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New House – A diary (3) - Mortgage Process

Dear readers, happy spring. The temperature hit 50 F in quite a few days in a roll and treebuds began to burst. Our foundation finally is finished and we are ready for framing. I will talk about my newly learned knowledge of foundation of residential house, and before that, briefly touch on the mortgage process.

Mortgage Process

Mortgage application process gives applicants an opportunity to determine borrowing capability, compare different loan providers, and ultimately secure a loan towards your new house. The critical steps from a buyer’s standpoint are 1. Preapproval; 2. Application; 3. Clearing conditions. For a new construction, in some cases, the buyer needs to secure a construction loan and the remaining loan in two packages. Though such a process is more complex than those of a single mortgage process, these three steps are more or less similar.

Preapproval

The preapproval step is probably the most important but often overlooked by many. It is not merely for a buyer to secure a piece of document so as to effectively compete with other buyers during negotiation, it is much more. The figure below describes those I will further discuss.


The first thing before a borrower calls a bank or broker, you should pull your credit report (and your spouse’s if joint applying). If you find any error in your credit report, work with relative agency to correct. If you unfortunately have some significant credit issues, attempt to resolve them before submitting a mortgage application. In that situation, you can discuss with a broker to understand the impact to your borrowing capability before submitting an application.

After this step, buyer can call bank/broker and get some good faith estimates. My experience of working with a large bank varies. It seems a large bank may be less efficient when dealing with a customer. On the contrary, a broker of a small agency can often be very diligent. A smaller, local bank sometimes has a more flexible lending policy. In the end, you should make decision based impression gained from the communications with brokers. Providing the APR quoted from brokers are similar, you shall always go with a more responsive broker. From another perspective, I have met a broker who seems to be easy to work with, but later he turned out to be superficial and lack knowledge. You should always talk to several of them and find a knowledgeable, responsive broker to work with.

In the preapproval process, a pre-application checklist is usually available for you to fill and submit. From the checklist you will be able to find out required documents and minimum required down payment. Work on them now, especially down payment. Lender usually will review your bank transaction history of at least one month and even three months before your application date to ensure your down payment is not from any funding sources other than your regular incomes. So work on them now.

Application

Application is a straightforward process, here I want to provide a list of required application documents for your reference, and hope they are helpful.

1) Application Package

2) Recent two years Tax returns w/ all schedules

3) Borrowers & CoBorrower’s recent two years W-2

4) Borrower & CoBorrower current paystubs

5) Borrower & CoBorrower VOE (Verification of employment)

6) Borrower & CoBorrower’s immigration paperwork (front & back)

7) Current Bank Statement with all pages and source of all large deposits if not payroll direct deposits

8) Signed Purchase& Sales Agreement

9) Copy of the cancelled Earnest Deposit Checks

10) Credit Inquiry Letter explaining recent credit inquiries

Clearing conditions

After you submit application, the underwriter will begin to review application, acquire necessary documents, and order appraisal, etc. In this process, conditions will be generated that the underwriter needs clear the application and the underwriter can reach a conclusion. Most conditions are usually routine paperwork such as a missing document in your application package. You need to work efficiently to clear conditions and avoid delay. If you have done a sufficient job in the pre-approval step, you will be fine. Have a printer and scanner around, nowadays most exchanges can be accomplished through emails and mortgage process is no exception. This will save you lots of time if you can utilize it.

Summary

Mortgage application process is probably a most discussed topic on Internet and a quick goggling will provide lots of information. Here is my experience and I hope they are helpful. What I want to stress again is paying extra attention to the pre-approval step. Do your homework and know yourself. That will save you lots of potential troubles in the later stages. Good brokers are always around so do bad brokers; use your best judgment, and your network to check mortgage brokers. Good luck. 

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