The Home Loan Process

Pre Qualification and Pre Approval are similar to one another. When you want to start shopping for a home, you and your Realtor will need to know how much house you can afford.

When you get pre-qualified/pre-approved for a mortgage you mortgage lender will look at your ability and willingness to repay the loan. To determine this, you will need to document your income, monthly debt obligations and credit history.

Are you ready to get pre-approved? Click here to apply.

To properly analyze a mortgage program, the borrower needs to think about how long he or she plans to keep the loan. If you plan to sell the house in a few years, an adjustable or balloon loan may make more sense. If you plan to keep the house for a longer period, a fixed loan may be more suitable. With so many programs to from which to choose, each with different rates, points and fees, shopping for a loan can be time-consuming and frustrating.

One of our experienced Mortgage Advisors will analyze your specific situation & goals and recommend the most suitable program for you. Check out our Mortgage Loan Programs for more information.

If you would like to get more information about this program to see if it suits your needs, give us a call at 541-323-0422.

Once you have signed a Purchase Agreement for a new home, or once you are ready to refinance, you will need to complete your Loan Application. With Arbor Mortgage Group, you can do this online through our secure site, or via telephone/in person if you prefer. During this process, your Mortgage Advisor will walk you through the different loan programs and discuss the closing costs and associated fees. Once this is complete and you provide your Mortgage Advisor with the necessary documents, your loan is ready to be submitted to underwriting.

Purchasing a Home – W2 wage earner:

• 2 years W2 (if applicable)
• Last 2 years of personal tax returns
• Last 30 days of paystubs
• Last 2 months Personal Bank Statements Please include all pages of each monthly statement
• A Copy of your Driver’s License
• Name of Hazard Insurance you will use for the property (once you have this identified)
• Purchase Agreement / Earnest Money Receipt

Purchasing a Home – Self Employed/Business Owner

• Last 2 years of Personal Tax Returns
• Last 2 years of Business Tax Returns
• 2 years W2 (if applicable)
• YTD Profit & Loss Statement and Balance Sheet
• Last 2 months Business and Personal Bank Statements Please include all pages of each monthly statement
• A Copy of your Driver’s License
• Name of Hazard Insurance you will use for the property (once you have this identified)
• Purchase Agreement / Earnest Money Receipt

Refinancing – W2 wage earner:

• Last two years of Personal Tax Returns
• Last two years of W2s for you both
• 30 days worth of paystubs
• A Copy of both of your Driver’s Licenses
• Copy of your Homeowners Insurance Declaration Page to show the annual premium
• Most Recent Mortgage Statement & HOA Statement (if applicable)

Once the application has been submitted, the processing of the home mortgage begins. The Processor orders the Credit Report, Appraisal and Title Report. The information on the application, such as bank deposits and payment histories, are then verified. Any credit derogatories, such as late payments, collections and/or judgments require a written explanation. The processor examines the Appraisal and Title Report checking for property issues that may require further investigation. The entire home mortgage package is then put together for submission to the lender.

Most people applying for a home mortgage loan need not worry about the effects of their credit history during the mortgage loan process. However, you can be better prepared if you get a copy of your Credit Report before you apply for your home mortgage. That way, you can take steps to correct any negatives before making your application.

A Credit Profile refers to a consumer credit file, which is made up of various consumer credit reporting agencies. It is a picture of how you paid back the companies you have borrowed money from, or how you have met other financial obligations. There are several categories of information on a credit profile:

• Identifying Information
• Employment Information
• Credit Information
• Public Record Information

Inquiries NOT included on your credit profile is race, religion, health, driving record, criminal record, political preference, or income. If you have had credit problems, be prepared to discuss them honestly with a mortgage professional who will assist you in writing your ‘Letter of Explanation.’ Knowledgeable mortgage professionals know there can be legitimate reasons for credit problems, such as unemployment, illness, or other financial difficulties.

If you had problems that have been corrected (reestablishment of credit), and your payments have been on time for a year or more, your credit may be considered satisfactory. The mortgage industry tends to create its own language, and credit rating is no different. BC mortgage lending gets its name from the grading of one’s credit based on such things as payment history, amount of debt payments, bankruptcies, equity position, credit scores, etc. Credit scoring is a statistical method of assessing the credit risk of a mortgage application. The score looks at the following items: past delinquencies, derogatory payment behavior, current debt levels, length of credit history, types of credit and number of inquires.

