Tips for a Fast Home Loan Approval
As a potential home loan customer, everyone wants to search and find the best mortgage deal and the best mortgage rate that they can. It seems everyone in the market for a new home loan is looking for the best mortgage rate for the lowest costs on a loan they can have right away without delay. For some prospective borrowers that find a mortgage lender or mortgage broker that is well respected and skilled, it is likely they will not have any problems in your search.
Sometimes, however, choosing the best mortgage lender doesn’t always equal a deal that is done the most swiftly. Mortgage loans that are not completed in a timely manner may unfortunately result in higher costs. Delays may bring higher costs due to a purchase not closing on time, higher costs to pay for additional services to complete the home loan transaction or higher costs due to the expiration of a mortgage loan lock that results in a higher mortgage rate.
If your home loan is supposed to close within 30 days but it winds up taking longer you may have to pay a higher interest rate because of the delay or worse experience a lost opportunity because you didn’t get the funding in time.
It is important to be able to evaluate the services of your mortgage lender or broker so you know what the home loan approval process entails with that mortgage lender so the loan closes in a timely fashion without extra costs and headaches. The first task should be to have some knowledge about the mortgage loan process as a whole. Knowing the different steps in the mortgage process will help avoid delays and unnecessary halts in the loan process and closing.
The first part of this process is the mortgage loan application and the submission of supporting documents. If the mortgage application process is not done right, the mortgage loan approval process gets off to a rocky start that will often lead to problems and delays.
It is in your best interest to make sure that your mortgage lender or broker has all of your personal information that is needed, and that the information is accurate and correct. Often a delay can be because of simple errors that are easily avoided.
This errors may slip by because the borrower did have the accurate information to complete the loan application or supply the necessary supporting documents or the error may occur because the home loan borrower did not think it was necessary to fill in all the details on the mortgage loan application or the loan officer was more interested in getting the loan application into processing rather than making sure it was completed properly. Whatever the reason, a simple rule is that the more information there the easy the process becomes.
When you complete a mortgage loan application it is important to make sure you fill out the application completely. The mortgage loan application details, among other things, your income, assets, and a description of the home you plan to buy or refinance. The application and the supporting documents is the most important step in the home loan approval process. This is where the information is garnered to calculate income, credit and debts outstanding. A well documented application helps avoid errors and improves the speed at which the data can be verified.
The process of completing and submitting the home loan application requires documents such as W-2’s and tax returns for the last two years, pay stubs covering a 30 day period, bank statements for the last two months, the purchase contract or a mortgage statement of the mortgage loan is for a refinance. Recent credit card account statements may also be routinely required.
Here are Some Easy Steps to Submit a Complete Mortgage Loan Application:
Double check that there are no spaces or blanks left on your mortgage application before you sign.
Make sure that when you sign the agreed terms spelled out in writing are what you are expecting, and do not be afraid or be shy about asking questions before you sign.
Anything you do not understand, don’t hesitate to question your mortgage lender before you sign. If there is a delay it won’t be because you didn’t understand what the process was.
Make sure you keep copies of all the documents and important papers and have them handy to produce if required.
Make sure you have given the data requested. Stress this point with the mortgage lending institution. If you give them everything they requested, the ball is firmly in their court to close the loan.
Make sure you understand all of the mortgage loan features, what they mean, and what may be available for other home loan programs. This includes the bottom line for what you are responsible to pay. As simple as this sounds, it avoids confusion and unwanted surprises.
Before submitting a mortgage loan application, search and find the mortgage lender that will give you the best service, and offer the best quotes for a low mortgage rate on your home loan. Once you find your mortgage lender, do not hesitate to give them all the financial details they need. Give them details on assets, your income, your debt situation, and your job history. After giving your mortgage lender all the information you have to give, follow up with them frequently, and make yourself accessible should they have questions and don’t be intimidated, do your research and remember this is your request; you can control many aspects of the process.
Q. How do I find the best mortgage lender?
A. The most important step in the process of finding the right mortgage lender is to do plenty of research. Unfortunately, most consumers will spend more time shopping and comparing the price of a new television set than they do shopping for a mortgage lender.
When shopping for the best mortgage lender is not only important to shop around and compare mortgage rates and costs, it is equally important to investigate the mortgage lender and their services. It’s important that you find a mortgage lender who will work with you to meet your needs and who you feel comfortable with and gives you a feeling of trust. This will entail comparing rates, services and competence.
It’s not that difficult to choose a good mortgage lender, but you do have to be informed and know what you are looking for in a mortgage lender. In order to shop and compare mortgage lenders, you need to fully understand what you are searching for not what they are selling. In order to understand the product, a prospective home loan borrower has to learn about the mortgage loans available, the average mortgage rates, the costs and the terminology involved in the mortgage loan process. With the knowledge of how the mortgage loan decision making process works, a mortgage shopper can better compare mortgage lenders and question the services and products offered.
