Financing: The Loan Process
The financing addendum states a time in which you need to apply for financing on the subject property in writing (typically 5 days from mutual acceptance). You will need to work in a timely fashion. It is important that you provide all information requested by your lender ASAP, to meet your obligation regarding financing.
Monthly cost per $1,000 in loan amount for a 30 year amortization
(principal and interest only).
- % Rate = Dollars per thousand borrowed ($100,000 @ 6.5% = $633/Month)
- 4.5 % = $5.07
- 5.0 % = $5.37
- 5.5 % = $5.68
- 6.0 % = $6.00
- 6.5 % = $6.33
- 7.0 % = $6.66
- 7.5 % = $7.00
- 8.0 % = $7.34
The lender you select is important. The difference between a bank and a mortgage broker is rigidity. A mortgage broker can offer you more loans, and usually can shop the whole market. A mortgage broker is not just presenting you one "brand", and can package your loan and offer it to different lenders to get you the best possible financing rate.
Loan Application: Be prepared with data regarding your sources of income and credit information. You will be asked for:
- 2 year's of W-2's
- Verification of other sources of income.
- Estimate of assets, vehicles, valuables, collections and household items.
- Account numbers, addresses of the institutions and estimated balances of savings, money market, stock, and IRA accounts.
- A check to process the application.
- If self-employed you will need to provide the previous 2 years income tax returns.
- A copy of your Purchase and Sale Agreement if available on your new purchase.
The loan officer will figure loan costs and payments of the loan, and fill out a loan application form. You will sign the application and forms allowing the loan officer to verify your income and funds. At this point the loan officer should give you a "good faith" estimate showing charges you will have to pay for the loan.
Underwriting: When all items needed for the loan package are completed, the loan will be reviewed to make sure that the loan meets the underwriting requirements. The five items are:
- 1. Title Report: It must be clear (or be able to be cleared) prior to closing of liens such as existing loans, judgments and divorce property settlements.
- 2. The Appraisal: It must validate the purchase price. The house may require "work orders" to meet lender's standards and secure the loan.
- 3. Credit Reports: If unusual items appear, sometimes a letter of explanation is necessary. You will be interviewed by telephone no matter how spotless the history.
- 4. Verification of Employment: The employer states income and length of employment.
- 5. Verification of Funds: The funds to close the transaction must be verified as belonging to the purchaser.
When the loan is reviewed and approved, you will receive a phone call and a letter. You will need to remove your financing contingency from your purchase and sale agreement. DO NOT remove the contingency until you receive your letter in order to assure yourself that there are not conditions you can not meet, such as work orders.
Appraisal: You will need to give a check to your lender for them to order the appraisal. We will make arrangements to let the appraiser in to the property to conduct the appraisal.
Loan Approval: To obtain loan approval you need a knowledgeable and experienced loan officer who works with a good loan processor and who has in-house underwriters, who can approve your loan.
Property Insurance: You will need a binder (policy) for hazard insurance on the property for the lender prior to closing.
Order a copy of your Credit Report:
Equifax Credit Bureau
P.O. Box 740241
Atlanta, GA 30374-0241
(800) 685-1111
(770) 612-3200
www.equifax.com
Experian
P.O. Box 949
Allen, TX 75013-0949
(888) 397-3742
www.experian.com
Trans Union Corporation
Consumer Disclosure Center
P.O. Box 390
Springfield, PA 19064-0390
(800) 916-8800
(800) 682-7654
www.tuc.com