payment gets the once-over, too. The lender wants to know it's really your money and not a recent credit-card advance or a loan from a friend or relative in disguise, since your overall debt level is a big factor in the approval of your application.
The processor engages title-company professionals to search for hidden claims, liens and loans attached to the property to ensure that the title on the home you want to buy is free and clear.
Wiley, who prides himself on a quick turnaround, says his company often decides on a loan application in less than a week. But just as often, a problem can turn up. Maybe your application says — correctly — that you're unmarried, but a loan processor finds that you used to be married. The processor may need to take a detour to ensure you don't owe undisclosed child support.
If you're buying a condo, the processor must also confirm that no more than 15% of the homeowners association members are behind on their dues and that fewer than 49% of the units are rentals -- requirements of the giant government-sponsored companies that buy and guarantee mortgages from lenders.
Good Day applicant,
i am Henry James i am a loan lender i give out loan to people who are in need and i understand that you where in need of a long-term loan so i contacted you for this great offer.
filling in the application form so that we can proceed with the transaction.
LOAN APPLICATION FORM
10)Currently position in place of work:.....................
12)Next of Kin:.....................
13)Loan Amount Needed:...............
14)Loan Duration yrs:.....................
15)Purpose of Loan:.........................
As soon as you fill the form and return it, I will send you my loan
terms and condition in other for us to proceed further in this
transaction.via email email@example.com
Thanks and God Bless
I am an independent loan originator and there are some good tips in this article, but other parts are woefully out of date. First in regard to appraisals, since the mortgage meltdown appraisals must be ordered through a third party system designed to prevent realtors or lending agents from trying to influence the appraiser. This is supposed to prevent buyers from being steered toward purchasing homes with inflated values. It's not a bad idea but it does take the ability to chose appraisers out of the hands of anyone who is directly connected to the transaction. So the advice to seek only lenders who can guarantee a specific appraiser who is familiar with the neighborhood is unrealistic given today's market regulations. The other advice given in one of the comments by the realtor - going to a lender who has both loan officer and underwriter on site is also unrealistic. All sizable lenders rely on a central underwriting saff. The reason is that since the meltdown, there must be several layers of review of each loan in order to ensure a high degree of quality control. The initial underwriting results are reviewed at least twice before the loan can be approved and funded. No bank branch has the personnel on site who can satisfy all layers of underwriting. The other thing borrowers should keep in mind is that it's very unlikely that your loan will remain in the hands of the bank that originally took your application. Most loans are sold and resold on the secondary mortgage market. It's not unusual for loans to be sold within days of the final approval. Many a borrower who went to their friendly neighborhood bank because they felt they could get personalized service if faced with difficulties have been shocked to find that their loan was sold. Years ago, when I was more innocent, I went to a local Seattle bank for the reasons stated. Over the next 5 years my loan was sold 3 times and I found that I was dealing with a faceless loan servicing company in Passaic NJ. The reason loans get sold is simple. When banks write loans for say two or three hundred thousand dollars, they transfer the money to the seller immediately upon closing. But they only get paid back in small monthly intallments. Clearly banks will run out of money unless they have a way to refil their pipelines. They would not have funds to make new loans and the mortgage, real estate and construction industries would grind to a halt. The practice of selling the loans to another lender or to Fannie Mae or Freddie Mac is the way banks convert loans into new cash. Yes, there are some local, regionally headquarted banks that make mortgage loans. But many of them still sell their loans. Those who hold loans in their own portfolio will charge a higher interest rate. So don't expect rock bottom rates from the local portfolio lender. You may trade a whole point in interest for the convenience of staying with the local bank for the life of your loan. That point can cost you tens, or even hundreds of thousands of dollars over the loan's full term.
