After you apply, the lender is required by law to provide you with a Good Faith Estimate within three days of the application. This document is just that, an estimate of what this whole process is going to cost you. It details, line-by-line, what you are being charged. Although it will give you a good idea of how much money you will need at closing, it is not exact. You will find out the exact number a few days before closing.
The lender is also required to give you a disclosure statement, called the Truth in Lending, within three days of your application. This will show you the “Annual Percentage Rate” (“APR”) and other payment information for the loan you have applied for. The APR takes into account, not only the interest rate, but also the points, mortgage broker fees, and certain other fees you have to pay. The Good Faith Estimate and Truth in Lending disclosure come under the Real Estate Settlement Procedures Act. See the U.S. Department of Housing and Urban Development’s Frequently Asked Questions About RESPA for more information.
Step 2: Processing Your Loan
In order to start processing your application, the lender will often require that you pay an up-front fee that covers your credit report and appraisal of the property for which you are applying. When the lender processes your loan, they will verify your credit history, employment information, assets, and liabilities. .
Lenders have qualification guidelines for each product they offer. In other words, when they look at your application and documentation, they are making sure that you qualify for the loan program for which you applied. The type of things they will look at include:
Your creditworthiness: The lender usaloansnearme will pull your credit report (bad credit is ok!) to see if you have handled your debts responsibly in the past. Based on your credit report, the lender will try to determine how you will handle a mortgage obligation.
Income: The lender will want to verify that your income is sufficient to make the monthly payments and repay the loan. They will look at all the debt you have, plus the proposed new mortgage payment, and compare it to the amount of income you make. What they look for in this calculation depends on the type of loan program that you choose. Some loan programs are stricter than others. A loan officer can help you choose the loan type that best fits your particular situation. Additionally, a lender will want to see stable employment history. For instance, they prefer to see a borrower who has been with their current employer for at least two years.
Property appraisal: While the lender verifies your information, your property is also getting a review. An appraisal is performed by an independent appraiser to estimate the market value of your home. The amount the property is valued at plays an important role in this whole process. A lender will generally loan you up to a certain percentage of the property value. For example, if a particular program requires that you pay 5% for a down payment, then if your house appraises for $100,000, the lender will require that you pay at least $5,000 for a down payment and will loan you a maximum of $95,000.
The last part in the processing step is having an underwriter review your loan package, which contains all the information that was verified during processing. The underwriter takes a last look to make sure you actually qualify for the loan program for which you applied.