Obtaining a New Loan

OBTAINING A NEW LOAN

WHEN AND WHERE TO APPLY FOR A LOAN?
There are many sources for home loans including banks, credit unions, mortgage companies, and mortgage brokers. Your Realtor® may give you several names of lenders who have proven reliable in their previous transactions. Apply for your loan as soon as possible. In fact, it’s probably a good idea to know what you can afford before you begin looking for your new home. It can give you more bargaining power when negotiating with a Seller, especially in today’s market. A lender can prequalify you for a certain price range and help you avoid disappointment later.

YOUR LENDER WILL MAIL OUT VERIFICATION REQUESTS and order an appraisal on the property you are buying. If your lender asks for additional items, please comply promptly with those requests to avoid delaying loan approval.

WHAT IS HAZARD (OR FIRE) INSURANCE?
Hazard insurance covers the dwelling itself and is required by the lender to protect their “risk” in your home. Your lender or Realtor® will explain the necessary hazard insurance coverage to you. If you are buying a condominium, a master policy already exists which includes your unit- but it does not cover your personal belongings.

CONTACT YOUR INSURANCE AGENT EARLY IN THE PROCESS
Because this coverage must be provided so the lender can release loan funds to your title company. Hazard insurance is one of the items frequently postponed until the last minute, and this can result in delaying the closing for a day or more. Order your insurance as soon as your loan is approved; then furnish your escrow officer with the agent’s name and phone number.
When you talk with your insurance agent, be sure to ask about additional coverage in a homeowner’s policy to insure your personal belongings and to protect against liability for such events as injuries to visitors.

WHAT HAPPENS AFTER LOAN APPROVAL?
After loan approval and just prior to your planned closing date, the lender will send loan documents to your title company, and your escrow officer will prepare an estimated settlement statement. This statement indicates what funds go where, and at this time your escrow officer can tell you how much money you need to bring to the closing appointment. Be aware that this amount may be higher or lower that previously estimated due to changes in such items as prepaid interest, prorated fees, courier fees, and impound accounts.

What You May Need For The Loan Application

Be prepared to provide some or all of these items to your loan officer

  • Addresses of residences for the last two years
  • Social security number
  • Driver’s license or other valid ID
  • Names and addresses of employers for last two years
  • Two recent pay stubs showing year-to-date earnings
  • Federal tax returns for last two years
  • W-2’s for last two years
  • Last two months statements for all checking and savings accounts
  • Loans: Names, addresses, account numbers, and payment amounts on all loans
  • Real estate loans: Names, addresses, account numbers, and payment amounts on all loans for other real estate you own
  • Credit cards: Names, addresses, account numbers, and payment amounts on all credit cards
  • Addresses and values of other real estate owned
  • Value of personal property, Your best estimate of the value of all your personal property (autos, boats, furniture, jewelry, television, stereo, computer, other electronics, etc.)
  • For a VA loan, Certificate of Eligibility or DD214s
  • Divorce decree if applicable
  • Funds to pay upfront for the credit report and appraisal

WHAT TO AVOID DURING THE LOAN PROCESS

DO NOT CHANGE JOBS. A job change may result in your loan being denied, particularly if you are taking a lower paying position or moving into a different field. Don’t think you’re safe because you’ve received approval earlier in the process, as the lender may call your employer to re-verify your employment just prior to funding the loan.

DON’T PAY OFF EXISTING ACCOUNTS UNLESS THE LENDER REQUESTS IT. If your loan officer advises you to pay off certain bills in order to qualify for the loan, follow that advice. Otherwise, leave your accounts as they are until your escrow closes.

AVOID SWITCHING BANKS OR MOVING YOUR MONEY TO ANOTHER INSTITUTION. After the lender has verified your funds at one or more institutions, the money should remain there until needed for the purchase.

DON’T MAKE ANY LARGE PURCHASES. A major purchase( a car or a boat) that requires a large withdrawal from your verified funds or increases your debt can result in your not qualifying for the loan. A lender may check your credit or re-verify funds at the last minute, so avoid purchases that could that could impact your loan approval.

TYPES OF LOANS

CONVENTIONAL LOAN. This simply describes a loan that is not obtained under any government-insured program, secured by investors. It could be any type: fixed rate, adjustable, balloon, etc.

ADJUSTABLE RATE LOAN. Adjustable or variable rate refers to the fluctuating interest rate you’ll pay over the life of the loan. The rate is adjusted periodically to coincide with charges in the index on which the rate is based. The minimum and maximum amounts of adjustment, as well as the frequency of adjustment are specified in the loan terms. An adjustable rate mortgage may allow you to qualify for a higher loan amount but maximums, caps and time frames should be considered before deciding on this type of loan.

FHA LOAN. This program is beneficial for buyers who don’t have large down payments. The loan is insured by the Federal Housing Administration under Housing and Urban Development (HUD) and offers easier qualifying with less cash needed upfront but the condition of the property is strictly regulated. The Seller will pay a portion of the closing costs that would typically be paid by the buyer in a conventional loan program.

VA LOAN. People who have served in the U.S. armed forces can apply for a VA loan which covers up to 100% of the purchase price and requires little or no down payment. The seller pays much of the closing costs but those fees are added to the sales price of the home.

ASSUMABLE LOAN. A true assumable loan is rare today! This loan used to enable a buyer to pay the seller for the equity in the home and take over the payments without meeting any requirements. Assumables these days generally require standard income, credit and funds verification by the lender before the loan can be transferred to the buyer.

FIXED RATE LOAN. This loan has one interest rate that is constant throughout the loan.

BUY-DOWN LOAN. If you have cash to spare, you can pay a portion of the interest upfront to reduce your monthly payments.