Mortgage Loan Application Process

The application process for mortgage loans has been effectively standardized and simplified over the course of the last 10 years. Previously, each application had to be submitted individually on mimeograph paper through a typewriter. Any errors required that the entire document be rewritten. These files were sent to a lending institution and the loans were treated on a case-by-case basis, regardless of the strength of the borrower. This was a slow laborious process that allowed for Zero Defects. This was only 15 years ago. The government Agencies- FNMA (Fannie Mae), FNMC (Freddie Mac), etc. develop a methodology to streamline the process amongst like borrowers. That is the box that each borrower is placed in, and the loans and programs available for the person are determined.

A borrower will then go to a broker or lending institution to get a loan.

The government agencies have standardized the lending to a simple document (1003) that incorporates all of the four components of a borrowers financial situation. The four components are: Credit, Reserves, household Income and the actual deal being presented. Credit: these borrowers typically share a common Credit Score range. Credit Scores can be from 400 to 850 and they are reported by the four major credit agencies. These scores are a reflection of a borrower’s pay history and they portray how an individual uses his or her credit. The credit bureaus that every mortgage broker uses use three of scores and take the middle score. Every borrower is adjudged according to the credit score what programs are available for that particular lending situation.

Reserves: This is the asset reserve that a borrower has accumulated. The reserves can be in any form: checking, savings, 401k, retirement account, Stocks, Bonds, etc. but not collectables. Household Income: This portion can be difficult, as not all borrowers are W-2 employees. This inconsistency developed into the multiple Stated Income and No Documentation programs.

The Actual deal is basically the amount of the loan in relation to the asset. The kind of asset also will change the risk variable for the lender- Is the house a two-family? Is the property Raw Land? Is the house a Primary residence? Is the home a Condo? An appraisal by a licensed appraiser has to be performed to set a valuation on the asset. The value is most easily determined by comparable sales in the area over the last year. The values of homes fluctuate year-to-year, decade-to-decade, and this valuation sets the value in the present.

The less information that the lender has, or the farther from a ‘typical’ loan, the more risky the lending proposition is for the lender. The higher the risk to the lender, the higher the rate and/or the higher the costs to the borrower.

Compare rates to find the best deal available for the programs that are available for you for this financing. Go to Closing and sign all of the documentation. This is done with a Title company or a lawyer (depending on the State) selected by the Broker or the lender.

After the signing for primary residences there is a three-day Right of Recession to protect the borrower in the event that they decide to abandon the deal that has been put in front of them.