Loan Process: Preparation To Successful Loan Closing

Where do you begin to secure finances for purchasing a new home, refinancing an existing home, or obtaining a real estate equity line of credit? Loan acquisition can get confusing, but you can simplify the process and avoid a lot of potential headaches by getting off to a good start. Here are a couple of ways to do so:

Build your green file.
Organizing and compiling all pertinent financial documents into a green file is an absolute must for any potential borrower. Think of the green file as a resume or profile that will give lenders an idea of what kind of debtor you might be. The typical green file should contain:

• Financial statements
• Bank accounts
• Investments
• Credit card
• Auto loans
• Recent pay stubs
• Tax returns for two years

Consider your credit rating.
Another means by which lenders gauge your trustworthiness as a borrower is through your credit rating. These indicate your credit history, which includes such crucial information as the number of your open loans and the punctuality of your past payments.

• Treat your credit like gold.

Credit ratings are important because they often determine whether or not you will be approved for a loan and what your interest rate will be. Thus, you cannot take your credit seriously enough! We suggest checking your credit reports at least once a year or before making any major purchase to ensure the accuracy of the information contained there.

• What the scores mean.

Ratings usually vary between 400 and 800. Anything above 620 is good. If you exceed 680, you are considered premium and may even get a lower interest rate.

• Determine your credit rating.

You can do this by contacting a credit reporting agency such as Equifax, Experian or Trans Union. Above all, don’t hesitate to consult with your lender if you need to improve your rating.

Prioritize your costs and savings.

Buying real estate wisely is all about choosing what to spend for first.

• Prioritize your costs.

Down payments, closing costs and additional expenses (such as inspections) should be at the top of your list. On the other hand, be sure to pay down on your current revolving and high-interest rate debts, such as credit cards.

• Remember: lenders like stability.

Instill confidence in your potential lender by avoiding any big, sudden moves both in your career and your finances. If that job change or big budget purchase absolutely cannot be postponed, check with your lender first and consider the consequences.

How is pre-approval different from pre-qualification? What are the advantages of each and which option would be the best for you?

Pre-Qualification
This is an assessment by the lender, based on certain basic information given by the borrower (e.g. employment, income, asset information, current monthly debt, and credit worthiness). Based on this quick evaluation the lender makes a tentative decision to pre-qualify the borrower for a certain loan amount. This does not commit the lender at all to the applicant, being only an opinion of the lender.

Pre-Approval
Like a pre-qualification, a pre-approval involves a lender making an assessment of a borrower’s buying capacity based on her or his income. But unlike a pre-qualification, a pre-approval letter also checks the applicant’s credit and is a surer verification of a borrower’s income. It takes longer to process and will require more comprehensive documentation, but gives a clearer and more definitive guarantee of the loan amount a borrower is entitled to.

Why Choose Pre-Approval?
It’s advisable to go straight to a pre-approval for several reasons. A pre-approval can strengthen your purchasing power: as a far more accurate evaluation of how much house or real estate you are capable of buying, it will be more appealing and thus perform better than a pre-qualification in a competitive sellers’ market. It’s also more time-effective since it reduces the time your lender will need to process and fund your loan.

Brokers and lenders: telling the difference
The lender or creditor is the party who 1) disburses or provides funds to the borrower at the end of a successful loan application process, and 2) receives the note attesting the borrower’s obligation to repay. The broker, meanwhile, acts as an intermediary between the borrower and the lender and serves as the applicant’s main contact throughout the process. The mortgage broker usually receives a service fee from the lender for customer services rendered.

Loan application forms: where to find them
Most forms can be downloaded from a lender’s website. Fill out all forms accurately and completely, and contact your lender for any questions or clarifications.

Documentation: keeping your papers in order
It’s highly recommended to keep an organized dossier containing both originals and copies of all documents accumulated throughout the entire application process. These will include:

• 2 years of W-2 forms from the employer, or 2 years of tax returns for those who are self-employed

• Recent pay stubs covering 30-days

• 3 months of bank and money market statements

• Brokerage, mutual fund and retirement account statements

• Proof of other income sources (alimony, trusts, rental income, etc.)

• Credit card statements

• Auto /boat / student / miscellaneous loans

• Drivers’ license or form of ID

• Copies of visa or green card (for non-US citizens)

• Copies of existing mortgage debts (for those applying for a home equity line of credit or another mortgage)

·  Verification of  Mortgage or Rent (copy of 12 months cancelled checks FRONT AND BACK)

•  Self-Employed

q       Last two (2) years personal Tax Returns

q       Last two (2) years business Tax Returns

Ø      Profit and Loss statement (current year)

It is important for you the borrower to have all the paperwork ready, and submitted it to us, so when you are ready to make an offer on a property, we can act quickly and submit all the paperwork to the lender who can pre-approve you. We will then submit your pre-approval letter to the seller. If you do not have anything handy and ready you may lose the opportunity to someone who had everything ready and submitted the offer to the seller's agent.

Underwriting: keeping in touch
Underwriters, hired by lenders, are analysts who examine all the data from a borrower’s property and transaction, and ultimately determine whether or not mortgages should be issued to the applicant. Loan approval committees will use underwriters’ reports during their deliberations to evaluate the property and the applicants’ creditworthiness. Your broker may contact you frequently in the course of this process, so prompt communication is necessary to keep the process running smoothly.

Signing
Here comes the best part. Once your lender has agreed to close or fund your loan, the signing can begin. Before this happens, however, be sure to verify and finalize all the documents, and to supply any additional requirements (such as photo IDs or cashiers’ checks). The final loan documents are usually signed in the presence of an escrow officer or a notary.

Wiring funds
Your payment is either automatically deducted or wired—in the latter case, the money is electronically transferred between financial companies. Make sure that the wiring instructions as well as all important numbers must be clarified and checked for accuracy by both parties.

Give yourself a pat on the back. Your loan is now funded! Tie up any loose ends by confirming the money transfer with your broker and filing all pertinent documents of the transaction.

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