Archive for the ‘loan process’ Category

Loan Application Process: Beginning to End

Sunday, April 20th, 2008

I’ll be the first to admit that “an overview of the loan process” would have been tough for me to explain my first couple of years in the business. The reason for that is I didn’t camp out in the loan officers office. In fact I referred most of my stuff out for years. Much like I do today. I don’t camp out at title companies offices, rarely went to closings, and never had to be a processor. I learned some of it early on buying my own rental properties. What helped me to understand this enough to be able to teach it is from personally, having my sister be a loan officer for up to 3 years, running a loan company a short time, and taking classes a couple of times on being a loan processor. I have taken 3 day classes to become a closer, I have taken classes on what to do before close. I have taken classes on mock closings. I have real life experience now for years. All of this helps.

As a general overview of the loan process from beginning to end here is the general overview of each person and their involvement:

Typically a buyer goes to a loan officer and goes over their plans. The loan officer then tells them they are probably pre-qualified or have a chance to get a loan. The loan officer can’t get them any concrete answers until they have more info. The buyer will typically get the loan officer more info such as w-2, bank statements, tax info, down payment info, your budget, other expenses, etc. They will tell you what you are approved for. You will probably then get a pre-approval letter stating what you “can afford” and what a bank is likely to get you a loan on. From there it’s your job to work with a real estate agent to go look at houses in that price range. This may take you 7 days, it may take you 7 days, it could take you 90 days. This is why you may have to get bank statements, and paystubs again, as the bank wants the most recent info. After you look at houses and find one you like, the real estate agent will help you prepare an offer. You may get a counter-offer, you may get your offer accepted.

After you get your offer accepted, your Purchase agreement likely states a closing date 30-45 days out. Now your loan officer will get a copy of the PA from the real estate agent. The title company will also get a copy of the purchase agreement. The reason it’s important for them to see the PA, is to have the loan officer submit that to the lender. The lender will want to see that the seller isn’t paying too much in concessions, typically it’s 3% max. From there, the loan officer will spend the next 1-3 weeks working hard on your file. The title company works some as well in parallel at the same time as the loan officer. The Real estate agent just keeps in touch with the title company and loan officer just to get updates, and to make sure everyone is on the same page. My pesonal opinion is the title company will get a request for a title search from the title company, and the title company will have to search the history of the property as well as do name searches on both buyer and seller, but the title company won’t need 3 weeks to do this. What use to confuse me for a long time is I use to wonder what was taking the lender so long, but as I found out over the months and years is a lot of the time the lender doesn’t get everything until very late in this process. This is the part I want to try to explain a little more in detail, as I found this to be the part that was misunderstood by me, maybe by others as well.

Let’s say we have a 30 day time clock. Now let’s say that first 48 hours we made sure the lender, title company, loan officer all got a copy of the Purchase agreement. Now let’s have the loan officer, processor, real estate buyer’s agent, listing agent, and title person all do their job over the next 30 days. Let’s go over each of those roles. I think it’s important to understand what each person needs to do so you understand the timeline, it really eliminates a lot of the unknowns and makes you less frustrated.

Typically the loan officer has done a lot of the work upfront, they have seen what you are pre-approved for they have searched and hopefully found a lender right away, so let’s say that most of the following from now until closing is done by the “processor” which can be the loan officer(some like that control) it can be an assistant to the loan officer, or it can be an entirely different company, 3rd party that they pay and hire, that’s paid at closing. Years of experience in processing really shows. A title company will run name searches, they will search your title (abstract) (torrens) and search the history of the property and all owners since the beginning. The title company needs to do this to provide clear title for the lender who will require it, really any new buyer. The title company will make sure to record the deed, mortgage, release the mortgage, prorate taxes, rents, and hold money for state deed tax. I should say that the loan officer will need to get a lot of disclosures signed upfront.

The processor will spend the next 1-2 weeks collecting additional forms that most lenders will require such as:
VOE-Verification of Employment,VOD-Verification of Deposit,VOA-Verification of Assets, VOR-Verification of rents, VOM, Verification of Mortgage. They will need to complete a lot of forms a long the way. They will call employers, check bank statements, and much more. After they spend that 1-2 weeks doing all of that. Often within the first few days they order a title commitment from the title company. The loan officer or processor will send in a request for appraisal. This is where the appraiser will go out to the property take photos and spend 1-3 days doing their job and getting the appraisal back to the loan officer or processor. The processor is going to take the title work, appraisal and all of these forms, 1003, everything and submit it to the lender. Most lenders have a specific order they like to see these full packages in. Why is that? Because lenders get so many loan packages from so many mortgage brokers they are trained to scan through them quickly to see that everything is there. An AE-Account executive often works for the lender and they are suppose to know the lenders programs and talk to the mortgage broker before they submit and a long the way. The Account executive will be the one communicating with the underwriter. Most of the time the loan officer won’t be talking to the underwriter.
The underwriters are highly trusted and are the ones that really dot their I’s and Cross their T’s they spend days reviewing all of the info throughly.

After the underwriter gets everything in that loan package, now it will come back out of underwriting (U/W) and they will send a letter back to the mortage broker “the conditions” or known as the stips. These are addtional items (often minor) that the U/W requests to be completed before a loan can be completed. The loan officer collects this info from the buyer, and submits it back into the U/W. From that point, the loan officer will wait for a clear to close, but often more stips come back for a 2nd round. The title company will update the title commitment with the lender, and communicate with all parties to make for a smooth closing. After a clear to close is said to the processor or mortgage broker, the lender is still going to get this over to their closing department. The title company will wait for the closing package from them, so they can prepare the HUD-1 (settlement closing statement). All loan fees will be submitted to the title company. All title fees, commissions, etc will be submitted to the title company.

