You've searched for your new home and now you've found it and strategically negotiated your purchase. Financing is a key component supporting this purchase. Theoretically, all you should care about is the end result - an approved loan which funds on time.  That is where I excel.  Based on consistent feedback from a growing referral base, I get the job done On Time, On The Money.  No Games.  No Excuses.  Just Results!  I will be as visible or transparent as you like during the process.  You can be confident that no matter how you like your real estate transactions handled, I will serve you as if you were my only customer.

I believe that a fundamental understanding of the mortgage process and systems involved in getting your home loan will mitigate your apprehension about financing your new home. If you need definitions for some terms or still have some unanswered questions, go to the Mortgage Dictionary or Mortgage FAQ's. And of course, you can always call me.

So - What Happens When I Make My Loan Request (Application)?

The Loan Application

The Good Faith Estimate & Truth In Lending Disclosure

Processing Your Loan Application

Underwriting Your Loan

Closing Your Loan

The Loan Application

During the loan application, I will take as much time as you want to thoroughly review all of the options from our extensive network of wholesale lenders. A detailed analysis of your closing expenses will be thoroughly reviewed and I will offer suggestions as to how you might save some cash at closing.  To accommodate you, I can take the loan application over the phone (about 5-10 minutes), in-person, on-line or by mail or fax. 

After thoroughly reviewing financing options and programs, I will assist you by gathering information necessary to complete your loan request. You will also sign several other documents, which clearly stipulate all of the facts concerning your loan.

I will guide you through the application by asking questions about your financial situation. As anyone who has ever been audited by the IRS can tell you, "there’s a right way to complete a form, and there’s a wrong way!" Spending time with me and being completely honest with me about your financial situation will save you time and aggravation in the future.

At the conclusion of your loan application, I will be able to let you know of any concerns, which might need clarification or additional documentation. There are a number of items that you should bring to your application. Bringing these items will significantly reduce the time you have to wait for your full approval. Today, conforming loans (loans $359,650 or less) can be immediately approved, usually within minutes after we complete the application, through our internet-based underwriting system.  If you meet the criteria, I will get back a conditional loan approval.  This approval will list the items required to verify on the application.  The stronger your credit, the less is required in the form of supporting documentation.  This recent breakthrough has decreased the approval process from weeks to days! ! (Click here to see the Mortgage Checklist).

The Good Faith Estimate & Truth In Lending Disclosure

After your loan application has been completed, you will receive a Good Faith Estimate.  The Good Faith Estimate is a preliminary estimate of the fees associated with closing your loan. It is the basis for the final figures you will receive from the Escrow Company before closing on your loan. The Good Faith Estimate may include:

• Loan Origination Fee—A fee charged to you by the mortgage broker for placing the loan. Typically, this fee is 1 percent of the loan amount and may be combined with the discount points charged. 
• Discount Points—This is a one-time fee charged by the lender on loans that have an interest rate lower than the "market rate". As the interest rate charged decreases, the discount points increase.
• Appraisal Fee—A fee charged by your appraiser that can range from $200 to over $1,000, depending on where the property is located, the type of property (i.e. single or multi-family, primary residence or investment), as well as value of property (most appraisals up to $400,000 run an average of $300) . We contract with local appraisers and always attempt to arrange the most timely and cost-effective appraisal for you. This is typically the only fee paid in advance (it can also be paid at time of appraisal direct to the appraisal company) .
• Tax Service Fee—Required by investors, this fee covers researching the tax history of your property.
• Underwriting Fee/Lender Review Fee—Charged by the lender, this fee pays for the underwriting staff to review your loan and make sure that the documentation in the file conforms to lender guidelines.
• Administrative Fee—Charged by the lender, this fee covers the lender's administrative costs and the costs associated with handling your loan.
• Flood Certification—A fee for certification from the Federal Emergency Management Agency (FEMA) that your property is not in a flood zone. This is required for all properties. If your property does lie in a flood zone, you are required to carry flood insurance.
• Interest—Interest must be charged from the day your loan is funded to the first day of the next month. On your Good Faith Estimate, we assume 15 days of interest, although the final amount depends on the day you close your loan.
• Hazard Insurance Premium--- On purchases, lenders require that the first years' hazard insurance premium be paid in advance.  This is over and above your reserves/impounds (see below).
• Wire Transfer Fee—A fee charged by your bank (that may come through the Escrow Company) for wiring your funds.
• Private Mortgage Insurance (PMI)—On loans over 80 percent Loan-to-Value (LTV) and on certain other types of loans, Private Mortgage Insurance is required. You pay this insurance, which protects the lender should you default on your loan, monthly.   Please inquire about alternatives to paying PMI with less than 20% down.
• Reserves/Impounds—At closing, lenders collect several months estimated taxes, hazard insurance, and PMI, if applicable. They use these reserves—along with a predetermined dollar amount included with your monthly mortgage payments—to set up escrow accounts to pay your taxes and insurance every year. In this way, lenders ensure that your taxes and insurance are always up to date—so you and the lender are both protected. In some instances, your taxes and/or insurance payments may be due before your first mortgage payment. If this is the case, you will need to make that payment at closing. These funds are not calculated into the Good Faith Estimate unless they cannot be waived.
• Cost to Waive Impounds—This is an optional, one-time fee of .25 percent of the loan amount for waiving the tax and insurance reserve account requirements. If your LTV on the first mortgage is 80 percent or less, you are eligible to choose this option.
• Escrow/Attorney Fees—These fees are charged by the Escrow Company, or attorney, for handling all the paperwork and financial transactions associated with your closing. For the purposes of the Good Faith Estimate, these fees are based on escrow fees quoted from Commonwealth, but we encourage you to compare companies to find the lowest fees. Escrow fees are based on loan amount and type of property, but they vary widely from state to state. And if a survey, quit claim deed, or subordination agreement is required, there may be additional charges. City/county taxes may also be charged, if applicable.
• Title Insurance—Title insurance guarantees that your home has no outstanding liens against it. This fee varies greatly from state to state, and you should contact your Escrow Company for a better idea of what your exact title fees will be.
• Additional Charges—These fees are for recording your deed of trust, assignments, grant deeds, or any other documents that need to be recorded.
• Courier Fees—These fees cover the costs of overnight mail charges and courier fees for your documents.

