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Mortgage Procedure
What
is pre-qualification?
Pre-qualification is a preliminary determination of a loan
amount, within a specific range, that a borrower can qualify for. This is done
by a mortgage broker or loan agent, and is based on the borrower's assets,
debts, and income. Pre-qualification may not guarantee final loan approval.
Why
should I pre-qualify?
Pre-qualification gives you an estimate of how much money
you are able to borrow, and how high of a purchase price you can afford. Many
real estate agents require that you have a pre-qualification letter before they
will assist you on your home purchase. Being pre-qualified demonstrates to an
agent and a seller that you have taken the preliminary steps in determining if
you qualify for a mortgage; This presents you as a viable buyer. There is no
cost for this pre-qualification letter, and the process is a critical first step
in having your loan pre-approved.
What
is pre-approval?
With a pre-approval, a bank or lender has approved a
client for a specific loan amount based on their current income, financial
reserves, and anticipated debt at closing. This pre-approval may be contingent
on such factors as the sale of the current home, the continuing level of
employment and income, maintaining the required level of debt, and the appraisal
of new home. The lender reserves the right to review changes in the client's
financial position prior to funding.
What
is the difference between pre-qualification and pre-approval?
A pre-qualification is provided by a mortgage broker or
loan agent. A pre-approval is provided by the bank or lender who will actually
be funding your mortgage. Therefore, a pre-approval is taken more seriously by a
realtor and seller, because it demonstrates that your application, credit, and
documentation has been reviewed and accepted by a bank.
What
documents do I need to provide?
Please provide us with a copy of all of the following
documents so that we are able to process your loan application.
- Paycheck stubs - two most recent for each borrower.
- W-2 forms - two most recent years.
- Bank and/or stock brokerage account statements,
including 401k or other retirement accounts - three most recent months.
- Coupon for your current mortgages, or most recent
mortgage statement.
- Front page/declaration page of homeowner's insurance
policy, or the insurance agent's name and phone number.
- Purchase contract with all addendums.
- Landlord's name, address, and phone number if you
are a tenant.
- Rental agreements for all rental properties owned.
- If applicable: Federal Tax Returns
(signed and complete with all schedules) - previous two years. These are
required if any borrower has commission income greater than 20% of total
income, or has any partnership, rental, or Schedule C (self-employment)
income.
- If applicable: Year-to-date profit and
loss statement(s) for those clients who are self-employed.
- If applicable: Federal Corporate
Returns (1120s) - previous two years.
- If applicable: Partnership K-1s -
previous two years.
- If applicable: Divorce decree and
spousal settlement.
- If applicable: Full Partnership
Federal Tax Returns (1065s) for the last two years will be requested if your
partnership interest is greater than 20%.
Will
I need to provide a copy of my Tax Return?
Lenders will require tax returns in cases where your
qualifying income is derived from sources other than salary (W-2 income). For
example, if your taxable earnings are derived from rentals, partnerships,
capital gains, dividends and interest, or you are a part owner in a company, or
receive more than 25% of your income in the form of bonus or commission income,
you will likely need to provide tax returns to obtain loan approval. If you are
unwilling or unable to provide copies of tax returns (if self-employed), please
consider applying for a no-income-documentation loan. Although these products
carry a slightly higher rate of interest, lender requirements for proof of
income are substantially reduced.
How
will my credit history affect my ability to get a mortgage?
More and more banks are offering special incentives for
clients with excellent credit. Conversely, weak credit may hamper our ability to
close your loan in a timely manner and result in a higher rate.
Does
it cost me anything to apply?
There is no fee to apply for a home mortgage.
How
long does the loan process take?
The time for loan approval varies based on the information
we receive from you and the product you apply for. The length of time to receive
approval ranges from 3 days to a few weeks.
Why
is there so much paperwork?
These documents help the lender evaluate and verify the
information you provide. The average mortgage amount in California is $200,000,
so banks are very diligent in ensuring that you qualify for, and can repay, the
mortgage.
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