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The Mortgage Approval Process

By West Bart

Tell us a little bit about your company and its foundation

.

Affordable Home Mortgage was started in 1996, our founder Elliott Bart had just left his executive position with Maryland National Bank/MBNA when he started this company. We are a full service Mortgage Broker that works with over 10 different Wholesale Lenders. We offer every type of loan option available, from USDA Loans to Jumbo Loans. All of our Loan Officers are seasoned veterans with over 15 years of mortgage experience each in this industry. We are licensed in PA & MD.

What are some important questions to ask your mortgage broker before applying?

  • Are you licensed through NMLS to conduct business in my state?
  • What type of compensation are you to receive for originating my Loan?
  • There are 2 types of way a Mortgage Broker can be paid for originating a loan, one is called Lender Paid and the other is called Borrower Paid. Lender Paid is where the Loan Officer and their company is paid directly from the Lender. Each Lender has a compensation agreement with the broker to pay a certain percentage for each loan the Loan Officer closes with that particular Lender. Normally the compensation agreement is anywhere from .75% to 3%. The Lender pays this through basically Yield Spread Premium. For example if you compensation agreement with the Lender is 2%, that cost must be built into the rate. So if the PAR rate is 4.125% the rate that pays 2% may be 4.375%. With Lender paid you will keep your closing costs down, in fact most of these loans are considered no point loans.

    When it comes to a Borrower Paid loan, the Loan Officer charges an origination fee directly to the customer, and the range for that fee is anywhere from ..25% to 3%. This type of loan does allow the customer to receive the PAR Rate for which they will pay points for. Now my company and a lot of the Brokers out there are able to give our customers a credit with the rate. For example I just meet with a customer that I am working on a Lender paid transaction, the customer is getting a low rate of 4.25% today, that 4.25% has enough YSP to cover my compensation, so I am not charging any fees to the customer directly, and on top of that I am able to give the customer a $2700 credit towards their closing costs with that rate. If her closing costs where 10,000 before that credit now lowers it to $7300. We are also able to offer rate credits on Borrower Paid loans as well. Usually Affordable Home Mortgage is able to provide our customer's with a credit ranging from .5% to 2% depending where rates are the day they are locked. In my experience Brokers offer their customers rate credits where Banks and Retail Lenders do not

  • Once my rate is locked in, how long is it locked in for? If we need to extend the rate lock period, how much would that cost?
  • When calculating my debt to income ratio are you using just my hourly wage or base salary, or are you using my bonus and overtime as well?
  • Will my taxes and insurance be included in the payment?
  • If you could, please walk our readers through the general mortgage approval process:

    Step one of the approval process in buying a new home, is the credit report pull. Once we have your credit report back and the middle credit score meets our guidelines we then review the credit report for BK, Car repo, judgments, and collection accounts. With most Loans, judgments and collection accounts must be satisfied before settlement. Customers do have the ability to settle on these types of accounts for less then what is owed as long as the customer receives a letter from the collection or judgment company stating the account is satisfied. After we have the credit report we then ask for recent pay stubs and W2's, to ensure we meet the Lenders debt to income ratio guidelines.

    The next step is to then pre approve the customers for a loan amount they can afford and are comfortable paying each month. At this time we then give the customer and their Realtor a copy of their Pre Approval Letter, which will state the either the maximum sales price the customer can afford, or the amount the customer feels comfortable paying each month. This Letter also states if the customer needs the sellers to cover some or all of the closing costs. Once the Realtor and the customer have an approved sales contract, we then meet with the customer and go over the application.

    After the application is signed our in house processor then runs their file through either Fannie Mae, Freddie Mac, or FHA's automated loan system for their loan approval. If their file is approved through the automated system their file is then uploaded to the Lender. Once the file is with the Lender a Underwriter reviews the file to ensure all of the details used in determining the loan approval are accurate. They go over the pay stubs, bank statements, W2, VOE, credit and if everything matches they will issue a loan approval. Most of the time the loan approval comes with conditions, which can be an updated pay stub, bank statement, etc. Once the Underwriter has approved the loan we then go ahead and order the appraisal and title reports. When the appraisal and title reports come in we then upload those along with any other conditions the underwriter asked for. After the Underwriter signs off on those items, the clear to close is then given and we can schedule settlement.

    How can clients prepare for this process

    Clients can prepare for this process by keeping their last 2 pay stubs on hand, along with their W2 and tax returns from the previous 2 years. Clients should also keep in mind, if they have any large deposits in their bank account, the Underwriter is going to want to know where those deposits came from. If we are unable to show where the deposits came from, the Underwriter will not allow that money to be considered in the approval. For example if a customer needs 15k to close, and has 15k in the bank but 5k of that 15k came from a recent deposit that we can not prove where the funds came from, the Underwriter will only consider 10k of that 15k and the customer will need to show another 5k from somewhere else. So with that said if you have any large deposits try to get them in your bank account at least 2 months before you start the process, because if the money has been sitting in your account for 2 months the Underwriter will not ask where it came from. If you must make that large deposit into your bank account, keep a paper trail of where those funds came from. Customer's should also contact their HR department with their employer to get a contact name and phone for your Mortgage Broker to call to verify employment.

    What are some common issues you face when it comes to approving a mortgage?

    Common issues would be, recent large deposits that can not be sourced (which means show proof where it came from). The home not appraising for the value needed for the loan. The home needing repairs to meet FHA guidelines. For example if the home was built before 1980 and has paint chipping on the inside, outside, or on any out buildings, and the appraiser notes this, those areas need to be scraped and repainted, then that same appraiser must go out and show proof the job was completed. The cost just to send the appraiser back out for this can range from $100 to $250. Collection accounts popping up during the underwriter period. Homes not being up to FHA, USDA, or VA standards. In order for Overtime income to be used, the customer must prove Overtime has been consistent for the past 2 years. Delinquency on any student loans or federal debt must be cleared up and 12 months since last late payment.

    How long does the approval process typically take?

    The process usually takes anywhere from 20 to 35 days.

    What's the best way for people to get in contact with you?

    The best way to contact me is to call my office 717-630-9300 toll free 1-877-415-5050, or email me west@affordablehomemortgage.net

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