Above everything else, do your homework before the application process begins. To find the right mortgage lender a consumer will have to question the mortgage lender and loan officer and this will be difficult to do without some understanding of how a mortgage loan is originated, processes and closed.
Once you, as the potential home loan borrower, understand the mortgage loan types and the process involved, its time to quiz the mortgage lender and mortgage loan officers. The first thing to find out is how knowledgeable the mortgage loan officer is about the home loan options and equally important, how well they explain the process and any potential pitfalls to a smooth home loan closing. The mortgage lender or mortgage loan officer should explain the mortgage rate lock process, the mortgage payments, the loan term, when and if you can refinance again and more.
Which mortgage lender has the best mortgage rate will certainly be a consideration. Of course, it is important to discuss mortgage rates and closing costs. This is a big ticket item and the mortgage rate can have a significant impact on the total costs of the loan. Comparing mortgage rates fortunately is fairly straight forward process.
Go online and check the prevailing mortgage rates in your area for the home loan product you are most interested in. Use these mortgage rates as a starting point to compare the mortgage rates of lenders you call and measure how competitive their mortgage rates really are. Don’t choose a mortgage lender based on mortgage rate alone. Make sure the mortgage lender is competitive with their mortgage rates but be sure to investigate the costs and service as well.
Comparing closing costs can sometimes get fishier. Some mortgage loan officers remain intentionally vague about the total closing costs. Other mortgage lenders employ loan officers that just don’t know that much about what they sell. In these cases it may be wise to move on. A representative of any mortgage lender should be able to explain the mortgage costs with great detail. That means they should explain any origination points, the costs of the appraisal, the title insurance costs, the cost for processing, the credit report, the tax service fee and any other fees the mortgage lender will be charging.
Not only should a good mortgage lender explain these costs, they should be able to explain what they are and why you are being charged the corresponding fee. Once you have chosen your mortgage lender and submitted a home loan application, get a Good Faith Estimate in writing itemizing approximate mortgage costs and fees. Pay close attention to all the figures on the Good Faith Estimate.
You should know, up front, how the mortgage lender will evaluate your application. Have the mortgage lender explain the mortgage loan process and the how they come to approve your home loan request all the way up to how and when they set up the mortgage loan closing or settlement. When you speak with the mortgage lender they should explain the automated underwriting process, the verification process, the documents needed by you to support the down payment and your income as well as how long this process should takes.
While the mortgage lender briefly explains the process, find out how accessible they will be while your home loan application is being evaluated and underwritten. With all the transactions now taking place on line including mortgage origination’s, a face to face application or consultation is not necessary with a mortgage lender but you should at least be able to contact your loan officer by phone or email regularly. Some customers can be annoying but the job as the mortgage loan officer to help you get a home loan. You want to be assured it will be easy for you to monitor the status of your mortgage loan application and be able to ask questions along the way.
A final step should be to ask for references. As good mortgage loan officer should be able to immediately provide references of satisfied customer’s even customers that they are presently working with.
In a nutshell, to choose a good mortgage lender you want to research the products they offer and the mortgage rate, the level of service in handling a home loan application from beginning to end and the reputation of the mortgage lender. Mortgage lenders who understand mortgage rates and costs and the whole loan process are most certainly going to be a very knowledgeable and resourceful mortgage loan officer who has not merely a salesman. Be sure to choose a company that gives helpful advice and that makes you feel comfortable.
Q. What happens when you change the mortgage loan amount after the loan application is with the mortgage lender?
A. Generally this is not a big problem when the loan amount is altered by small amounts, but it will depend on a number of variables of which one may be significant. Mortgage loans are almost entirely approved or denied based on automated underwriting systems or programs or AUS. The two biggest are FNMA’s Desk Top Underwriter and FHLMC’s Loan Prospector program.
Once a home loan application is preliminarily approved that is an indication it has been submitted through one of these programs. The loan approval takes only minutes but the data entry and processing leading up to the approval may take an hour or more. Once the home loan is submitted the automated system will generate an approval with conditions or findings that need to be satisfied for final loan approval. The conditions usually involve items and procedures such as employment and income verification and supporting documents such as current paystubs or asset documentation. The key is that the mortgage loan request is approved based on several numerical factors such as the applicants credit score, debt ratios, income and assets not subjective judgments performed by an individual.
