Credit Report

Your credit history is maintained by three different credit bureaus which store and maintain credit information about you supplied by credit card companies and others with whom you have accounts. Since not all creditors report to all three companies, you credit file could be different with each one. Prior to shopping for a home, it is wise to review your credit report with all three bureaus in case there are errors that need correcting. You can obtain a copy of your credit report by contacting these agencies:

Pre-Qualification Vs. Pre-Approval

In a Pre-Qualification, the customer provides credit information and the customer's credit report is pulled. Based upon the stated income provided by the customer and the credit report, an estimate of the loan amount the borrower could qualify for is determined; however, there is no guarantee that the loan will be approved.

In a Pre-Approval, a lender pulls a credit report, verifies income and other underwriting duties to determine a maximum allowable loan amount and then commits to funding the loan if the purchase occurs within a specified amount of time.

The Mortgage Loan Process

Origination is the first step in the mortgage loan process. During the origination phase, a loan application is filled out with details of your financial information such as income, debts, all assets, present and previous employers and present and previous addresses. To substantiate your application, you will also need to provide the following documentation:

• W-2 (2 years) and current paycheck stub (30 days)
• Contract of Sale and legal description
• Latest 3 months bank statements (all accounts)
• All current monthly obligations including credit cards, account numbers, monthly payment and balance owed
• Loan information on other real estate owned
• Copy of Driver’s License or photo ID (FHA/VA).
• Certification of Eligibility and DD214’S (V.A. only).
• Check for credit report and appraisal.
• Self-employed: Last two-years tax returns with Schedules, YTD P&L and Balance Sheets
• Divorce Decree / Bankruptcy papers (if applicable).

Your loan originator will then be required to provide you with a Good Faith Estimate and a Truth In Lending disclosure shortly after your initial loan application. Many lenders may charge an origination fee or a fee for the service of creating the home loan which is usually stated as a percentage of the loan.

Processing is the second step in the mortgage loan process. During processing, documents are collected and your loan file is examined to ensure that all information is complete and accurate. Verifications, appraisals, credit reports and other necessary documents are ordered at this time.

Underwriting is the third step in the mortgage loan process. During underwriting, the documents in the loan file are evaluated to determine whether the loan should be approved, denied, or approved with conditions. Your loan will be evaluated in terms of four important factors: collateral, capacity, character and capital.

• Collateral refers to evaluating an estimate of the property's value and the physical condition which provides the basis for the lender to establish the maximum loan amount that the property can secure.
• Capacity refers to the financial resources you have available and your ability to make the monthly payments. Qualifying ratios are used for his purpose.
• Character refers to your motivation to make monthly mortgage payments. This is based on the information from your credit report which provide a history of credit performance regarding payments.
• Capital refers to the liquid assets you have available for the down payment and to meet closing costs.

Closing is the final step in obtaining your loan. After your loan is approved, closing documents are prepared, assembled, signed, and recorded. Your mortgage is now created and funds will be disbursed and title passes from the buyer to the seller. At the same time, you are making a legal obligation to repay the debt secured by the mortgage.

Types of Mortgage Loans

Conventional Loans - A mortgage loan made by an approved commercial Lending institution where the borrower's ability is not insured by a government agency.

FHA Loans - A mortgage loan made by an approved lending institution where the Federal Housing Administration insures the borrower's ability to repay the debt.

VA Loans - A mortgage loan made by an approved lending institution where the Veterans Administration guarantees the homebuyer's ability to repay the loan.

There are hundreds of types of mortgage loans available such as Growing Equity Mortgages, Adjustable Rate Mortgages, Fixed Rate Mortgages, Graduated Payment Adjustable Mortgages and Graduated Payment Mortgages to mention a few. It is best to consult with your lending institution or mortgage broker to determine which loan is right for you.

Conventional, FHA and VA Loan Housing Ratios

HOUSING RATIO LIMITS	CONV	FHA	VA
Principal, Interest, Taxes, Insurance	28%	29%	41%
Total Monthly Obligations	36%	41%	41%
Minimum Down Payment	5%*	3%**	-0-***

* Most conventional lenders require Private Mortgage Insurance for down payments less than 20%.
** FHA insures its home loans in the event of borrower default through the Mortgage Insurance Premiums.
*** VA guarantees its home loans in the event of borrower default.