The Mortgage Lending Process For Home Buyers
This Mortgage Blog On The Mortgage Lending Process Was Written By Gustan Cho NMLS 873293
The mortgage lending process does not have to be difficult and all of the horror stories about borrowers going through a stressful mortgage process and getting last minute mortgage denials can all be avoided. How can I say such a thing so easily? Because over 70 percent of my borrowers who contact me or are referred to me are mortgage borrowers who went through a very stressful mortgage experience and many of them has recently gotten a last minute mortgage loan denial by their lender. There is only one reason and a common denominator for borrowers going through Hell during their mortgage process: These borrowers were not properly qualified by their mortgage loan originators.
Qualifying The Borrower
Qualifying the borrower is the most important phase in the mortgage lending process. The number one reason of last minute mortgage loan denials is because the loan officer did not properly qualify the borrower. The loan officer needs to know two most important things.
- Mortgage Lending Guidelines : The mortgage loan originator needs to know the basic mortgage lending guidelines in the mortgage program that he or she is qualifying their borrower. Loan officers should realize basic guidelines such as the mininum credit scores required for the various lending programs such as FHA, VA, USDA, Fannie/Freddie. Loan officers should also know the debt to income ratios caps on the various mortgage lending programs as well as other basic mortgage guidelines
- Mortgage Lender’s Overlays: Most mortgage lenders have their own sets of separate mortgage guidelines that are called lender overlays . For example, to qualify for a 3.5% down payment FHA home purchase loan, a borrower needs a 580 FICO credit score.
- However, most mortgage lenders will require a higher credit score than the 580 FICO credit score required from FHA.
- Most banks and mortgage companies will require a 640 FICO credit score. This higher credit score standard required by the individual mortgage lender is called a lender overlay of credit scores.
- Same with outstanding collections and charge offs. FHA does not require that borrowers pay off outstanding collections and charge off accounts.
- However, most mortgage lenders will require that borrowers pay off outstanding collections and charge offs which again, it is called a lender overlays on collection accounts.
If you have outstanding collections and charge off accounts and are told that you do not qualify for a FHA Loan because you need to pay this off, please contact me at The Gustan Cho Team at CrossCountry Mortgage NMLS 3029 at 262-716-8151 or text me for faster response. You can also email me at firstname.lastname@example.org 7 days a week, evenings, weekends, and holidays. I have no lender overlays on all government and/or Conventional Loans.
Once the borrower has been qualified with the loan officer, the borrower needs to be pre-qualified with regards to income, liabilities, and assets. The mortgage pre-qualification process is the very first step of the mortgage lending process and the loan officer normally starts the pre-qualification of the borrower by interviewing the borrower by asking them a bank of detailed questions. Loan officers should request mortgage documents about the borrower’s debts, income, and assets as well as information on the home they are purchasing. Special emphasis should be placed on the borrower’s proposed property taxes, homeowners insurance, and homeowners association dues if applicable. The mortgage loan originator should explore the various loan programs that is best suited for the borrower and choose a loan program that has the highest chance of getting a solid approval and closing chances for the borrower.
Issuing A Mortgage Pre-Approval Letter
Every loan officer has their own way of when they deem the borrower fully pre-approved. Unfortunately, there are still loan officers who issue pre-approval letters in a matter of a few minutes without the necessary due diligence before issuing it. Yet, other loan officers like those who are under my management are required to only issue pre-approval letters if they are 99.9% confident that the loan will close. A sloppy pre-approval is the main reason why borrowers go through a stressful mortgage process.
Here is the steps of the mortgage lending process a loan officer should take prior to issuing a pre-approval letter:
- Properly pre-qualify the borrower
- Make sure that the borrower meets the minimum credit score requirements
- Run credit and review the borrower’s credit report and look out for credit disputes and make sure there are no credit disputes on non medical collections and charge off accounts
- Make sure that the borrower has enough cash to close and seasoned funds to close
- Make sure that the borrower meets the debt to income ratio requirements
- Get a verification of employment if the borrower has irregular income
- Make sure that you run the file through Automated Underwriting System and get automated approval
- Make sure that you can satisfy all conditions from AUS Findings
Completing Mortgage Loan Application During Mortgage Lending Process
Once the borrower makes a purchase offer and gets the executed real estate purchase contract to the loan officer, the mortgage loan originator is now ready to have the borrower complete the mortgage loan application and send out disclosures to their borrower. Once the borrowers acknowledge the mortgage disclosures and signs the mortgage loan application, the mortgage lending process has now began. The mortgage loan originator will get updated paycheck stubs, bank statements and collect all mortgage docs and have it put in order for the mortgage processor.
Mortgage Processing During Mortgage Lending Process
Once the mortgage loan originator has entered the mortgage borrower’s information on the LOS, Loan Origination System, and has gather all of the mortgage docs, the file is then assigned to a mortgage processor. The processor then will make sure that they have the following docs and each of the following docs are complete with no missing pages and that these documents are all updated and recent so it can be submitted to the underwriting department of the mortgage company. Here are the docs that processors will need:
- Completed mortgage loan application
- Copy of tri-merger credit report
- Two years of income tax returns
- Two years of W-2s and 30 days of paycheck stubs
- 60 days of bank statements
- Copy of real estate real estate purchase contract
- Social Security and/or Pension Awards Letter if applicable
- Divorce Decree if applicable
- Bankruptcy paperwork, all pages, if applicable
- Foreclosure, Deed in Lieu, Short Sale Paperwork if applicable
- Copy of drivers license and social security card
- Make sure that all credit disputes are retracted on non medical collections that has an aggregate total balance of $1,000 and retract all credit disputes on charge off accounts
- Letters of Explanations for derogatory credit, credit inquiries, late payments, collection accounts, gaps in employment, and other potential questions a mortgage underwriter may have
- Credit supplements and/or rapid rescores
- Mortgage processors orders title insurance and will clear all mortgage conditions after the mortgage underwriter issues a conditional mortgage loan approval
- Mortgage processors will clear all conditions listed on the conditional mortgage approval and will submit the file back to the mortgage underwriter for a clear to close
- Mortgage processors will work with the closing department in scheduling for a mortgage loan file to closing
Mortgage Underwriting During The Mortgage Lending Process
A great processor will make sure that all docs are in order and there are no missing pages on any of the documents and double and triple check and then submit it to the mortgage underwriting department. The file is then assigned to a mortgage underwriter for review. A properly packaged file by a mortgage processor will make the underwriter’s job much easier which means a quicker turnaround time with little conditions. The mortgage underwriter’s responsibilities include determining whether the mortgage application package submitted by the mortgage processor meets all mortgage lending guidelines as well as the mortgage lender’s overlays.
Clear To Close During Mortgage Lending Process
Once the mortgage processor has gathered all of the conditions listed on the conditional mortgage loan approval, the mortgage processor will then submit the file back to the mortgage underwriter for a clear to close. A clear to close, also known as the CTC, is when the underwriter has issued a clear to fund the loan and given its thumbs up for the closing desk to prepare closing documents and the Closing Disclosure, CD. The Closing Disclosure is prepared and the title company will figures from both the sellers side and buyers side and come up with a cash to close figure where the home buyer needs to wire to the title company. Upon a clear to close, there is a three day waiting period for the closing to take place due to New TRID MORTGAGE RULES .