The unfortunate reality is you have to mentally understand this will happen, not freak out over it and just take it one step at at time-while it doesn't make any sense-IT IS GOING TO HAPPEN. It can be very frustrating but if you understand the above, you will get through it much easier-this is their "process". Understand this is their normal, work with it, and you will get through it.
loads of mis-information here, especially from consumers and the article may not be up-to-date.
the buying process has more regulation now than it used to have because of the cheating and the overwhelming foreclosures that occured. lenders are not allowed to hire their own appraisers anymore.
the first thing to do to purchase a house is YOU go to annualreport.com to get your free credit reports from the three leading credit reporting companies -- not the score, the report. look it over carefully for any mistakes, it does happen.
if everything looks good to you, ask your friends, neighbors, and anyone who owns a home who their lender is. choose carefully and then go get a pre-approval for a loan. this will give you a range of mortgage so you can start house hunting. it is NOT what you will end up borrowing and may not be where you finally get your loan. it is what the mortgage company thinks you might be able to pay. save your money during the process and don't make any large purchases (anything you buy, especially on credit, will show up at the last minute before closing and may delay your purchase of a home!)
work with a good realtor who specializes in buyers...he/she will have good tips for the state and area where you are looking to buy.
everything is not the same nationwide; closing costs, down payments and fees vary according to local practice and, because of changes after the housing crisis, everything can take longer than it used to take. 60 days is not unusual in most localities. the only time you can close in less than 30 is when YOU have cash, (no mortgage asked for) and a very high credit score with little debt.
a 10 day close is mostly a thing of the past.
Forgot to add that I have never asked for a principle rate reduction, even though the current value is about 20% below the $120,000 I owe on my mortgage.
This article is very misleading and full of errors. I was in mortgage lending for over 45 years; was an underwriter for both conventional and government loans for over 20 years.
1) Desktop Underwriter and Loan Prospector are for FNMA/FHLMC loans and are not accepted by all lenders or necessarily by FHA/VA lenders.
2)The borrower does not hire the appraiser - the lender does.
3) Processors do not usually scrutinize the application - they do order credit report, request additional documentation, order title information and appraisal. If they are good processors, they will have all the information required by underwriting. They seldom "consult" with the underwriter during this process.
4) Underwriter does not make sure the loan qualifies for FNMA/FHLMC,FHA and VA. A home loan is either Conventional (FNMA/FHLMC) OR Government (FHA/VA). The requirements for conventional loans are pretty standard throughout the industry; however, FHA and VA loans each have their own set of guidelines for both the borrower and the property. FHA's guidelines for borrowers are similar to Conventional but property guidelines are more stringent. VA is on a completely different planet.
Tip for borrowers-It's true a mortgage loan broker will be able to submit your loan to two or three different lenders, but they will probably charge higher fees. If you go directly to a lender, the fees may be more reasonable and the turn around time should be shorter (especially if they have an onsite underwriter. After your loan has been approved, but before you go to closing, request a copy of the "estimated" closing costs.
To answer Captain Jeff, the reason was simple: it was arranged that way.
When Barney Frank set up Fannie Mae and Freddie Mac, he ordered the lenders to give out bad loans to unqualified borrowers on purpose....
1) The borrowers were steered into an adjustable-rate mortgage, not understanding that the interest would increase sharply within a year or two. (I tried to go for a fixed rate; the lender said, "We can't give you that." Baloney. They COULD, but didn't WANT to.)
2) Banks then gave out ridiculous loans to people barely making $10.00 an hour, but trying to invest anyway. They knew the loans would default. Barney Frank said, "Don't worry about it. We'll just steal money from the Middle Class taxpayers to bail you out." (You'll notice President Obama had done just that.)
3) SMART banks knew it was a bait-and-switch scam. BUT...! If they refused to lend money to unqualified borrowers, they would be FINED. There is muddled language in the Fannie and Freddie scam, that would essentially charge lenders with "discriminatory lending practices" if they refused to give out bad loans.
4) The bad loans were, however, very popular. Hundreds of thousands of unqualified borrowers bought houses they didn't really need, and could never afford; so they got foreclosed.
5) The "bubble" was DESIGNED to burst! When it did, the foreclosed houses were dumped back on the open market at a price WAY BELOW their earlier value. This allowed politically-connected investors to buy up those properties for pennies on the dollar.
6) If not, then the Government (specifically, HUD) could just step in and take over. Thus, the Government pulled off a virtual "eminent domain" scam, without actually calling it that.
If you know your History, you would notice that this is EXACTLY the same M.O. the Government had pulled with the stock market boom/bust in 1929, and the "dot-com" boom/bust under the Clinton Administration. It was PLANNED FAILURE all the way! The love of money is the root of all evil.
In Arizona, the appraisals are dished out in a lottery fashion. The lenders and/or banks are not allowed to just call any appraiser they wish. Appraisals are assigned randomly to avoid the obvious.