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CHAPTER 1. The Application Process

Getting a mortgage can be a long and sometimes frustrating ordeal. Applying for a mortgage is not quick or simple. In fact, it is a lengthy complicated process (see Figure 1.1) that often involves many different people and companies, such as:

• Borrower

• Real estate agent

• Mortgage broker

• Lender (loan officer, loan processor, underwriter, and/or loan committee)

• Credit bureau

• Appraiser

• Borrower's employer(s)

• Borrower's banks and creditors

• FHA, VA, or mortgage insurance company

• Inspector

• Surveyor

• Title insurance company

• Settlement attorney

Each of these people and companies can play a part in the processing, approval, and settlement of your loan.

FIGURE 1.1 The Application Process

The Application Process

The whole process, from the time of the loan application to the settlement (also known as the closing), can take from 15 to 60 days. Under normal conditions, you should plan on 30 days. During the peak homebuying season or periods of heavy refinancing activity, count on 30 to 60 days. When applying, ask your lender what its processing time has been averaging.

Problems arise when one or more people involved in this process make a time-consuming mistake or get backlogged with work and fail to get their parts completed on time. The borrowers themselves also can delay the process by not supplying the necessary information on time.

Although the paperwork starts with submitting a loan application, two steps in the process precede the application: prequalification and shopping for a loan.

Prequalification

Before you apply for a mortgage (even before you start earnestly shopping for a home), you should have a fairly solid idea of how large a loan you will qualify for – how much money you can borrow. National guidelines based on family income and debt obligations are used by most lenders to determine the maximum amount that they will lend. The first step in getting a mortgage is known as prequalifying, determining how much a lender will lend to you. (See Figure 1.2.)

Chapter 2, “Qualifying for a Mortgage Loan,” provides you with an in-depth understanding of how a lender decides whether to make a loan. The table in Figure 1.3 is not a substitute for reading Chapter 2, but it gives you a rough idea of how much you can borrow with a 10-percent down payment given the prevailing interest rate and your annual income.

For example, if your annual family income is $100,000 and prevailing mortgage interest rates are around 6 percent, you could get

FIGURE 1.2 Step 1: Prequalification

Step 1: Prequalification

FIGURE 1.3 Conventional Loan Qualification Table

Annual

Income

Approximately how large a mortgage can you get?

Mortgage Interest Rate

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

10.0%

S 20,000.00

S 95,000.00

S 84,000.00

S 75,000.00

S 67,000.00

S 60,000.00

$ 55,000.00

S 46,000.00

40,000.00

190,000.00

168,000.00

149,000.00

133,000.00

120,000.00

109,000.00

91,000.00

60,000.00

285,000.00

251,000.00

224,000.00

200,000.00

180,000.00

164,000.00

137,000.00

80,000.00

380,000.00

340,000.00

300,000.00

270,000.00

240,000.00

220,000.00

180,000.00

100,000.00

470,000.00

420,000.00

370,000.00

330,000.00

300,000.00

270,000.00

230,000.00

150,000.00

830,000.00

730,000.00

650,000.00

580,000.00

530,000.00

480,000.00

400,000.00

200,000.00

1,190,000.00

1,050,000.00

930,000.00

830,000.00

750,000.00

680,000.00

570,000.00

250,000.00

1,480,000.00

1,310,000.00

1,160,000.00

1,040,000.00

940,000.00

850,000.00

710,000.00

300,000.00

1,800,000.00

1,600,000.00

1,400,000.00

1,300,000.00

1,100,000.00

1,000,000.00

900,000.00

500,000.00

3,000,000.00

2,600,000.00

2,300,000.00

2,100,000.00

1,900,000.00

1,700,000.00

1,400,000.00

a conventional first mortgage of approximately $330,000 from most lenders (assuming a 10-percent down payment, good credit, and an average amount of other debt obligations). Chapter 2 also describes other requirements and tells how you can qualify for a larger loan.

You can prequalify yourself using the Do-It-Yourself Prequalification Worksheet in Appendix C. However, because of continuing changes in the mortgage industry and the increasing importance of credit scores in qualification, it is highly recommended that you seek out the help of a loan officer from a local mortgage lender to prequalify you. They will order a summary credit report that includes your credit scores, and they may even run your information through Fannie Mae's or Freddie Mac's underwriting software to get an even better picture of your qualifications. Many Realtors® require you to be prequalified by a lender before they w ill take you home shopping.

 
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