The Loan Purchase Process

Pre-Qualified or Pre-Approved difference

The offer process involves getting a Pre-Qualification or Credit approval letter with the corresponding offer. Having your loan process started prior to making an offer not only identifies how much you can afford but perhaps identify the type of loan needed to qualify. Most loan programs have caps which could affect the amount borrowed.

 

After communicating with your lender that can assist you with your financing, you may be given a “Pre-qualified” certificate. Being Pre-qualified means credit has been reviewed and approved subject to verification of your financial information, this is the first step. Verification and approval of your financial information will then elevate you to a “Credit-approved” purchase, which is preferred. Having a “Credit-approved” certificate allows you to better negotiate the purchase of your future property vs. having just a “Pre-qualified” letter from the lender. Anyone taking title to the property should be present at the loan application.

Once the purchase contract is accepted, the lender will require title work, appraisal, survey, and insurability, in order to “approve the home”. The final loan approval is then given once you and the property are approved without conditions.

 

When to close on the property depends on your timing as well as the Banks’ timing. This could take a few days to weeks to complete the loan process, title work and contract due diligence. It only makes sense to contact your lender before looking to purchase. We can discuss the timing issue once we visit.

The Loan Application

Normally, the loan application can be completed via the web, phone or by personally meeting with the lender. They can start the process without personally meeting you however; eventually they need to verify your identification in person.

The information provided in your application to your lender is strictly confidential. The lender may ask questions to clarify certain items to gain a better perspective of your finances. The loan officer will know what the loan underwriter or investor requires for various loan programs.

 

Your loan officer understands your concerns and is there to help you with the approval of your loan. Feel free to ask any questions at the loan application about items you do not understand.

 

Once the loan application is taken, the lender will proceed with verifying the information you provided. The loan packet is then given to the "Loan Processor" who will gather the necessary information and call you if there are any questions. Do not be alarmed if they call you several times. This is a normal process in getting the loan approved.

 

 

What are Points?

Points are often called Discount Points or Fees, or New Loan Fees, and sometimes Origination Fees. Points provide the necessary ingredient to allow the purchaser to select an interest rate best suited to their finances. Normally, under a fixed rate loan program the lower the rate, the higher the points, and vice versa. Expect to pay either more points or a higher interest rate for investment properties vs. owner occupied. Investment properties carry a higher risk, therefore higher cost to finance.

 

Points are paid to Lending Institutions (Banks, Savings and Loans, Mortgage Companies, Investors, Insurance Companies, etc.) to allow the Lending Institution to make funds available to you the Borrower. The Bond market is affects the mortgage market more than any other financial gauge. The higher the bond cost, the less the interest rate you pay. Depending on market conditions and the interest rate, points may not be advantageous to pay. Points vary daily and fluctuate on the market conditions that affect our local, national, and global economy.

 

Originating fees are different than the conventional "Discount Points". The Originating Fees is the fee paid to the lending institution to process your loan. Normally the Originating Fee is one percent of your loan amount. Origination fees are determined by the Lender.

 

Depending on market conditions, Discount Points or Originating fees may be paid by either the purchaser or seller regardless if the loan is a Conventional, VA, or FHA.

To Lock or to Not Lock Interest Rates

Locking in your interest rate and the amount of discount points (if applicable) is one of the most important decisions you will make regarding your loan. Locking in a rate means that you have committed to closing your home loan at a specific interest rate, subject to loan approval. Only you can decide when you want to lock in your interest rate. Be aware that the rate you are quoted today may be the last time you will see that rate. Market rates may drop below the market rate you locked in today. Some lenders offer a “float down” where after you lock; if the rates improve by 100 basis points (about ½%), they will allow you the lower rate. Check with your lender if they offer this program.

 

If your lock expires prior to closing, the new rate and discount points will never be less than the original lock-in. Check with the lender regarding this policy. This applies even if the rates have decreased subsequent to your lock-in. Floating your discount points, or not locking in your discount points, will be subject to change daily. Your loan will cease to float only when you have consented and agreed to lock in for a maximum of 60 days.

