Loan processing
In processing your
loan application, the mortgage lender will be primarily interested in two
things:
The property that
you plan to buy (since it serves as collateral for the loan), and your financial
situation and your credit history (since they will determine your
ability and your willingness to repay the loan).
The mortgage lender will
request an appraisal of the property, request a credit report on
you and any co-borrowers, and verify the information in your loan
application.
Property
appraisal
The mortgage
lender will arrange to have the property appraised, a service for
which you will probably be charged.
A professional appraiser will estimate the market value of
the house.
This information
is needed because the mortgage lender will loan you not more than a given
percentage (often 95 percent) of the value of the property (the
“loan-to-value ratio”).
If the appraised
value is less than the purchase price you have agreed upon, the
amount of your mortgage may be smaller than you anticipated and
you will have to come up with a larger down payment.
Credit
report
The mortgage
lender also will order a credit report on you and your spouse or
any other co-purchasers.
The credit bureau
report will show how you have handled past debt and credit
accounts, such as car loans, charge accounts with stores, and any
purchases made on credit.
If you have
recently obtained and reviewed a copy of your credit report, there
should be no surprises during the loan application process.
Similarly, if you
provided the mortgage lender with complete documentation of your
nontraditional credit history (canceled checks or receipts
documenting your rental or utility payments) and this
documentation demonstrates good bill-paying habits, you should be
in good shape.
It is not unusual
for the mortgage lender to ask you for a written explanation of
any negative items that appear on your credit report.
Even one late payment on just one account may require a
written explanation.
Verification
The mortgage
lender also will verify the information provided on the loan
application as to your income and employment history, your assets
(checking and savings account, etc.) and your rent payment
history.
Approval
of the mortgage insurer
If mortgage
insurance is a requirement of the loan, the loan will also have to
meet the underwriting standards of the mortgage insurer.
If you are
obtaining FHA, VA, the loan must also meet those
standards. Get more information on the standards of FHA loans and
VA loans below:
Commitment
letter
When your mortgage is approved, the
mortgage lender
will send you a commitment letter.
It will state the mortgage loan amount (the
purchase price less the down payment), the term of the mortgage
loan (the number of years you have to repay the loan), the loan
origination fee (a percentage of the loan amount), the points, the
APR (the actual finance charge taking into account the interest
rate and origination fees), and the monthly charges (PITI).
You will be given
a set amount of time to accept the mortgage loan offer and to close.
Be certain that
you understand and will be able to comply with any conditions set
by the mortgage lender in the commitment letter before you sign
it.
By signing the
commitment letter, you accept the terms and conditions of the loan
offer.
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Loan
Rejection
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