THE LOAN PROCESS - FINANCING YOUR REAL ESTATE Pre-Qualification The loan process may begin differently depending on a number of factors. You may first wish to call around to 3 or 4 lenders or mortgage brokers to get an idea of current rates. Please be sure to read about credit reports and scoring before you give a lender any personal information to ensure your credit remains strong throughout the loan process. Normally, the lender or mortgage broker will run your credit, ask you about your monthly debt obligations, and your income. A lender will look at your Debt to Income (DTI) ratio to determine how your debt compares to your income. The more money you make, the more debt you can afford to take on. Typically, a lender will not want your DTI to exceed 36%. That is, your monthly debt should be less than 36% of your gross monthly income.All of these items are used together to come up with an idea of how much you can afford. With this, they are able to "pre-qualify" you for a particular loan program you choose. There is generally no fee for pre-qualification. Application You may then complete a loan application and supply all of the required documentation for processing. This may include W2's, tax returns, pay stubs and bank account statements, depending on the type of loan you're applying for. The amount of down payment, as well as other fees associated with the loan are discussed at this time. You should then request to receive a "Good Faith Estimate" (GFE) to get an idea of all of the fees associated with the loan, and what you're monthly payments will look like. Please note that this figure may only include Principal and Interest (PI), which is only half of the equation. Ask the lender to include Taxes and Insurance into the estimate so you can have a better idea of what the payments will be in total (PITI). Pre-Qualification vs. Pre-Approval Pre-qualification, as discussed above, is an informal way that gives you a rough estimate of how much you can afford to borrow. It generally requires no paperwork. Pre-approval, on the other hand, is the lenders commitment to lend the money to you and follow through with the loan. It gives you a much better idea of precisely how much you can afford, and shows sellers that you are serious about buying. I always recommend getting pre-approved since some sellers won't even consider your offer if you haven't committed to financing. If there are multiple offers on a home, a pre-approval letter strengthens the offer and increases the likelihood of getting it accepted. Processing At this time, your credit report is reviewed and your debts and income are verified. If there are any problems with this information, you may be asked to submit a written explanation. At this time, the survey / appraisal are reviewed to check for any property issues, and to ensure the value of the property is greater than or equal to the price of the home. A lender will typically not follow through with a loan when a property's price is greater than what it is appraised for. All of this information is then passed on to the underwriter. Underwriting The underwriter essentially takes the entire "package" of information above and determines whether it is an acceptable loan. It may come back where you are required to submit more documentation to tie loose ends. It is the underwriters job to question your file, so be prepared to answer any objections should they arise. Pre-closing The title insurance is ordered at this time, and any approval contingencies are met. If everything is in order, you are now ready to close! Closing At this time, the lender will provide proper funds, in the form of cashier's check or bank wire to the selling party. You will also need to bring an amount for the down payment and closing costs in "good funds". Normally, a money order, cashiers check or bank wire is sufficient. Be sure to review all of the loan documents carefully, and be sure to check all information, including the rate and terms, for accuracy. Sign all of the closing documents. The loan process is now complete and the real estate is yours!