Pre-Approval vs. Pre-Qualification
The Application
Information Needed from Applicant(s)
Income Considerations
Credit Considerations
Debt-to-income Guidelines
Loan Processing
Funds for Closing
Loan Closing
FAQS
Mortgage Glossary
The Application
Information Needed from Applicant(s)
Income Considerations
Credit Considerations
Debt-to-income Guidelines
Loan Processing
Funds for Closing
Loan Closing
FAQS
Mortgage Glossary
It is not necessary to pick out the house you want to purchase before beginning the approval process. In fact, it is advisable to obtain income and credit pre-approval. Another advantage to being pre-approved is that sellers are often more willing to accept your offer which states you have been pre-approved. The loan can close promptly upon receipt of a satisfactory appraisal, clear title and the clearing of any conditions within the purchase agreement. An income and credit pre-approval is an actual loan commitment.
A loan pre-qualification differs from a pre-approval because it is an analysis of credit-worthiness based entirely upon the information which you furnish. Employment and asset information is not verified, and your credit report is not reviewed. A loan pre-qualification allows the Credit Union to identify possible difficulties in obtaining loan approval, but is not a commitment to make the loan.
Both loan pre-approval and loan pre-qualification are helpful in determining the best loan program for you, as well as the maximum mortgage amount for which you qualify.
The loan process begins with an interview and completion of a loan application, which can be done during a face-to-face interview, by telephone or electronically. The application compiles personal information: who you are, where you live and work, what you owe and own, etc. It is recommended that you allow a minimum of one hour to complete the application and interview process. Additional time should be allotted to discuss loan options, or if you have circumstances which might require special consideration.
The section entitled "Information Needed From Applicant(s)" details the information which you should bring to the loan application. While some of the information is not required, it may help to speed the loan approval process. There is a direct correlation between the amount of the information provided at application and the speediness in receiving your loan approval. Please note that a non-refundable application fee is required at the time of application.
All Loan Applications:
- Copy of your Purchase Agreement, signed by all buyers and sellers, if applicable.
- Original pay stub(s) covering the most recent one month period for each applicant.
- Original W-2 forms for the last two years for each applicant.
- Original bank statements for the past three months, for all checking and savings accounts.
- Name, address and phone number of landlord for the last 24 months, if you are currently renting or have rented in the past 24 months.
- Most recent original 401k and IRA statements, if applicable.
- Original investment account statements for the past three months, if applicable.
- Canceled mortgage payments/rent checks (if readily available) for the last 12 months.
- If you are using proceeds from your current home, please provide your REALTOR’s "Estimate of Proceeds".
- Non-refundable application fee of $325.00
In addition, If You Are Self-Employed or Have Commission Income:
- Copies of your personal and business signed and dated federal income tax returns for the last two years.
- Year-to-date Profit and Loss Statement and balance sheet (self-employed only).
In addition, if you have been divorced:
- Complete signed copy of all divorce decrees, including any stipulations or modifications.
- Proof of receipt of child support payments for the last 24 months (only if you intend to use this income to qualify for your mortgage loan OR if you are required to pay child support).
In addition, if you have declared bankruptcy within the last 7 years:
- Copy of Petition/Decree, Schedule of Creditors and copy of Discharge.
- A letter of explanation on why you filed for bankruptcy.
Any documentation concerning recent changes in your employment or income status should be provided. Only that income which can be documented and is reasonably anticipated to continue for at least three years can be considered when underwriting the loan. Qualified income may be derived from a number of sources, including dividend and interest earnings, public assistance and/or wages.
Overtime and bonus income is qualified income if the employer verifies that you have received it for the last two years and indicates it will probably continue. Alimony or child support (which is not required to be disclosed) can be qualified income if it will continue for at least three years and evidence that the funds have been received for the last 12 months. Part-time or second-job income can be used if verified as being uninterrupted for the previous two years, and if there is a strong likelihood of continuation. For self-employed individuals and those with commission or bonus income accounting for 25% or more of their total income, the personal federal tax returns (and all business tax returns, if applicable) for the previous two years are required.
One of the primary underwriting considerations is your credit history. The credit history for the past 12 month period should reflect a generally good payment record, especially on housing expenses. Each loan application is unique, and a limited number of late payments previous to the last twelve months will not automatically disqualify you for loan approval. If you previously declared bankruptcy, the bankruptcy must have been discharged for a minimum of four years. An acceptable written explanation for any derogatory credit is required.