The Truth in Lending Act, more commonly referred to as Regulation Z (Reg Z), is part of the Consumer Credit Protection Act, and its purpose is to promote the informed use of consumer credit by requiring disclosures about its credit terms and cost. Prior to Reg Z, it was extremely difficult for a consumer to accurately analyze and compare credit terms and costs offered by different lenders.

Reg Z requires that lenders disclose credit information in a consistent format. As consumers, it is important that we understand how to use this information. This article is written as a brief guide for the consumer in using and understanding Reg Z by providing an explanation of the information provided by lenders on the Truth in Lending (TIL) disclosure form.

Two items included on the TIL disclosure form are particularly significant and, due to their importance, are required by Reg Z to be emphasized and set apart from the other information contained on the disclosure statement. They are the Finance Charge and Annual Percentage Rate (APR).

The Finance Charge as defined by the Regulation "is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit." Examples of costs included in the Finance Charge are interest; points; loans fees; mortgage insurance; and, premiums paid for credit life, accident, health, or loss-of-income insurance, if required as a part of the credit transaction. As a general rule, costs excluded from the Finance Charge are those that would be charged in a comparable cash transaction. Excluded costs include appraisal, title examination , title insurance, and credit reporting fees. Application fees are excluded if they are charged to all applicants, regardless of credit approval or denial. If application fees are only charged if credit is extended, they are included in the calculation of the Finance Charge.

The APR is the cost of credit expressed as a yearly rate and is based on the Finance Charge. It is determined by using a very complex mathematical formula (actuarial method or United States method). The APR differs from the stated note rate. It is generally higher because it is the combination of the stated interest rate of the loan and the finance charges imposed by the lender described above and is the true interest rate of the loan.

The APR provides a consumer with an excellent basis for comparing credit costs. However, your analysis and comparison should not be limited just to APR as there are several costs excluded from the APR calculation that should be considered in the decision process. Some of these charges are paid directly to the lender (such as, an application fee, documentation fee, and funding fee) and others are paid for work performed by third parties (such as, an appraisal fee and title search fee). The latter fees may be paid to the lender who then pays the third party or paid by the borrower directly to the third party. Types and amounts of fees can vary from one lender to the next.

A couple of other important numbers provided on the TIL are the Amount Financed and Total of Payments. A reasonable person would consider the Amount Financed to be the Loan Amount. However, the Amount Financed is the Loan Amount plus any other amounts financed by the borrower. A lender is required to provide or make available to you a detailed itemization of the total Amount Financed.

Simply put, the Total of Payments is the Amount Financed plus the Finance Charge. It is the amount you will have paid after you have made all scheduled principal and interest payments. This is fairly straight forward for a fixed rate loan. It gets tricky for an Adjustable Rate Mortgage (ARM) because interest rates and payments may change throughout the term of the loan. Reg. Z requires that lenders disclose payments on an ARM loan based on certain assumptions regarding the interest rate current at the time the loan is consummated.

The TIL form provides other important disclosures that are more informative in nature and do not directly impact the cost of acquiring a mortgage loan, but may have long-term consequences to the consumer and should be reviewed carefully. They include information regarding demand features of the loan; the total sales price of the transaction, including any down payment; prepayment and late payment policies; security interests acquired by the lender; insurance requirements, including credit life, accident, health, or loss-of-income; and, the lender's assumption policy.