Altering the loan amount after the initial input in these automated underwriting systems is relatively easy. Once a mortgage loan request is entered into one of the automated underwriting programs the loan request can be altered multiple times without recourse. Each alteration does not change the credit profile or cause another inquiry into the applicant’s credit report. The credit score doesn’t change due to a higher loan amount nor does the applicants job or income. If an increased loan amount is not accepted it does not invalidate the prior approval amount and conditions.
Raising the home loan amount is most often a minor change that impacts the debt ratio slightly as well as the LTV or loan to value. It would also be easy to see that a loan increase of $3,000.00 on a $200,000.00 loan request is not going to raise the mortgage payment very much and therefore will have very little impact on the debt ratios. This can be verified by running your own mortgage payment calculations on a mortgage calculator. Therefore, unless the debt ratios are very tight the most significant factor in determining the outcome of increasing the loan amount is the loan to value.
This leads to the conclusion that for home loans that are already approved, raising the loan amount slightly should be relatively easy. It requires some simple data entry changes into the original approval request with the automated underwriting system and viola, a new loan approval.
However, if the loan request is for a home purchase, the loan amount change may very well be changing the down payment and the loan to value significantly. A home loan for 180,000.00 on a $200,000.00 purchase that changes to a $182,500.00 loan amount involves a fairly measurable change to the LTV. The original home loan request calls for a down payment of $20,000.00 or 10% of the purchase price which is equivalent to a 90% loan to value home loan. By raising the loan amount by only $2,500.00 the loan to value is now over 90% (91% or $182,500.00 / $200,000.00). Home loan requests that may alter the LTV above the minimum accepted level are likely not to be approved.
The first step to solving the question of whether your mortgage loan request can be increased is to run the loan figures on a mortgage calculator so you know how the loan amount changes are impacting the mortgage payment and debt ratio. Next, speak to the loan officer or mortgage lender and ask for their input. For a refinance it is fairly common for the loan amount to be changed. Underwriting considerations may prevent the mortgage lender from raising the loan amount but there is no downside to asking. If the credit, income and collateral allow room to change the mortgage loan amount, it should a fairly simple process.
Q. What does it mean to float a rate?
A. Mortgage rates changes daily and in especially volatile markets they can change during the day. Floating or floating the rate is when you have put in a mortgage loan application for a home loan but the mortgage rate is not locked or set at a specific rate but rather floats and may vary with the daily market interest rate changes. While your mortgage rate floats, the interest rate on your home loan may go up and it may go down until the loan rate is locked. The mortgage rate must be locked prior to the closing date but it can float either by request of the loan applicant or because the applicant is ignorant about how mortgage loans and mortgage rates function. Of course, the mortgage payment will change as the mortgage rate changes.
The opposite dynamic of floating the rate is to lock the mortgage loan rate. When this happens the interest rate is fixed for that loan request for a predetermined period of time. The home loan should be settled or close during the time period covered by the loan lock or the loan lock is of no value. The loan lock can be performed at the time of the home loan application or anytime up to a few days prior to the home loan closing.
A mortgage applicant may float their loan because they believe mortgage rates are headed lower. This can be risky business, but many mortgage applicants have guessed wisely and made the assumption that mortgage rates will drop between the time they place the mortgage application and the time the loan closes and in fact the mortgage rates do fall and that new mortgage loan borrower has a lower rate.
Unfortunately, some mortgage lenders do not inform their customers about mortgage rate locks and the potential home loan borrower’s mortgage rate is floating because of this intentional lack of disclosure. When mortgage rates suddenly rise, that borrower is now going to find that their mortgage rate is higher or perhaps more loan fees how been added to the closing costs to cover the costs of obtaining the original quoted rate that is no longer available in the mortgage market.
When a potential mortgage applicant is shopping and comparing mortgage rates it is important to discuss the rate lock with the mortgage lender. Be sure to discuss how long the mortgage rate is good for. Mortgage loan locks and rate floating applies to both purchase transactions and refinances.
When you discuss the interest rate on a mortgage loan with a loan officer of a mortgage lender or bank, part of the discussion that is often left out is how long that mortgage rate is good for. Many mortgage loan officers quote mortgage rates that are short term rates. The rate difference between a long term commitment and a short term commitment may not be very much but there is a discernible difference.
Mortgage rates generally have commitment time periods of 15 days, 30 days, 45 days, 60 days and sometimes longer. If a mortgage applicant is applying for a home loan that is due to close in 40 days, a mortgage rate commitment for 15 days is essentially worthless. Loan officers sometimes quote that 15 day commitment rate because it is cheaper either with a lower mortgage rate or lower fees and this draws the customer in. Remember, the loan officer is a salesman first. Later the loan officer tells the applicant they are not locked, hopefully at the time the home loan application is filled out but often they do not tell them until the loan is ready to close. If rates fall the borrower may get a benefit and if they rise they are in for an unpleasant surprise.