Mortgage Basics --St Louis Home Loans
After the crash of the stock market in fall 2008 and the collapse of several banks, word on the street is that getting loans is hard and even impossible. NOT TRUE! While the standards by which loans are given out has changed, most changes have been for the better, since the banking woes of 2008 were mostly because of poorly underwritten loans.
Getting a loan is a process.
How the process is started can be the most important factor, so read this section carefully.
STEP 1. CONTACT A LENDER.
Sometimes this is the hardest step. Calling a lender is sometimes like seeing a dentist. People often have unfounded anxiety. Many times individuals or couples that are extremely credit worthy have belief that they won't be acceptable because of the mysterious nature of how credit scores are compiled and various mis-information found in the media about getting a loan.
The other difficulty is finding the right lender to contact. To simplify things, we'll break all lenders into two groups. Group 1 we'll call "Good Lenders", Group 2 we'll call "Bad Lenders". The problem is that virtually no consumer can tell the difference between good lenders and bad lenders on their own. That's where your Realtor can help. Being "in the business", Realtors know how transactions can be ruined by bad lenders, and try to keep track of which lenders are good . What's even more unfortunate is that bad lenders often times give their clients the impression that they won't be able to get financing elsewhere, or that the mistakes or limiting regulations they have as lenders are universal in the lending field. Many loans we've seen that bad lenders can not make for some reason are quickly and easily closed by good lenders.
Some questions that help determine good lenders
1. Do you attend your closings? YES
2. Do you bring a check to closing to fund the transaction? YES
3. How many purchase loans do you close per month? (looking for mortgage lender that does enough volume to not charge higher fees 10+)
4. (If buying a condo, 2nd home or investment property) How many similar loans do they close annually?
STEP 2. GET YOUR ROADMAP TO APPROVAL
Once you contact a lender, one of three things will happen. Best case scenario is that your credit, employment and debt to income ratio are acceptable by banking standards and a PRE-APPROVAL is issued. We'll call that EZ STREET.
The next scenario is probably the most common. The lender takes some basic information and runs your credit score and discovers that there are a few items that need to be 'fixed'. This happens all the time. Don't take it as a failure! Credit scores often times have items that need to be cleared or items need to be paid off. Employment, particularly for the self-employed, needs additional verification or some adjustment must be made for your debt to income ratio to be acceptable. We'll call that situation MINOR DETOUR. Sometimes MINOR DETOURS take a couple months or more to sort out, which is why contacting a lender prior to finding your dream home is essential.
The last scenario is BACK TO THE GARAGE. Sometimes credit, employment or debt to income ratios need a major overhaul that will take a year or more. This still isn't the end of the world. A good lender will still give a roadmap to approval, and often times will give other resources like accountants, tax specilists, and credit repair specialists to bring you in shape to buy a home soon.
Regardless of whether you're on EZ-STREET, MINOR DETOUR, or BACK TO THE GARAGE, whatever road map you get, FOLLOW IT! Most lenders and Realtors can tell stories of how someone was trying to buy and qualified initially, only to let their situation change as they were buying due to the purchase of a vehicle, furniture or forgetting to pay a bill on time.
Once you've recieved your ROADMAP TO APPROVAL, for EZ STREET and MINOR DETOUR, its time to start looking for your home. Get out with a REALTOR!
STEP 3. SHOP.
Most consumers shop for the best rates in step 1, thinking that whatever lender quotes them the best rate up front is who they will ultimately use. This is a common mistake and often times lands home buyers with BAD LENDERS. Many times teaser rates are thrown out just to get someone 'in the door' only to find out a week before closing that they never qualified for that rate to begin with. This is mostly common with large "big box" nationwide lenders using call centers, not loan officers. When considering options for loans, consider fees and service in addition to the rate.
Most lenders get their loans through the same sources, so fees, rates and other items are pretty standard. Shopping rates and fees is fine, but stick with local lenders if possible and other good lenders. Never consider banks using national call centers in other states such as Quicken Loans or Ditech. Any possible savings isn't worth the massive drop in service. Many times, if a better rate and fee proposal is made, many good lenders have the ability to match the rate and still provide great service. A WIN WIN situation!
STEP 4. APPLICATION
As soon as you've found the right property, have made an offer, negotiated and have come to an agreement with the seller, now you're ready to perform (contract execution) on the contract. There are many steps to take and your PREMIER TEAM REALTOR will guide you through everything. One of those steps is to apply for a mortgage. At this, some buyer's say "Not ME.....I'm PRE-APPROVED!" or "My lender told me all I need to do is find the house and we're done."
The process of application is much more involved than pre-approval. This is the process where everything is put down in writing. All the information provided to get pre-approved is verified by submission of tax returns and pay stubs. The lender builds a "file" on you and your new home to be submitted to the banks underwriter. This file includes your application, your homes appraisal, Condo association financial information (if buying a condo) and all of your support documentation. The underwriter has the job of making sure all the information provided truly qualifies for the loan. This is where it becomes clear that one is working with a good lender or not. Good lenders pre-qualify someone and rarely miss details that "suprise" us during the underwriting process.
Once the file is reviewed by underwriting, they return it to your loan officer with 'conditions.' These conditions could be anything from additional documentation, letters of explanation, or more. Once these contitions are met, they are said to have been 'cleared'. Once all the conditions are cleared, you recieve loan commitment .
Usually this process of application takes place as you proceed through your sale contracts other provisions like inspections, title commitment, appraisal, and surveys. In St Louis, the Residential Sale Contract includes a "loan commitment date" that is your deadline for getting your loan final approval from the bank.
Step 5. CLOSING
Closing is the exchange of the (signed) property deed for the money listed in the contract. Closing the loan is only half. Loan closings usually take place at a title company, last about an hour and involve signing several pages. In the St Louis area, buyers and sellers normally close their 'side' of the transaction at different times and often different locations. Because of the need to get the necessary approval to get the funds from the bank and to the sellers title company, buyers should close early in the day. Sometimes the process of wiring funds and required steps to closing take place hours after the buyers are finished signing documents, so adequate time is important.
Forms Involved In Closings
- HUD1 Settlement Statement
- Promissory Note
- Truth In Lending Statement
- Mortgage Application