Step 1: Preparation
Loan acquisition can be an extensive and confusing process. Whether you are securing finances for a real estate purchase, refinancing an existing home, or obtaining a home equity line of credit, there are several aspects to consider.
Prepare Necessary Documentation:
Different loan programs require different documentation. Therefore, to save time and begin the process in an organized fashion, we recommend creating a folder with all relevant documentation. Prepare a folder with the following documentation for all borrowers on the loan (Include Originals and Copies of Each):
(3) Months Bank Statements
(3) Most Recent Pay-Stubs
(2) Most Recent Income Tax Filings (W2 or 1099's) with employer information
Information about any second loan on your house (if relevant)
Most recent credit card statement
Documentation of other debts including student loans and auto loans
Current Complete Investment Statements
Clear Copy of Drivers License
Copy of Visa or Green Card
Anything else you feel may be relevant to your unique financial situation.
Consider Your Credit Rating:
From a lender's perspective, the most common measure of an applicant's financial trustworthiness is the credit rating. It is important to treat your credit rating with high importance and take it seriously. A favorable credit score will result in a much better rate on your next loan and will enhance the likelihood of qualifying for the best programs available - thus providing you with more options! Here are some useful tips to consider in regards to your credit score.
'Put Yourself in the Lender's Shoes...'
Lenders seek stability. We recommend refraining from major purchases if you are considering applying for a loan in the near future. Sudden changes in your financial life are red-flags for lenders and can have a profound impact. Just some things to consider:
- Refrain from big budget purchases before obtaining a loan.
- If possible, refrain from, or postpone, employment changes. Again, stability is key.
Step 2: Selection
Selecting a Lender and a Loan Type are very crucial decisions that you must make. The loan is something you will have to live with for many years to come so you spend ample time conducting your research. There are several factors to consider when choosing a lender including: Price and Diversity of Products.
Price
Different lenders offer different rates and charge different fees. Be sure to account for all fees including Mortgage Rates, Interest Rates and other associated fees. Beware, although some lenders may offer lower rates, they may make up for this by charging high fees.
Diversity of Product
Although price is very important, it should not be the only determining factor when choosing your lender. Different lenders are approved to offer different loans. The loan product you select is extremely important. Again, you will be living with the product for years to come. Is the Rate fixed, Adjustable or Hybrid? Request a 'Niche List,' or a full menu of the loans the lender is offering. Here are some of our most popular products:
'1 Day Out of Short-Sale:' - Standard FHA financing for Short Sale Properties. 3.5% Down.
Investment Property: Conventional financing of up to (10) properties
FHA Loans - No FICO and Below 620 Available. 3.5% Down
FHA Good Neighbor: HUD REO properties only. HUD offers up to 50% discount off of listing price.
FHA Access: 1/2% Down Payment
FHA 203K Rehab: FHA Investment/Rehab
CalPERS: California Public Employees Retirement System
Conventional: 5% Down payment
CalSTRS: California State Teachers Retirement System
Step 3: Figures
Once you have established your lender you can proceed in running the figures and begin analyzing the products in greater detail. Throughout the financing process you may encounter some terms that you may not be familiar with. If you don't understand something or have any questions, be sure to ask your processor and make sure to get all of your questions addressed! The following are some fees associated that may be associated with your loan.
Credit Report Fee
Approximately $15 - $50 dollar fee to run your credit and obtain a score. Your lender will acquire it through a major credit bureau such as Equifax, Experian or Transunion. The report will detail all outstanding loans and repayment history.
Application Processing Fee.
Your lender will usually apply a fee of approximately a couple of hundred dollars called the Application or Processing Fee. This is usually applied at the closing of your loan.
Annual percentage rate (APR).
The APR, or Annual Percentage Rate, is the sum of all of your borrowing costs as a percentage interest rate charged on the loan balance.
| For Example: After fees, the original interest rate quote of 5.875% might work out to a 6% APR loan, in which the interest costs about $6,000 per year for every $100,000 borrowed, and the principal payments are calculated based on the duration of the loan term (for example 15, 20, or 30 years). |
Indexes:
if your loan is an Adjustable Rate Mortgage (ARM), it may be tied to an index. Changes in indexes such as the Federal Funds Rate and the Treasury Bill are used to periodically readjust the interest rates in adjustable rate mortgages (ARMs).
Points.
When mortgage companies are competing by offering lower interest rates, they may charge you a “point,” or a one-time pre-paid interest fee, calculated as a percentage of the loan. Points are considered part of the cost of credit to the borrower, and part of the investment return to the lender. They may range from 0.25% to 2% of the loan balance, and are usually paid up-front.
Appraisal cost:
This is the fee given to an independent appraiser who may be hired by your lender to evaluate the property’s purchase price, condition and size in relation to similar recent neighborhood sales. This is relevant to the lender as it ensures repayment in case the borrower defaults, forcing the sale of the property.
Miscellaneous fees:
Various costs will be incurred during the processing of your loan request, such as notary, courier, and county recording fees.
Pre-payment penalties:
A prepayment penalty is a provision of your contract with the lender that states that in the event you pay off the loan entirely, you will pay a penalty. Penalties are usually expressed as a percent of the outstanding balance at time of prepayment, or a specified number of months of interest. They often decline or disappear altogether with the passage of time.
Step 4: Pre-Qualification vs. Pre-Approval
Do not get being Pre-Qualified confused with being Pre-Approved. A Pre-Qualification is basically an informal approval and guestimate of the amount of loan you may be approved for. In a Pre-Qualification, credit is not checked and income is not verified. A Pre-Approval is a more formal analysis and assessment of a borrower's buying capacity based on income and other factors. The process takes slightly longer and will demand more comprehensive documentation. However, the result is a more definitive guarantee of the loan a borrower will qualify for.
We advise our clients to go straight for the Pre-Approval. This will save tons of time provide everyone involved with a greater understanding. In a competitive seller's market, a Pre-Approval will provide a more powerful basis and leverage for negotiating your transaction. Apply Now to Get Pre-Approved!
Step 5: Application
Loan application forms: where to find them
You can download most forms from your lender's website. It is vital that you fill out all forms accurately and completely as this will save lots of time. With any questions or clarifications, do not hesitate to ask your lender. We walk our clients through the entire application process and will answer any of your questions.
Documentation: Refer to Step 1
Remember in Step 1 when we recommended you create a folder with all necessary documentation? This is where you will be able to benefit from your organization. Different loans will require different documentation but refer to Step 1 to get an idea of what you will need.
Underwriting:
The underwriters work directly for the lenders and serve as analysts to examine all data presented by prospective borrowers. They will determine whether or not mortgages would be issued to applicants. We will be in constant communication with you during this phase. Prompt communication is imperative as the underwriters may request clarification of certain issues during this process.
Step 6: Funds
Your mortgage was approved and your lender has agreed to fund your loan. Now What?
Signing
Upon your lender's loan approval, we will meet with you to finalize and verify all documents. If there are any additional requirements needed, we will also get those addressed. Final loan documents will be signed in the presence of an escrow officer or a notary public.
Funds
Your payment will likely be either wired to you or simply transferred between financial companies. Be sure to verify the wiring instructions and important numbers are checked for accuracy.
Congratulations! Your loan is now funded!
Call Today! (626) 825-6565