Loan Process
Step 1. How much can I afford?
The first stage in applying for a mortgage is typically prequalifying for one. Your credit score determines your interest rate, loan choices and your minimum down payment. Ultimately, the maximum size of your loan amount will be determined by your debt-to-income ratio (DTI), which is the percentage of monthly gross income that goes towards paying debts. In general terms, the lower your DTI, the more you may be eligible to borrow and the more financing options may be available to you.
We recommend that you are pre-qualified before starting to look for your new home as this will 1. allow you to search for properties in your price range, 2. let the seller know that you are a serious and qualified buyer which ultimately puts you in a better position to negotiate, and 3. help you close your loan as quick as possible.
Step 2. What items do I need to pre-qualify for a loan?
To receive a pre-qualification letter from us typically you will need:
W2 employees:
- One or two years W-2 forms (depending on the type of loan chosen)
- Last paystubs
- Last two years personal tax returns
- Copy of your savings and investments statements (to verify source of down payment and reserves)
- Minimum two-year employment history, which may include some college or university work in a related subject area
- Minimum two-year history of good credit including three or four trade lines on your credit report which demonstrates ability of paying bills on time If you are self-employed, optimizing your savings, credit score, down payment; minimizing your debts; and maintaining an up-to-date profit-and-loss statement is a good strategy. Your income will generally be computed using your past two tax returns.
For self employed borrowers:
- Your income will generally be computed using your past two years business tax returns.
- Having current interim financial statements (Balance Sheet and Profit and Loss Statement) for the current year with a comparable period in the prior year are also important.
- Personal income, good credit, savings and investment statements verification (similar to the requested items in the W2 section).
Step 3. What is the best loan option for me?
Before choosing a loan option for your specific needs it is important to ask yourself the following questions:
- How long do I plan to live in this house? Do you plan to sell the house in the next three, five or seven years or do you see yourself retiring in this house?
- Do I want a fixed monthly payment for the life of my loan so that I know how much I have to pay each month for the life of the loan?
- Do you believe the economic situation in the country is such that interest rates will be lower in the future and as such you feel more comfortable with a variable interest rate loan?
Fixed Rate Loans:
With a fixed-rate mortgage, your interest rate stays "fixed" for the life of the loan. That means your "principal and interest payments will also stay the same" for all the years on your mortgage. Your property taxes and insurance tend to increase or decrease on a yearly basis, therefore, adjusting your overall total monthly payments. One of the advantages of this type of loan is that if rates in the market increase, your rate won’t change unless you decide to refinance. With a fixed-rate mortgage, borrowers are also able to predict their monthly cash flow needs as this type of loan comes with lower payments that can be spread out over fifteen or thirty years.
Adjustable Rate Loans"
An adjustable rate mortgage (ARM), is a loan in which the interest rate varies according to the performance of a predetermined index and pricing schedule. The initial interest rate will be fixed for an allotted period of time, after which it is reset periodically. As an example, a 3/1 ARM locks in the current interest rate for the initial three years. After that, the rate for that particular product will change based on a predetermined index + margin with a cap every year.
ARMs could start with better interest rates than fixed-rate mortgages, in order to compensate the borrower for the risk of future interest rate fluctuation. This is a viable option if you only plan to live in your new home for a few years.
Step 5. Work with our loan processor
This is one of the most important steps in the loan process. In this steps your loan mortgage loan officer will introduce you to a very important member of our company and our team, your "loan processor". This person along with your mortgage loan officer is responsible for working with you:
- Verify all information provided during the application process
- Collect copies of savings and investment statements to be used as a source of down-payment and reserves. If part of the down-payment will come from a family member, during this stage a copy of a gift letter will also be required along with copy of bank statements showing the funds have been in the account with your name on it for at least sixty days.
- Review and discuss appraisal to ensure proper value exists to meet loan to value requirements set for by the lender.
- Work with title company to ensure items required for title work are provided and completed.
- Clear all conditions to close items to required by the lender to get ready for closing.
Step 6. Close your loan
This is the stage you have been waiting for since applying for your loan. Congratulations! You must now decide where you would like for the closing to take place:
- At our offices
- Title company
- Your new home
Regardless of the location chosen for closing, the signing will take place in front of a notary public registered with the state.
You are now ready to begin signing the final loan documents. It is our recommendation that you take the time to review every page of the loan documents for accuracy of your name, agreed upon terms at time of approval and additional terms and conditions associated with your desired loan.
With the purchase of a home and transfer of its ownership there are several fees (to include the down payment) that must be paid at or prior to closing. These fees will be disclosed by the title company prior to closing. Normally, personal checks are not accepted and these items are paid via a cashiers check.