Processing Your Loan Application

The next thing that happens is what we in the mortgage business call processing because we are confirming (or verifying) all of the information you provided to me at the time of application. If you’ve ever obtained a home loan before, this processing time is that time where you feel like nothing is happening. In point of fact, a great deal is going on behind the scenes.

An appraisal is ordered for the home you are buying or refinancing. The appraiser is independently employed as an outside vendor. Appraisers are licensed and must have exceptional knowledge of the local market as well as any other factors, which might influence the market value of your property. The appraiser’s report must comply with rigorous guidelines, which are issued by a wide assortment of banks and mortgage lenders. Remember that the property as well as the borrower must comply with the lender’s guidelines.

Your credit report is ordered. This credit report is very similar to the one used by car dealers (the often talked about FICO score was originally developed 15+ years ago for the car industry). To begin with, a complete Residential Mortgage Credit Report (RMCR) takes about 24 hours to obtain. The guidelines stipulate that we must show where you have lived over the past 24 months as well as how well you have paid your landlord and other debts. Most home mortgage lenders stipulate that credit data must come from all three reporting agencies. You can order a copy of your consumer credit report from all three agencies by clicking on the following sites - Equifax, Experian and Trans Union.

Depending on your loan type, supporting documentation from independent parties must be obtained to verify your income and employment stability that has been written on the loan application. This proof is usually obtained by sending out forms that must be completed by your employer. We must have supporting documents from your employer(s) covering the last 24 months.  If you are qualifying for a stated-income loan, we do not verify income (no W-2s, 1099's' or pay stubs).  If you are qualifying for a No Documentation loan, we do not even verify employment.

The final piece of the processing phase relates to obtaining supporting documentation regarding your liquid assets to close on the transaction. Forms are usually sent out to banks or investment companies that hold your assets. As you can imagine, it usually takes a few days to get these forms back and they must be accurately completed.

Now maybe you have some appreciation as to why it takes a few weeks to get your loan approved and closed! But, you can help speed this process along by providing me with the items listed in the Mortgage Checklist. 

After all of this information is obtained, I put all of the paperwork together and submit your loan request for final approval. The loan approval is known as underwriting.

Underwriting Your Loan

On most conforming loans, you will receive a Conditional Loan Approval (or loan commitment) within 24 hours.  We can do this to the continued use and maturity of automated underwriting systems available to us.  This greatly decreases the amount of time to close of escrow.  Many time, this eliminates you hunting for information that, depending on the level of your approval, is not required.  This has been a breath of fresh air for both you the consumer and me!

Underwriters are responsible for carefully reviewing your loan request to make certain that it complies with all of the guidelines their institution has created. In my experience, most lenders adhere to some fairly basic – yet detailed – guidelines that are issued by governmental or quasi-governmental agencies. You will hear us Mortgage People begin to drift into mortgage-ese as we begin to mention "Fannie Mae", or "Freddie Mac", or "FHA", or "VA". These are the agencies which have created and enforce the guidelines lenders must follow in approving home loans.

The underwriter will review your file to assure that all of the documents support the obvious belief that you will make all of your house payments in a timely manner. It usually takes a couple of days for the underwriter to finish their review. You should also be aware of the fact that it is very typical for an underwriter to approve a loan request subject to their review of additional information. Don’t worry - it’s usually pretty minor stuff.

Closing Your Loan

This is the moment we’ve all been waiting for! Now we will reap the rewards of all of our hard work.

Once your loan request has been approved, the loan documents (I generate these documents in our office for a number of our lenders, saving another 2-4 days) will be prepared by the lender.

You or your realtor will select an Attorney or Title Company in the case of purchases.  I will make that choice if you are refinancing or are seeking a recommendation. They will search the quality of title to assure that there are no outstanding judgments or liens and they will order the survey of the property. Your Attorney/Title Company will also obtain title insurance to protect you and the lender in the event that there might be any defects of title which might not be recorded at the courthouse.

The final function of your Attorney/Title Company is that her or she will prepare the final closing figures. Closing costs are over and above the price of the property. These costs are incurred by the buyers and usually include an origination fee, discount points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at the settlement. The average cost of closing is usually about 1 to 3 percent of the mortgage amount but varies depending on the area of the country. In addition, the Attorney/Title Company is responsible for writing checks to all of the different parties at the closing and funding of the transaction. In this regard, you should anticipate that your Attorney/Title Company will require you to bring a certified or official bank check for closing.  I will verify the accuracy of these figures prior to you receiving your settlement statement.

Bottom-Line, from initial meeting to closing your escrow,  all parties involved to complete your mortgage on-time, act as one team.  You have entrusted me to meet my commitment to you.  That is how my business has grown.  Creating a positive level of expectation.  No excuses, just results!

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This page was last updated on 02/13/08.