 

If you float, you could jeopardize when your closing occurs and fall out of contract dates. New regulations effective in 2009 will re-set the timing needed for approving the new APR (Annual Percentage Rate). A minor fluctuation on the APR re-sets new disclosure time lines. Please speak with your lender about the consequences of floating.

Financing types

Conventional Loans

Depending on the price range and your personal finances, the conventional loan is one of the most popular loans in our market place. Normally, with a conventional loan, you can avoid paying a mortgage insurance premium (discussed later) if your down payment is at least 20%. Check with your lender on investment property requirements.

 

Conventional loans are stricter on their qualification ratios versus other types of loans. The qualification ratio the lenders use is a percentage of your gross income (if salaried) times a given percentile as established by the lender to figure your maximum loan payment. For example, if gross monthly income is $7,000, and you are a salaried employee, then your gross monthly income times 28% (some flexibility applies depending on your credit score) will determine the maximum monthly payment for your future home or $1,960 per month. If you have monthly obligations or debt, such as car payments, credit cards, child care, etc., then your gross monthly income times 36% or higher, should establish your maximum monthly payments minus your current debt, or $2,520. Both ratios should be in line in order to qualify. Flexibility does occur but it primarily depends on your credit score, and many other financial considerations that lenders have to look at in today’s economy.

 

FNMA Loan limits are generally known as Conforming Conventional financing and depending on the county where the property is located; it’s normally a $417,000 loan limit for the Denver metro area. Jumbo Loans are in excess of that amount and cost over 1-2% higher loan interest rate for financing. The majority of loans issued today are fixed rate mortgages however; some lenders still offer a varietal of the fixed rate programs but adjust at a future date. 

Whatever your needs are in purchasing a home, we have the experience and resources to assist you with those needs. Please let us know how can be of service to you!

FHA or VA Loans

Government insured loans to either first time purchasers or experienced purchasers are available up to $406,250 loan amount, depending on the property’s County. Qualification is normally easier from debt to income ratios but you follow the same process as Conventional loans. The appraisal process does vary in that the appraiser will do some physical check on the property compared to the Conventional appraisal. Ask about the FHA 203K program for fix up properties. Some properties or condominium projects are NOT FHA or VA approved, therefore you will not be able to Government finance!

 

All Government loans have an additional MIP, Mortgage Insurance Premium, added to your normal rate and or added to the principal loan amount and paid over the term of the loan. You may be entitled to an MIP refund on an FHA loan if you pay your loan off within 5 years. Ask your lender for details.

 

FHA loans are assumable at the same rate except you will be released of liability should the loan be assumed. FHA loans can become a marketing tool if you’re interested in selling your home during a high interest rate climate where the future buyer can assume with release of liability you’re lower than market rate.

Only Lenders endorsed by HUD can perform FHA or VA loans. Please check with your lender of choice for endorsement rights.

Mortgage Insurance (PMI/MI/MIP)

When purchasing a home through a lender with minimum down payment you are required to protect that lenders investment with Mortgage Insurance. Just as you purchase insurance to protect your home and automobile, Mortgage Insurance is needed on most federally financed loans and on Conventional loans with less than a 20% down payment. A lender making an insured mortgage loan to a purchaser that defaults on the loan will be assured of protection against loss incurred from the loan invested on that home owner. The larger the down payment or security investment in the home, the less MIP expected to pay on any loan type. However, no MIP loans are available with less than 20% down payment.

 

Mortgage Insurance premium is not to be confused with life or disability mortgage insurance. Separate policies are available to purchase through your insurance agent. All loans require Hazard Insurance coverage in case of casualty or fire to the property.

 

We want to thank you for selecting us to assist you

with the purchase of your home!

Your Realtor for Life

Roy Lopez