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The Mortgage Loan Process

Buying a home is a complicated process. This page is designed to inform you about the various steps you will encounter during the mortgage loan process.

Pre-Qualification

Pre-qualification is the first step after the initial conversation between the lender and the potential borrower. Information is gathered about the borrower’s income and debts in order to make a financial determination about 1) how much home they can afford and, more importantly, 2) how much home they want to be able to afford.

Application

The application is real beginning of the loan process. The buyer completes a mortgage application with the loan officer and supplies all of the required documentation for processing. If you work a full-time job, expect to have at least the below documents readily accessible. Self-employed borrowers will need additional information.

1. W2’s from the previous 2 years
2. Most recent two paystubs
3. Two months documentation of accounts to be used for closing, such as bank checking and savings accounts, CDs, money market accounts, mutual funds or retirement accounts.

Various fees and down payments are discussed at this time and the borrower will receive a Good Faith Estimate (GFE) and a Truth-In-Lending statement (TIL) within three days that itemizes the rates and associated costs for obtaining the loan. There are many new lending rules to be aware of.

Processing and Initial Underwriting

Loan processing is the next step. The “processor” reviews the credit reports and verifies the borrower’s debts and payment histories as the verification of funds/deposits (VODs) and verification of employment (VOE) are returned.

If there are unacceptable late payments, collections for judgment, etc., a written letter of explanation is required from the borrower. The loan officer will order an appraisal, which the processor reviews along with checking for property issues that may require further discernment.

The processor’s job is to put together an entire package that can be easily and quickly underwritten by the lender, so expect to get additional requests for documentation and information (called “conditions”) during this phase.

Final Underwriting

After you find a property and have an accepted offer, lender underwriting will typically occur, though if a file is complicated then a preliminary underwriting may be a good idea. The underwriter is responsible for determining whether the complete loan package is an acceptable loan. If more information is needed, the borrower will be contacted again to provide whatever documentation the underwriter requires.

Mortgage Insurance

Mortgage insurance underwriting occurs when the borrower has less than 20% of the loan amount to put towards a down payment. At this time, the loan is submitted to a private mortgage guaranty insurer, who provides extra insurance to the lender in case of default.

Pre-Closing

After processing and underwriting is complete, the title insurance is ordered, any outstanding approval conditions are met and a closing time is scheduled for the loan.

Closing

Closing usually occurs between days 25 and 45 of the loan (depending upon the sales contract). At the closing, the lender “funds” the loan with a cashier’s check, draft or wire to the selling party in exchange for the title to the property. This is the point at which the borrower finishes the loan process and gets the key to their new home!

Green building, green building, green building…

Everyone is talking about green building these days. The question is, what does it MEAN?! What is LEED anyway?

Before becoming a loan officer and green building lecturer, I worked on LEED projects in Portland, Oregon as a mechanical engineer in the green building industry. During that time, I completed engineering designs, LEED documentation and energy models. Below are a few pointers to get you started with green building and the elephant in the room, LEED.

First, three things:

1. LEED is an acronym for Leadership in Energy and Environmental Design.
2. There is no S at the end of LEED. It is not a place…so don’t say Leeds! Leeds is a city in the U.K. Saying LEEDS will immediately wreck your credibility in the green building industry.
3. Buildings get LEED Certified, people get LEED Accredited. (The AP from “LEED AP” stands for Accredited Professional.) Do not say “I am LEED Certified” unless you have a foundation and a roof.

For Realtors, if you haven’t taken a green building class yet, I actually prefer a Realtor-specific accreditation over becoming a LEED AP for Homes, New Construction or the various other designations. Why? Well, LEED is great, but a comprehensive understanding of green building is difficult to acquire simply by studying for and passing the LEED AP test. A weekend course provides more in-depth, targeted knowledge to help you navigate the waters of green building.

The basic thing missing in LEED is a method to translate and convey the complicated green building information to others in a clear, concise manner applicable to the needs of others. Unless you are a home owner simply looking to expand your knowledge, you want to be able to apply the knowledge.

When it comes down to it, clients typically care about green building for 3 basic reasons 1) How much money it will save them 2) How much money it will make them (for rentals, leasing and flipping) 3) How it makes them look good for marketing, usually in pursuit of #2.

I present green building Continuing Education lectures to Realtors and developers and always recommend a course similar to Earth Advantage’s S.T.A.R. program, which focuses on client interaction in a way that is related to the DISC profile that you may have heard of.

There are many other programs across the country similar to it. For LEED providers (who many times have their own programs as well), go to the USGBC website. The ECO-Broker course is also good.

For a more detailed description of green building such as what categories there are and what makes a home “green,” look around my site. Feel free to send me an email if you have questions.

Green loans save you money and make your home more comfortable.

Energy efficient mortgages (EEMs) lower your home’s utility costs by allowing energy-efficient modifications such as weather stripping or extra insulation to be added to the home. Backed by the government and available if you are buying or selling, or refinancing and remodeling, they are a great option for adding energy-efficient features to a property.

EEMs recognize that lower utility expenses can permit a homeowner to pay a higher mortgage to cover the cost of the energy improvements on top of the base mortgage. They allow a borrower to add money on top of their base loan amount and 1) not factor the extra loan amount into debt-to-income ratios (i.e. still qualify for the property) and 2) not increase their down payment based on the extra amount. FHA is the most common backer of EEM’s (“green loans”), but there are other home renovation loan products also available.

Benefits:

1. Save money on utilities
2. No need for a 2nd mortgage or home equity line of credit (HELOC) to do home repairs
3. Mortgage interest rates are competitive with standard FHA rates
4. Lower overall payment. The increased mortgage is offset by the lower utility payments. For instance, an additional $10,000 loan amount raises the mortgage payment by $60/month, but if that $10,000 in energy efficient improvements reduces utility payments by $150/month, you are saving a net of $90/month…and you are hedging against an increase in gas or electric prices

Energy Efficient Mortgage Benefit Anyone Selling or Buying!

Sellers

Buyers

1. Improve your home before you move in.
2. Increase resale value.
3. Save money

Refinancing

1. Save money on utilities immediately
2. Make your home more comfortable

What Can I Do and To What Type of Property?

EEMs are available for energy-efficient improvements in 1-4 unit existing and new homes. Again, improvements can be included in a borrower’s mortgage only if their total cost is less than the total dollar value of the energy that will be saved during their useful life. The maximum cost of the improvements is either 5% of the property’s value up to $8,000 or $4,000, whichever is greater.