In attempting to approve homebuyers for the type and amount of mortgage they want, mortgage companies look at two key factors:
Ability to repay the mortgage is verified by the borrower’s current employment and total income. The borrower’s willingness to repay is determined by examining how the property will be used.
For example, will the homebuyer be living there or renting it out? Willingness is also closely related to how you have fulfilled previous financial commitments, thus the emphasis on the Credit Report and/or your rental payment history.
It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, your stronger point could make up for the weak one. It is important to talk to a loan officer no matter what your situation may be.
4. The entire mortgage package is then put together for submission to the lender.
A Credit Profile refers to a consumer credit file, which is made up of various consumer credit reporting agencies. It is a picture of how you’ve paid back the companies you’ve have borrowed money from, or how you have met other financial obligations.
There are five categories of information on a credit profile:
1. Identifying Information
2. Employment Information
3. Credit Information
4. Public Record Information
*NOT included on your credit profile are race, religion, health, driving record, criminal record, political preference, or income.
If you have had credit problems, be prepared to discuss them honestly with a mortgage professional who will assist you in writing your “Letter of Explanation.” Knowledgeable mortgage professionals know there can be legitimate reasons for credit problems, such as unemployment, illness or other financial difficulties.
A borrower with a score of 680 and above is considered an “A borrower”. A loan with this score will be put through an “automated basic computerized underwriting” system and be completed within minutes. Borrowers in this category qualify for the lowest interest rates and their loan can close in a couple of days.
A score below 680 but above 620 may indicate underwriters will take a closer look in determining potential risk. Supplemental documentation may be required before final approval. Borrowers with this credit score may still obtain “A” pricing, but the loan may take several days longer to close.
All things being equal, when you have derogatory credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation, assets, etc. play a larger role in the approval decision. Various combinations are allowed when determining your grade, but the worst-case scenario will push your grade to a lower credit grade. Late mortgage payments and Bankruptcies/Foreclosures are the most important. Credit patterns, such as a high number of recent inquiries or more than a few outstanding loans, may signal a problem. Since an indication of a “willingness to pay” is important, several late payments in the same time period is better than random late ones.
Using three common approaches, which are all derived from the market, derives the opinion, or estimate of value.
The first approach to value is the COST APPROACH. This method derives what it would cost to replace the existing improvements as of the date of the appraisal, less any physical deterioration, functional obsolescence and economic obsolescence.
The second method is the COMPARISON APPROACH, which uses other “bench mark” properties (comps) of similar size, quality and location that have recently sold to determine value.
The third is the INCOME APPROACH, which is used in the appraisal of rental properties and has little use in the valuation of single family dwellings. This approach provides an objective estimate of what a prudent investor would pay based on the net income the property produces.
At the closing the borrower should:
After the documents are signed, the closing attorney returns the documents to the lender who examines them and, if everything is in order, arranges for the funding of the loan. Once the loan has funded, the closing attorney arranges for the mortgage note and deed of trust to be recorded at the county recorders office. Once the mortgage has been recorded, the closing attorney then prints the final settlement costs on the HUD-1 Settlement Form. Final disbursements are then made.
A typical “A” mortgage transaction takes between 14-21 business days to complete. With Nationwide Equities’ new automated underwriting, this process speeds up considerably.