The Loan Process

The lone process begins with a decision to use borrowed funds to either purchase or renovate a property or to refinance an existing property.  The programs available depend upon the type of the property, use of the property, and the borrower(s)' financial situation.

A bank or credit union can lend funds at favorable terms but usually to their customers with good credit ratings and traditional employment.  Other potential borrowers such as self-employed and contract workers may find it difficult to obtain this kind of financing they want or need.  This is where the independent mortgage broker shines.

Ultimately, a loan is underwritten by a lender.  Naturally, lenders want to be assured of the return of their capital.  They look at what is known as the "4 Cs"-

• Credit- history of making payments as agreed
• Collateral- the value and condition of the property
• Capacity- the ability to make the agreed upon payments
• Capital- the source of funds and regularity of income.

When these criteria are met, the lender is willing to fund the transaction.

Preparation is critical.  More information that can be supplied, the better.  There are six minimum items required for a loan estimate

• Borrower's Name
• Borrower's income
• Borrower's Social Security Number
• Property Estimated Value
• Property Address
• Desired Mortgage Loan Amount.

When these six items are provided, a mortgage loan originator has three days in which to provide a loan estimate.  There is no guarantee that the loan will be granted the borrower, however.  To be confident that the loan will, it is best to obtain preapproval.  This requires the information that the lender will ultimately request. Typically, but not exclusively, this list includes:

• Proof of last two years income,
• All pages of the last two months financial assets- i.e. bank accounts, investment accounts, etc.
• Most recent two pay stubs
• Copy of State, Military, Corrections issued picture identification
• Current employment or income details.

The lender's underwriter may ask for additional information than what is initially supplied.  Once the underwriter is satisfied, a Clear to Close (CTC) is issued.  Once the closing party (title company, lawyer, whatever) receives this notification, a date is set for a closing.  At least three days in advance of the closing, a Closing Disclosure (CD) is issued.  During this time, the Borrower has a chance to review it.

If all is OK, then loan proceeds to the closing and is then funded; thereby obligating the borrower.  If the borrower declines the CD, terms may be renegotiated or errors resolved.  Then another three day period begins.

The lender transmits funds to the closing agent.  These funds are treated as part of the borrower's payment if it is for a purchase transaction.

Once the mortgage is funded, the borrower must begin making payments as agreed.  A payment may include principal, interest, and escrow payments.  A servicing agent handles the details and tracks the paments.

Should payments not be made, the mortgage may be declared "in default."  When this happens, the balance owed usually becomes due.  The lender may begin the foreclosure process.  If there is any problems with making payments, the borrower should contact the lender as soon as possible.