Unit 3: Lender Criteria & Lending Process

• What are the 5 steps of loan process: pre-qualification/pre-approval, application, processing, underwriting analysis, and loan approval/disapproval
• Loan pre-qualification: Buyer provides information to lender about income, assets, debt, and how much is available for down payment. Lender uses numbers to provide the buyer with a pre-qualification letter that estimates the amount for which the buyer might qualify for There’s no cost to the buyer
• Loan pre-approval: buyer applies for a loan with lender. The information about income, assets, debt, and money available for a down payment is accompanied by documentation. May require to pay application fee. Lenders verify buyer-provided information, determine buyer’s ability to finance, and decide the number. A loan pre-approval is viewed more favorably than a pre-qualification because of verification of buyer-provided information. It’s a good way to show a seller that the buyer’s offer is viable. Pre-approval is rare.
• Loan Application: when buyer applies for a home and provides supporting documents to lender once home offer is accepted
• Real Estate Settlement Procedure Act (RESPA): protects borrowers from overcharges by requiring certain disclosures and prohibiting kickbacks
• Loan Estimate: disclosure lender gives to borrower within 3 days of borrower applying for loan; discloses loan terms, estimated interest rate, payment and closing costs
• If borrower does not inform lender they don't want to proceed with loan: estimate will expire after 10 business days
• IF any terms or condition of loan change: revised loan estimate MUST be provided to consumer, such as type of loan, down payment, property value, credit score, income proof or interest rate. You MUST update loan plans
• Rate lock fee: also known as rate commitment, securing a given interest for a specified period of time between borrower and lender. Allows for best deals
• Loan processing - verifies that correct information and documentation have been received based on loan requirement (bank statements, pay stubs, w-2 forms, info about property), may take 1 to several weeks
• Loan package - all required paperwork
• Underwriting analysis - after loan package is complete and validated, it goes to underwriter which borrower has ability to repay loan, value and type of property, and loan to value ratio, then makes recommendations if loan should be approved or not. Takes 3-5 days
• Loan to value ratio: ratio of loan amount to the value of property being purchased
• Loan approval/disapproval - loan committee reviews analysis and recommendation from underwriter to give a final answer. If approved, borrower will receive disclosures and papers detailing final terms of loan. If denied, lender must have a written explanation outlining why it wasn't approved
• Benefits of locking rates: protects against rising interest rates and higher payments, protects buyer from being denied a loan because higher rates made your payments high, choose different types of lock ins giving you flexibility, and is usually 30-60 days which gives lender time to process loan
• Risk of locking rates: If interest rate goes down, you can't benefit from lower rates, longer lock in period might mean higher fees, and are only good for a certain time -- if it expires before loan is done, you might have to pay current rate