The purpose of any new loans must be explained and documented. All recent credit inquires must also be explained, so you should avoid applying for any credit cards or loans prior to buying a home.
By law, you have the right to know what is in your credit report and to correct wrong or incomplete information. To review their credit report, you can obtain a copy from a credit bureau by making a signed request and providing full name (with middle initial), current and previous addresses for the previous five years, Social Security number, date of birth, spouse's full name, and a photocopy of a photo ID. Please contact the appropriate credit bureau to determine their charge.
Trans Union Corporation
PO Box 390
Springfield, PA, 19064
(800) 916-8800
Equifax
PO Box 105873
Atlanta, GA, 30348
(800) 685-1111
Experian
PO Box 2104
Allen, TX, 75013
(800) 682-7654
Trans Union Corporation
PO Box 390
Springfield, PA, 19064
(800) 916-8800
Equifax
PO Box 105873
Atlanta, GA, 30348
(800) 685-1111
Experian
PO Box 2104
Allen, TX, 75013
(800) 682-7654
Another primary underwriting guideline is your ability to repay the loan, and is commonly determined by debt-to-income ratios. Lenders use two qualifying ratings to determine how much you can borrow. The Primary Housing Expense Ratio (which is monthly housing costs including mortgage payments, property taxes, insurance, and any association fees divided by gross monthly income) should be no more than 28%. The Total Debt Ratio (which is monthly housing costs plus other long-term debts divided by gross monthly income) should be no more than 36%. These ratios are only guidelines and can sometimes be exceeded with justified and documented reasons.
When processing the loan application, we will be considering your financial situation and credit history, as well as the property being purchased. Your income, assets, and liabilities will be verified. If you did not furnish all the necessary documents or if we are unable to use those documents, direct verifications for the missing information will be required.
An appraisal, and possibly other inspections of the property, will be completed. The purpose of the appraisal is to estimate the fair market value of the property. It does not warrant the property's condition nor does it guarantee the property is free from defects, including code violations.
Title work is ordered, and title objections must be resolved to ensure clear and marketable title. It is ultimately the seller's responsibility to provide clear title.
Many other items are also completed while the loan is in process to ensure that the loan falls within the established guidelines, and is adequately documented. Since every loan file is unique, there is an endless list of things which could arise to slow down the process. These things might include title objections, problems with the property's condition or value, incorrect or incomplete application information, or delays by any one of the many parties involved in the transaction.
After the documentation has been compiled, the file is submitted to underwriting. The underwriter will review all the information gathered to make a credit decision. The underwriter will analyze the property and your financial situation, including assets, credit and employment stability. The loan is approved when the underwriter has determined that the loans falls within the loan program guidelines and parameters.
Once you have been approved, a commitment letter will outline all the approval conditions and terms of closing the loan. Since the loan cannot close until all the terms and conditions are met, review the commitment letter carefully and begin working to satisfy all the terms and conditions.
In addition to a down payment on the property, borrowers need additional money to pay toward closing costs, which are the costs of processing and closing the loan. In order to obtain loan approval, the loan file must contain verification that you have access to funds for the total amount due at closing, including the amount of estimated closing costs.
Most loan programs also have a cash reserves requirement, which is usually two months mortgage payment (principal, interest, tax and insurance). Many types of investments can be used for cash reserves, such as cash value in a life insurance policy or a vested interest in a retirement account.
It is generally better to avoid moving large amounts of money during the two months prior to loan application, if you intend to use these funds for the down payment on your new home. If it is necessary to move money into an account, it is important to fully document the source of funds. Keep photocopies of all statements, checks, deposit receipts, etc. to clearly show the source and the transfer of the funds.
Loan closing can occur when all approval conditions have been met, with clear and marketable title being obtained. It is preferable to have all conditions cleared prior to closing, but it may be possible to wait until closing to meet some conditions.
At or before the time of closing, you are required to furnish evidence that the property is covered by homeowner's insurance, and a receipt for the first year's premium. The home must be insured for at least the amount of the loan, but you may want to consider additional coverage.
One of our closing specialists will review the loan file to ensure that all closing conditions have been resolved and clear title obtained. The closer will then prepare the required documents for signature, including the HUD Settlement Statement, which is the accounting of all money, bills, credits, etc. All money due or payable is settled in full at the time of closing.
NCUA - Your savings federally insured to at least $250,000 and backed by the full faith and credit of the United States Government. National Credit Union Administration, a U.S. Government agency. Equal Housing Lender - We do business in accordance with the Fair Housing Law and Equal Opportunity Credit Act