|
|
Mortgage Loan Approval Process
What happens to your loan application once it is given to ?
What are the major factors that are looked at when we are determining how much of a loan you can afford?
Why does the process seem to be so complicated?
When you submit your application to
for a mortgage loan, we are actually doing the following:
 Verifying your amount of your income and the stability of your employment
Verifying the amount of other debts you currently have
Determining the affordability of your new mortgage payment
Verifying the source of your down payment
Analyzing your past credit history
Determining the property’s value
|
Income and Employment
|
You will be asked to provide with proof of your current gross income. Typically this will require that you bring in a copy of your most recent pay stub and a copy of your most recent W-2 Statement. Your pay stub will verify that you are currently employed and will indicate the approximate amount of income that you are currently making. Your W-2 statement will indicate that you have been gainfully employed for at least the past year – and it will indicate on an average, what you make on an annual basis.
If you derive a good source of your income from commissions, overtime and/or bonuses, we will require that you bring in W-2 statements for the past two years and will take an average of your income for the most recent to years as the qualifying income on your application.
If you are self-employed, you will be asked to provide with your most recent W-2 statements (if applicable), your corporate tax returns and your most recent financial statements. We typically will use a two-year average of income for self-employed individuals.
When analyzing income, we look to how much you make and also look to ensure that you have had stable employment for at least the past two years. You would not have to have been with the same employer for the last two years. Even though we look for two years of stable employment, your situation may be such that employment of less than 2 years would be acceptable. |
Verify all debts
|
|
You will be asked to list all of your current debts on your mortgage application. Your credit report will also list all of your current debts. These debts will be added up to ensure that you will not be overextended with debt when the new mortgage payment is added.
|
Determine the affordability of the mortgage payment
|
Once we have verified your total gross income and added up all of your current debts, we then will compute basic ratios to determine the affordability of your new mortgage payment. All ratios are based on your gross monthly income figures.
The first ratio is calculated by dividing your new housing expense into your gross income.
Your housing expense is equal to your new mortgage payment, plus monthly real estate taxes, monthly homeowner’s insurance, monthly PMI premiums and monthly association dues.
For example, on a 30-year $60,000 mortgage at 6.75% the monthly principal and interest payment is $492.57.
In addition, the property real estate taxes for this $75,000 home are $60 a month and the monthly homeowner’s insurance is $25.00. If you were purchasing this property and you and your spouse made a combined gross monthly income of $3,000, your housing ratio would be computed as follows:
$492.57
$ 60.00
$ 25.00
---------------
$577.57 Total Housing Expense
$577.57/$3,000 = 19.2%
The second ratio computed to determine mortgage affordability is called the debt ratio and is computed by adding your housing expense to any monthly recurring debts, which you may have. If in the above example, in addition to the monthly housing expense of $577.57, you also had a car loan of $200 a month, a student loan of $50.00 a month and minimum charge card payments of $60, your debt ratio would be calculated as follows:
$577.57
$200.00
$ 50.00
$ 60.00
------------------
$887.57 Total Debt Expense
$887.57/$3,000 = 29.5%
The ratios for the above example would be 19.5 and 29.5. The industry standards for a housing ratio are 28% and for a debt ratio is 36%. At , we use the industry standards as a guide, but in reality have approved loans with ratios much higher than 28/36.
|
Verifying your source of Down Payment
|
At , you can purchase a property with as little as 1-3% down payment. Your down payment cannot be an unsecured borrowing. Examples of acceptable forms of down payment include cash in a bank account, mutual funds, stocks, proceeds from the sale of another property, IRA/401K or gift from an immediate relative.
When you come in for your application you will be asked to bring in copies of your most recent bank statements or account records in order to verify that the down payment funds are available.
The statements must indicate that the funds have been in the account or another acceptable form of account for at least 3 months.
|
Analyzing your credit
|
Once you have made application with , one of the first things that is done is a credit report is ordered.
If you are married, and your spouse is also applying on the loan application, we will order a joint credit report.
In a joint credit report, any accounts held individually by each spouse will be reported in separate individual account records, while credit held jointly will be reported in a joint record.
When analyzing credit, particular attention is paid to the most recent 24-month period.
More weight will be placed on recent derogatory credit, especially late payments on either existing mortgage or installment loan debt. Past bankruptcies must have been discharged for at least two years. If you have had a past bankruptcy, you should be prepared to document the reasons for the bankruptcy and also be able to provide discharge papers. You must have re-established excellent credit for the most recent 24-month period.
In addition to past credit history, Lenders have been paying particular attention to the credit score assigned to your credit record. Credit scores are snapshots that objectively assess your credit history and current usage at a given point in time.
Each credit score is a reflection of the unique set of data on your credit file.
The credit score measures the relative degree of risk that your credit profile presents to . |
Determining the property’s value
|
Since the only collateral for the mortgage loan is the property itself, it is very important that during the approval processes the value of the property is determined.
An appraiser is an individual who is hired to inspect the property and compare property values in the neighborhood to determine the value of the property. This process is called appraising the property.
When purchasing a property, you should be aware of the values of the homes in the immediate neighborhood.
Much of the property’s value is based not only on its condition, but also on the properties selling in the neighborhood in the past 6 months. Beware of properties selling at a purchase price extremely higher than neighboring properties.
This could create a problem when determining the actual appraised value of the property.
|
|
|
|
|
|
|
