Understanding loan processing
In processing a loan application, your lender is going to be especially interested in these things:
1) The house that you want to buy, as it serves as the loan collateral.
2) Your finances and your credit rating, because they'll determine your financial ability and your resolve to repay the loan.
Your lender will request a credit report and a property appraisal on you and other co-buyers. They'll verify the information in a loan application. Let's examine these steps one by one.
Property appraisal.
A lender will arrange for property appraisal; you can be charged for the service. The professional appraiser will figure out the market price of your house. That information is needed because your lender won't loan you more than a certain percentage (often ninety-five percent) of the property value. It is what a lender calls the "loan-to-value ratio." When the appraised value is under the purchase price that have previously agreed upon, the mortgage amount can be smaller, and you need to make a higher down payment.
However, if you have included an appraisal contingency in your contract, you may be able to renegotiate the purchase price in the event of an unexpectedly low appraisal.
Credit report.
The lender may order a credit report on your family or any other co-buyers. A credit bureau's report will reveal how you have managed past credit accounts and debt like car loans, retail charge accounts and any transactions made on credits. If you have already seen your credit profile, you can rest assured there will be no surprises. Similarly, if the lender has welcomed your submission of documentation to establish a non-traditional credit history, you should already have a good idea of the lender's willingness to accept it, provided that the documentation is complete and shows you to be a dependable credit risk.
It's common for your lender to look for a formal statement of any issues that show up on your credit report (even though hopefully you will able to clear those problems up before applying for the mortgage). Even a late payment on an account will likely require an explanation. You shouldn't be alarmed by that request. Just answer promptly with an honest statement about whatever situations may have caused those late payment(s).
Verifications.
Your lender will also verify any information provided in your loan application for example, your employment history and income, assets (savings accounts and checking, etc.) and the rent payment history.
Mortgage insurer approval.
If your loan requires a mortgage insurance, it must be approved by a mortgage insurer. If you are looking for a VA or FHA loan, your loan should also meet VA/FHA standards.
Commitment letter.
If your loan is approved, your lender will mail you a commitment letter. It is a formal loan offer and usually states:
• The loan amount (the purchase price subtracted with the down payment)
• The term of the loan (how long you will have to repay your loan)
• The loan origination fee (loan amount percentage)
tags: loan
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