What To Expect When You Submit a Mortgage Application
As a result of financial reform, the mortgage application process is more procedural than ever. Certain steps must be followed, even if for example your refinance loan is coming from the lender that has your existing mortgage loan. Here's what to expect:
Not much change here, you'll fill out the same forms which have been in use for years. The initial set of forms form is not a contract, and is not a rate lock, so it's OK if you make mistakes, or if you edit it.
These are the usual documents, such as: paystubs, bank statements, W2 forms, evidence of insurance, and perhaps tax returns. Everything can be faxed, or preferably emailed. In an effort to combat identity theft and protect your credit file, a photo i.d. is often requested.
Initial Loan Disclosures
You'll get these sent to you early, and perhaps several times as your file evolves. A good example is when you lock in a rate - this event triggers a new set of disclosures And when your loan documents are drawn? Yet anothet set of disclosures! Like the loan application, the disclosures are not a contract. Further, loan disclosures are often over-disclosed. For example, the mortgage lender may list the monies involved with a tax impound account, even if your loan does not require a tax impound. You do not need to sign your disclosures, no special handling is required, and again, the disclosures are not a contract.
The lender might list a rate higher than that which you are ultimately pursuing, and the lender may not list closing cost credits (credit to be applied toward your non-recurring closing fees). Your mortgage representative can provide these details to you, always in writing. If it sounds like lenders are being extra careful with disclosures, you are correct.
Your Credit Card Will Most Likely Get Billed
This is for your appraisal. Your mortgage representative does not know who your appraiser is, and cannot have any contact with the appraiser. We are prohibted from any message or even a friendly chat with the appraiser. Under the theory of consumer protection, a mortgage representative must order the appraisal thru a blind pool of appraisers.
The Title/Escrow Company
You'll be contacted by the title/escrow company as part of their efforts to make sure you have clear title. No change here. The escrow officer is one of the last people to be invloved in your transaction, as he/she is responsible for disbursing funds.
The IRS will verify your earnings for the past two years via a form known as a 4506T. The 450T results in a transcript summarizing each line on your Form 1040 for the past two years. The lender will look at the summary to determine if there is any variance between your application and your reported earnings. The most overlooked items are: small businesses, patnerships, and rental properties. These items are identified on your IRS transcript, but sometimes forgotten to be listed on your initial loan forms, especially if the income or loss from these activities is modest.
Your Insurance Agent
Your agent will be contacted to verify you have sufficient insurance coverage. And if you are close to your renewal date, you may need to renew your insurance policy early as part of the loan closing process. The payment of any partial renewal fee will be determined by you and your insurance agent. If you are in the early stages of a refinance, it's beneficial to contact your insurance agent and make him/her aware of your transaction.
Flood insurance is required if your property is located in a flood zone as mapped by the Federal Emergency Management Agency (FEMA). If you're in a flood zone, this is a must do item. Flood insurance premiums vary from one insurance provider to the next, so shopping is recommended.
In most cases, earthquake insurance is not required.
Proving the Benefit of a Refinance
If refinancing you may have to provide your existing mortgage statement to "prove" the refinance is a benefit to you, and not merely a benefit to the mortgage representative. How is a benefit defined? In most cases, if your interest rate is declining by 1/4% or more, it is considered to be a benefit to you.
Condominium associations (often called an HOA) carry a Master insurance policy which covers all of the living units. Evidence of this policy is usually sufficient to the lender, and is provided by a Homeowners Association representative or management company. Unlike a single family home, there is no requirement that six months of coverage remain on the policy at the time of loan funding. However, condominium owners are required to carry a separate policy as well. This policy, known as an HO-6 or "walls in" is specific to condominium units. What is it? It's an insurance policy that covers the interior of the condominium unit - items such as appliances, fixtures, and personal property.
Property Taxes May Have to be Paid
Most people bristle at the notion, but you may have to pay your property taxes earlier that you had planned. Why? Because if your new first mortgage payment falls within a "tax due" period of the year, the lender will want you to pay it. Please note, there is a difference between "tax due date" and "must pay by date". Many homeowners choose to wait until the "must pay by date" to avoid the penalty, but "must pay" date doesn't work if you are in the midst of a refinance - the lender will do by the "tax due" date instead.
If your loan will fund in November, December, February, March, or April chances are very good you will sending in your property tax installment sooner than you may prefer.
The mortgage loan process is often referred to as being "overly documented" and that "everything has to be perfect". The lenders are extremely focused on loan packaging now, thus even a single missing page can slow a transaction. The mortgage process may be frustrating, and there may be delays. However, it can be rewarding if the result is a lower payment, or a new home.