By now, most people have heard of credit scoring. The most common score (now the most common terminology for credit scoring) is called the FICO score. This score was developed by Fair, Isaac & Company, Inc. for the three main credit Bureaus; Equifax (Beacon), Experian (formerly TRW), and Empirica (TransUnion). FICO scores are simply repository scores meaning they ONLY consider the information contained in a person’s credit file. They DO NOT consider a person’s income, savings or down payment amount.

Credit scores are based on five factors: 35% of the score is based on payment history, 30% on the amount owed, 15% on how long you have had credit, 10% percent on new credit being sought, and 10% on the types of credit you have. The scores are useful in directing applications to specific loan programs and to set levels of underwriting such as Streamline, Traditional or Second Review. However, they are not the final word regarding the type of program you will qualify for or your interest rate.

Many people in the mortgage business are skeptical about the accuracy of FICO scores. Scoring has only been an integral part of the mortgage process for the past few years (since 1999); however, the FICO scores have been used since the late 1950’s by retail merchants, credit card companies, insurance companies and banks for consumer lending. The data from large scoring projects, such as large mortgage portfolios, demonstrate their predictive quality and that the scores do work. The following items are some of the ways that you can improve your credit score:

• Pay your bills on time.
• Keep Balances low on credit cards.
• Limit your credit accounts to what you really need. Accounts that are no longer needed should be formally cancelled since zero balance accounts can still count against you.
• Check that your credit report information is accurate.
• Be conservative in applying for credit and make sure that your credit is only checked when necessary.

A borrower with a score of 680 and above is considered an A+ borrower. A loan with this score will be put through an ‘automated basic computerized underwriting’ system and be completed within minutes. Borrowers in this category qualify for the lowest interest rates and their loan can close in a couple of days. A score below 680 but above 620 may indicate underwriters will take a closer look in determining potential risk. Supplemental documentation may be required before final approval. Borrowers with this credit score may still obtain ‘A’ pricing, but the loan may take several days longer to close. Borrowers with credit scores below 620 are not normally locked into the best rate and terms offered. FHA may be a mortgage solution for in this score range but will be evaluated on a case-by-case basis. The loan terms and conditions are less attractive with these loan types and more time is needed to find the borrower the best rates.

All things being equal, when you have derogatory credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation, assets, etc. play a larger role in the approval decision. Various combinations are allowed when determining your grade, but the worst-case scenario will push your grade to a lower credit grade. Late home mortgage payments and Bankruptcies/Foreclosures are the most important. Credit patterns, such as a high number of recent inquiries or more than a few outstanding loans, may signal a problem. Since an indication of a ‘willingness to pay’ is important, several late payments in the same time period is better than random lates.

An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights to be appraised. The appraiser does not create value, the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. Considerable research and collection of data must be completed prior to the appraiser arriving at a final opinion of value. Using three common approaches, which are all derived from the market, derives the opinion, or estimate of value.

The first approach to value is the COST APPROACH. This method derives what it would cost to replace the existing improvements as of the date of the appraisal, less any physical deterioration, functional obsolescence, and economic obsolescence. The second method is the COMPARISON APPROACH, which uses other ‘bench mark’ properties (comps) of similar size, quality and location that have recently sold to determine value.

The INCOME APPROACH is used in the appraisal of rental properties and has little use in the valuation of single-family dwellings. This approach provides an objective estimate of what a prudent investor would pay based on the net income the property produces.

Once the processor has put together a complete package with all verifications and documentation, the file is sent to the lender. The underwriter is responsible for determining whether the package is deemed an acceptable home loan. If more information is needed, the loan is put into ‘suspense’ and the borrower is contacted to supply more information and/or documentation. If the mortgage loan is acceptable as submitted, the loan is put into an ‘approved’ status.

Once the home loan is approved, the file is transferred to the closing and funding department. The funding department notifies the broker and closing attorney of the approval and verifies broker and closing fees. The closing attorney then schedules a time for the borrower to sign the loan documentation.

At the closing the borrower should: Bring a cashiers check for your down payment and closing costs if required. Personal checks are normally not accepted and if they are they will delay the closing until the check clears your bank. Review the final loan documents. Make sure that the interest rate and loan terms are what you agreed upon. Also, verify that the names and address on the loan documents are accurate. Sign the loan documents. Bring identification and proof of insurance.

After the documents are signed, the closing notary returns the documents to the lender who examines them and, if everything is in order, arranges for the funding of the loan. Once the loan has funded, the closing attorney arranges for the mortgage note and deed of trust to be recorded at the county recorders office. Once the mortgage has been recorded, the closing attorney then prints the final settlement costs on the HUD-1 Settlement Form. Final disbursements are then made and this is when you get the keys to your new house (or this is when your loan if refinancing).