Lenders follow a specific process, called underwriting, and certain guidelines to determine whether you are a good risk for a loan. They are primarily interested in the property you plan to buy or refinance, your current financial situation and credit history.
To make the approval process move along as quickly as possible, you should:
Make sure all information is current and accurate on your loan application
Be up front about any past credit problems
Get documents to your loan processor promptly.
In evaluating your loan application, Mortgage Concepts will do the following:
Obtain a Property Appraisal Your loan officer will arrange to have a professional appraiser estimate the market value of the house you plan to buy or refinance. The appraiser evaluates the property's age and other physical characteristics, as well as location. The lender wants to ensure that the value of your home would support the amount of your mortgage because it serves as collateral for the loan. In some circumstances, the lender may require certain repairs or improvements.
TIP: Factors such as surrounding homes, access to transportation, and zoning may affect the property's future value.
Your lender will not loan you more than a given percentage of the value of the property (called the 'loan-to-value ratio'). Usually, the amount of your loan can be no more than 95% of the appraised property value or 95% of the sale's price of your home, whichever is less. However, Mortgage Concepts has special programs available such as second trusts that will allow you to borrow up to 125% of your home's value and first trusts up to 107% of your purchase price, subject to your eligibility.
Examine Your Credit Report Your lender orders a credit report on you and your co-borrower to verify information you've already supplied on your application and to see how you've handled past debt and credit accounts. A credit report supplied by a credit reporting agency can tell the lender how much you owe, how often you borrow, and whether you pay your bills on time.
Your lender may ask you for a written explanation of any problems that appear on your credit report. Even one late payment on just one account may require an explanation from you.
TIP: In recent years, many lenders have been more flexible about this than you might expect, and a few credit problems may not bar you from a loan, particularly if you've revealed them frankly at the outset.
Verify Your Employment and Assets For a fully documented loan, your lender will verify information about your jobs and savings and checking accounts. Usually, the lender sends forms to your employers asking about your job history and current salary and to your banks asking about your assets. However, for a no-income or no-income and asset verification loan, this step is omitted.
Verify Your Housing Payments If you currently rent, your lender will send a Rental Verification Form to your past landlords to inquire about your rent payment history. If you currently have a mortgage, the lender will send your current mortgage lender a Request for Mortgage History Rating.
How The Lender Views Your Application
Your mortgage loan file is designed to provide information your lender needs to evaluate the risk involved in lending you money, in other words, the likelihood that you will or will not repay the loan.
Lenders look at the 'four Cs' of credit:
Capacity: Can you repay the debt?
Credit history: Will you repay the debt?
Capital: Do you have enough cash for the down payment and closing costs?
Collateral: Will the lender be protected if you default on the loan?
Lenders also follow industry guidelines that specify the loan amount available for your income. These guidelines are flexible and may be increased somewhat, depending on your situation and the type of loan program you request.
TIP: Under those guidelines, your monthly mortgage payments should be no more than 33% of your gross monthly income and your monthly debts (including your mortgage) should be no more than 38% of your gross monthly income.
