Loan App to Closing
This article will provide an overview of the mortgage application process. If you have followed the suggestions made in Getting Organized, this will be a very easy process. Otherwise, you will need to gather some documentation. Your loan application experience is completely dependent upon your ability to supply the required documentation in a timely manner.
The article will focus on the following:
I. Definition of Formal Loan Application
II. Things Not to Do
III. Loan Application Documents
IV. Gift Letters
V. Loan Application Checklist
VI. Money Needed at Loan Application
VII. Loan Processing
VIII. Underwriting the Loan
IX. Closing your Home
I. Formal Loan Application
TRID Rules- TRID is an acronym for the TILA-RESPA Integrated Disclosure Rule. TRID became law as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). In accordance with TRID, there are several things affecting potential borrowers.
When has a loan application been fulfilled? When the following six pieces of information have been provided to the Lender:
(1) Consumer’s Name
(2) Monthly Income
(3) Social Security Number
(4) Property Address
(5) Estimate of the Value of the Property
(6) Loan Amount
Once the above referenced information has been supplied to the Lender, the Lender must provide the borrower with a “Loan Estimate” within 3 business days unless Lender denies the loan or borrower withdraws the application. The Consumer Financial Protection Bureau (CFPB) booklet “Your Home Loan Toolkit” is also required to be given within 3 days.
Within days of receiving the “Loan Estimate”, the borrower must provide the Lender with their intent to proceed. Until the Lender is in receipt of the “intent to proceed”, they cannot pay any fees except, a fee for initial credit report.
II. Things Not to Do
If you are thinking about applying for mortgage approval in the near future, now is not a good time to change careers, move your money around, have unusually large deposits, or buy big-ticket items. Lenders like stability. If you are considering any major changes, it pays to meet with a lender and ask them how to proceed before you make any changes. Unless you have a firm grip on your qualifying ratios, now is not the time to purchase a big-ticket item such as a new car.
To confirm your qualifying ratios prior to Loan Application, run AskChristee Module ‘Buyer Choice’ and download the PDF file.
III. Loan Application Documents
Prior to making formal loan application, you should be ready with the following documents:
- W2’s or 1099
- Two years Income Tax Form 1040
- Two Months Bank Statements
- Revolving Credit Card Statements
- Any personal Loan Documents – such as auto loans or student loans
- 2 Most Recent Paystubs
- Alimony or Child Care Documentation
- Documentation to Explain Discrepancies on your Credit Report
You need not worry about things such as:
- Life Insurance
- Health Insurance
- Utility Bills
- Cable Bills
- Car Insurance
You should confirm required documentation with your Lender prior to application. If you don’t want delays in the process, then you must be proactive and be ready to make a complete loan application.
IV. Gift Letters
If you are utilizing a gift as part of your down payment or closing cost then you must obtain a letter from the donor with the following information:
- The donor’s name, current address, and home phone number
- The donor’s relationship to the client (i.e. card is signed, “Love, Mom & Dad”)
- The exact dollar amounts enclosed
- The date of the fund transfer (in legible format MM-DD-YYYY)
- A clear statement from the donor expressing that no repayment is expected
- The donor’s clear signature
- The address of the property to be purchased
- Some Lenders will also verify the donor’s capacity to give. In words, they will verify the donor’s bank statements.
V. Loan Application Checklist
1. Paystubs: Depending on how you get paid, you will need the following:
- Paid Every Week: Your last 5 pay stubs
- Paid Every 2 Weeks: Your last 3 pay stubs
- Paid Monthly: Your last pay stub
2. Two Most Recent W-2 Forms
In order for you to calculate your taxes, your employer gives a W-2 to you, every year.
You should be able to find a copy of your W-2 attached to your tax return.
If you filed electronically, you or your tax preparer, should have a copy of your W-2.
3. Three months of your most recent bank and investment statements. Be sure to copy all pages of your statements (front and back). If you don’t receive paper statements, please print your entire online statement. Don’t forget to include all of your accounts (checking, savings, and investments). Your accounts must show that you have enough money to afford ‘the required cash’ to close and perhaps future mortgage payments (cash reserves). You will need to provide a detailed letter to explain any large deposits or withdrawals. Double check! Are the three months of statements the most recent?
4. A completed and signed Form 4506-T or 4506T-EZ. Your Loan officer will give you this form. (It gives the Lender authorization to access your tax return.)
5. Completely executed contract between you and the seller, including all addendums.
6. Note: For those who are self-employed or if you get paid any commissions (1099 income), you also need your most recent two years of tax returns, signed. Don’t forget to include all pages and schedules. State tax returns are not required. If you own a business, you will also need the most recent two years of personal tax returns and any business returns you filed for your company (e.g., 1120, 1120S, Schedule K-1 / 1065). If you filed electronically, you can print a copy from your tax software or ask your tax preparer. If you own your own business, you should have available most recent profit and loss statement. Double check! Do all your returns have your signature? Have you included two years?
VI. Money Needed at Application
You will be required to pay for credit reports (for you and co-borrower) of approximately $60. Generally, you will be required to pay for the property appraisal which will be in the $400-$600 range.
VII. Loan Processing
Your loan officer will submit the complete loan application to a loan processor. The loan processor will check for any missing information or documentation. They will order the property appraisal. When the file is complete, the processor will forward the file to the underwriter. During the process, your point of communication will be your loan officer. However, the loan processor may call you regarding clarification of the application.
VIII. Underwriting the Loan
An underwriter is a financial expert who takes a look at your finances and assesses how much risk a lender will take on if they decide to approve your loan. More specifically, underwriters evaluate your credit history, assets, size of the loan you request, and how well they anticipate that you can pay back your loan. Your application will probably be submitted to an automated underwriting system (AUS). This is a sophisticated software system that renders preliminary underwriting decisions. The system allows the human underwriter to know if a mortgage applicant meets the lender’s guidelines, based on information from the loan application and credit reports. The underwriter may request clarification or more documentation prior to rendering a final decision. The goal is to obtain a “mortgage approval letter” or “loan commitment”.
IX. Closing your Home
Your RE agent will recommend a Title Company. Before selecting a Title Company, you may want to reach out to a few companies and compare the following:
- Closing Fee
- Abstract Fee
- Document Preparation Fee
- Recording Service Fees
- Electronic Fees
- Wire / Courier Fee
- Notary Fees
- Closing Protection Letter
- Electronic Storage Fee
Generally, Title Insurance is controlled by the State Insurance Commissioner and therefore, there shouldn’t be much difference between competing companies.
Your RE agent will coordinate with the Title Company to arrange for settlement on your new home.
The Lender will send Closing Instructions and the Mortgage Documents to the Title Company.