The title company is a 3rd party that gets all info from all sources and this will be reflected on the HUD-1. Even after the title company gets the closing package which can take 24-72 hours. They will still need to get the HUD-1 approved, and also get the wire from the lender. Often the title company isn’t authorized to release funds, and funded the loan and cut all checks and wires to everyone until the lender approves the paperwork and final HUD-1. the listing agent will be busy making sure that all lender info for the seller is over to the title company so that they can get the current payoff. If it’s new construction the builder has to get all payoff’s, lien waivers, etc so everyone gets paid. Sometimes the seller has an old abstract(the large stack of papers) neatly bound with the history of your property. You may have one from your last closing, well give it to the new title company when you close months or years later. The reason is, much of the work has been done for their “abtractor” they hire. It’s considered an update and it saves you money. How much? I just closed a property days ago, and it was $200, I believe it coudl have been $500-600 if I didn’t provide it. Also with closings one title company can close both the buyer and seller’s side, or what’s also popular is that one side (seller’s side for example)is a mobile closer, and shows up at the buyer’s title company. In Minnesota the buyer chooses their title company.

This is a very long post, and the amazing thing, is this is a very very broad overview. There are books written about each job title and item above, this gives you an idea how much their is to know about each job. It shows you just how much goes on behind the scenes. There are assistants and others on payroll at title companies, etc which we didn’t even talk about. I may also add that an inspector typically will view the property a few days after the purchase agreement is signed if you decide to get an inspection. Also you should do a final walk-thru the day of or day before closing to make sure everything is the same.

To work with an agent or loan officer, please contact ron@minnesotainvestors.com and I’ll put you in touch with one.

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Loan Officer Application: Items to Give your Loan Officer

Sunday, April 20th, 2008

The following is not everything you need for a loan, usually you need more, but this is the general stuff you might as well just get ready to prepare for your loan officer. just save some time and days upfront and have some of it ready. Your loan officer may wait for more later. The loan officer really can’t even submit the loan until he/she gets this full package. Now you can take 10 days to collect all of this info, or just have it right away upfront for your loan officer. If you get this to your loan officer in 48 hours or less you will really impress them.

2 years personal tax returns-This is considered a federal document, so they think you will tell the truth and it will be accurate.

2 years business tax returns-This is only if you are self-employed, often you have a lot of write-offs and sometimes stated income works better in these situations.

Business profit and loss P&L-This is a statement your tax account may have showing all profits and all losses

1 full month of pay stubs-They need to see written prove to verify you make that income, and need 1 month to get an average.

2 years of W-2’s. Again this will be considered accurate info and used as the lenders like to see 2+ years at the same job, it shows stability. Less than 2 years at one type of job, loans for that are avaiable, just tougher.

2 months most recent bank statements both checking and savings (all pages)-As you can imagine they need to verify your assets and not that it was just put in this week. They want to see that the money has been sitting in there for awhile(seasoned) And they want every page, even if the last page is blank or has 2 lines, those 2 lines may show a big withdrawl, don’t hide anything show them all pages.

Most recent quarterly statement or 2 months most recent retirement account-Sometimes having money here helps if it’s seasoned and you don’t have to use it. IRA, 401k/mutual funds/stocks-anything you have invested you’ll want to show them, as this helps you look good to the lender.

Certified Copy of Divorce Decree (if applicable)-Obviously only if applicable, ownership to sell requires two signatures, at least in Minnesota, so this is important to a lender. as well has how assets are broken down.

Bankruptcy papers filing and discharge-The reason a bankruptcy is important to a lender is a bankruptcy can slow down a foreclosure a lot and cost a lender a lot. Borrowers also can “clear the slate” and file bankruptcy every 7 years. If the borrower had a history of a bankruptcy and had one 6 years ago, the lender may see that differently then someone who has never had a bankruptcy or had one 1 day ago, where it will take 7 more years minimum.

home ownership insurance info-You will need pre-paid insurance or an insurance binder typically for 1 year for the closing. Often the lender keeps 4-6 months of pre-paid insurance paid at closing to protect the house, which also protects themselves. If at anytime your insurance lapses, the lender will immediately order insurance themselves, and put it on the property and use monies held in your escrow account.

mortgage statements for ALL loans-It’s just easier to show payment amounts, and obligations as your mortage statements have all important info all on that page, so you might as well grab that page.

Lease agreements-If you have renters in any of your properties, you will want to show a signed lease to the lenders. The reason is that it shows you are taking in rental income. Often the lenders count 75% of that income in your debt to income ratio. You will want to provide leases for all properties you have leases on.

Property Tax statements-This is counted as a debt, a liability to you, it will have to be added to your 1003 and your liabilities.

Copy of Driver’s license or state ID-Your driver’s license will be needed also at the time of the closing, so the notary can stamp your papers and know the right person is buying.

Your loan officer will ask for more info along the way, but the above will get you started and get the process moving forward. Even days before closing the loan officer could ask for more stuff, that’s because the lender asked for more stuff, you may not know that stuff until 1 week before closing. The loan officer will need this info back promptly, these are your stips and conditions, the final things the lender needs.

You will also need to verify where your down payment is with the loan officer and will need that ready to bring to the closing.

Call your loan officer along the way for updates. History has proven to me that loan officers who are too hard to reach or seldom call back, often have too much they are working on and the results often are lacking. 24 hours before a call back isn’t that long if it happens a few times, but if you have to call them 5 times in 2 days, then something is wrong.

If you need to be put in touch with a loan officer please email me ron@minnesotainvestors.com

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