Step 1 Getting your mortgage loan is like a cross between playing 20 questions and a scavenger hunt. Your lender makes every effort to obtain all the necessary information and documentation at the time of application so delays will be avoided.  Some of the information they need is:

• Last 2 years W2s.
• 3 most recent pay stubs.
• Last 2 years tax returns (if self-employed or commission
• 2 recent bank statements showing source of funds.

The information they request allows them to provide to you a Loan Status Report (LSR) for your mortgage request through the following steps:

• “In-file” credit report (review credit scores & payment history). Note the credit report section for information on scores.  FHA and VA loans are NOT credit score sensitive. Conventional loans require scores above 620. Loans such as no income verification, etc. may require scores above 640, 680, or 700.  Scores below 620 require “sub-prime” or “B- Paper” loans.

• Review interest rates.  You may choose to lock your rate at any time during a refinance or, for a purchase, after you have an accepted contract for your new home.

• Calculate ratios (front ratio and back ratio). The front ratio is your total house payment (PITI-Principal, Interest, Taxes, & Insurance & HOA-Home Owners Insurance) divided by your gross income. Add to that house payment all other monthly installment and credit card payments and that number, divided by your gross income, is your back ratio.  You will see these ratios expressed as 33%/44%.  FHA loans should have a front ratio of no more than 33%.  The back ratio should not exceed 44%.  However, if your credit score is high, or you have additional money in savings, your ratio may reach 40%/48%.   Conventional loans should have ratios of 33%/40%.  Again, high credit scores can allow for the back ratio to be higher.

• Submit your loan via the Internet to Loan Prospector (LP) or Desktop Originator (DO) for underwriting.  These are underwriting programs designed by “Freddie Mac” and “Fannie Mae”. This allows for an immediate response.  It also can be unpredictable at times but does allow for greater underwriting flexibility.  When LP or DO return an “Accept” answer you are approved. What remains is to submit to the underwriter all of your information and documentation along with the appraisal and title policy for your new home.

Throughout the process, you may be asked to provide additional information and documentation. At times information you provide will give rise to additional questions and the need for additional documentation. 

Step 2 The application is “set-up and processed” in the lender’s office. This allows them to track your mortgage approval process, assuring a quick and accurate closing. About 3-4 days after your application has been setup, you will receive an introductory letter listing any items still needed, a “Good Faith Estimate or GFE” (detailing the costs associated with obtaining your loan)  and a “Truth-In-Lending or TIL” (details how much interest you’ll pay during the life of your loan.) Remember, the “annual rate” shown on your TIL is NOT the interest rate for your mortgage. If you have any questions about the GFE or TIL please ask that the lender review both documents with you.

Step 3 Verifications of employment/deposits (VOE & VOD) are either completed verbally over the phone or are sent to your employer and financial institution.

Step  4 Addressing credit issues. The lender will call to discuss any challenges found on your credit report or to request explanations from you.

For an FHA, VA or Conventional loan, if your credit shows any payments currently delinquent they must be paid. If you have previous late payments you’ll need to write an explanation of why the payment was late. If it was some time ago and a rare occasion and you don’t remember why, simply state that in your letter.  When there have been late payments the underwriter simply wants to insure that it won’t happen again. The review of your credit report will also include all public records (judgment, bankruptcy, etc…) It is important that you know your credit scores and understand how they affect your mortgage approval.

Step 5 Ordering the appraisal on your home. Your lender will order the appraisal as soon as they receive the payment for that appraisal. Your contract will state whether the buyer or seller will pay for the appraisal.  The appraiser makes an appointment with the seller and completes the appraisal. The appraisal typically takes 5-10 days to complete

Step 6 As the lender receives information from you, your employer, bank or credit report, they will ask for additional information to clarify and answer any questions raised. Please do not be offended when they ask for additional details. Their goal is to make the underwriter happy so that they will approve your loan as quickly as possible.

Step 7 Upon receipt and review of all the information, the file is submitted to the underwriter. If the underwriter requests additional information, it will be in the form of “conditions”. Some of these conditions may not make a lot of sense. Each lender and underwriter has different interpretations of the guidelines set for your loan.  Again, there is a good chance that some of the conditions will not make sense.

Step 8 The underwriter reviews the information to insure that the loan meets all guidelines set by the government for FHA and VA loans and by “Fannie Mae” (FNMA) or “Freddie Mac” (FHLMC) for conventional loans. This will normally take from 2-6 days. Your lender may be required to meet some conditions prior to printing the loan documents. When they submit those conditions it may take another 2-4 days for the underwriter to review and approve those conditions.

Step 9 Within 1-3 days after final approval, the loan documents are printed and sent to the title company for your signature. At this time the escrow officer will review the documents, call you to set an appointment and tell you how much money you will need to bring in. You will need to bring a cashier’s check or a certified check payable to the title company.

Step 10 The signed documents, along with any “final conditions”, are sent to the funding department.  Typically within 24-48 hours after your documents arrive at the funder, the funds are wired to the title company and title is recorded in your name and you receive the keys to your new home.

Remember, getting a mortgage is not always an exact science.   Some underwriters may be more lenient that others. Your lender works diligently to put your file in the exact condition that the underwriter wants.  The more unique your situation, i.e. credit, income, source of down payment, etc., the more time it will take to get your loan approved.  Your lender’s goal is to make your mortgage experience as comfortable and stress free as possible.  Depending on holidays or how busy the mortgage industry is, each of these steps may take longer than at first estimated.

What is a credit score and how is it determined and what makes it go up or down?

Lenders review your credit report and use various methods to determine your credit risk. In other words, they will determine your ability and likelihood to repay debt. In the 1980s, Fair, Isaac and Company devised a mathematical model to predict the credit risk of consumers based on the data collected from an individual’s credit report. Today, this FICO® system is the scoring model most widely used by lenders.

In 2001, consumers were given access - for the first time - to their FICO credit score and given ways to improve it. The score ranges from 300 to 850, with a higher score indicating a lower credit risk. For a score to be calculated, your credit report must contain at least one account that has been open for six months or more, and at least one account that has been updated in the past six months. Fluctuations of a few points from month-to-month are common.

Inquiries (pursuit of new credit) impact your Fico Score. They account for 10% of score calculation. Scores do not include "consumer disclosure inquiries" - requests you have made for your credit report in order to check it. It also does not count "promotional inquiries" - requests made by lenders in order to make you a "pre-approved" credit offer. "Administrative inquiries"- requests made by employers are also not counted.

Inquiries remain on your credit report for two years, although scores only consider inquiries from the last 12 months.

Multiple inquiries from auto or mortgage lenders within a 14-day period are treated as a single inquiry, which will have less impact on your credit score. These inquiries are taken into consideration on your credit file 30 days after the inquiry is made. Inquiries affect thin files more than thick files. (based on amount and length of credit history)

One of the greatest effects on your score is 1) new revolving credit accounts, and 2) revolving accounts with a balance greater than 75% of the high limit.