The Mortgage Loan Process: The Good, Bad, and Ugly but the Real - A Humorous, Sarcastic Walk-Through of a Dry, Boring Topic for Beginners

By Adrean J. Rudie

Adrean J. Rudie has been in the finance industry for more than 30 years. She realized that people are blind about the process of buying a home. This is her solution- a start-to-finish overview of a mortgage loan application. From purchase to refinance, from construction loan to rehab loan, - and everything in between. Get an inside look at a process that will have massive ramifications throughout your life.

"The Mortgage Loan Process" is packed with real life stories, some comical and others harsh. This is an honest look at the good parts of lending, the bad parts, and the ugly parts required to get the deal done.

• Language: English
• Publisher: BookBaby
• Release date: Apr 21, 2020
• ISBN: 9781098312404

Book preview

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Chapter 1:

The Mortgage Loan Process. The Good, Bad, and Ugly, but the Real

Congratulations! So you want to buy a house...or refinance your house...or get a rehab loan...or a construction loan. You’ve done the hard part, which is the choice to apply. This book is designed to help you know the steps all the way through the mortgage process , not just the real estate side. I’m trying to give you a realistic path—not just the ideal but, along with the good, the bad and the ugly that can and often happens, along with why it does.

You’ll see thousands of books out there about the Real Estate industry and all the ins and outs of buying a home, but they just lightly cover the mortgage side itself and they leave out major things that happen. In this book I want to give you a real, clear picture of the process in its entirety along with the why’s so you can understand the other side of the coin….the investor who put the money up for you to borrow in the first place.

What if that were you? What would you want to know? How careful would you be if you were going to put thousands of your hard-earned money up for investment? Would you want all of it back and with interest? Of course, so let’s look closer.

In the very big picture, the money all goes in a big circle…the investor buys an investment instrument in the form of a bond, for example, with the expectation of getting it all back plus interest. The homeowner is at the other side of the circle and wants to borrow the money for their home. The money moves through insurance and investment companies and banks to accomplish this…the other parts of the circle. In other words, it’s not always the big bad banks who lend money, but it’s also grandmas, families, and companies who put those dollars up for investment.

I want to keep this part very basic because it can easily get overwhelming. Insurance companies collect millions in premiums…you pay those for your car or home owners insurance now…those dollars need a place to go, so they invest (buy) the bundles of mortgage loans in the form of investment vehicles and the cycle begins again.

Sometimes banks will portfolio or hold on to a loan vs. sell it to the secondary market, but that is rare. They are only making money when they make new loans so they don’t want their own money tied up. (More on that in The Circle of Money chapter.) The main thing to remember is that you are obligated to make a monthly minimum payment by the due date, regardless of who your loan is sold to.

I have a story on the reasons why in the chapter about Loan Types: FHA, VA, CONV, USDA, ARM, etc. that will drive this point home. Paper trail everything so you are ensured proper credit, especially during this time window of the loan being sold to another lender. Keep copies of all correspondence from each lender, the old and the new, along with your canceled checks and who they were paid to.

If you make payments to the wrong bank but you did generate a payment every month and have record of it, then the two banks can reconcile. This will protect you and your credit in case the banks make a mistake during the transition.

There are independent companies hired to give a rating on the bond/investments, such as AAA or AA and so forth, meaning how safe they are as an investment. The idea here is transparency. As you recall from the crash in 2008, all the bonds were getting AAA rating even though they were nowhere near that quality, meaning that the risk of default level on those mortgages was much higher than expected.

I could go on for days about the crash and the havoc that unnecessary greed and ignorance cost our nation, but let’s instead zoom down to you at a local level, now that we see a snapshot of where you are in the big picture.

The items you will need and reasons for those items can be found in a checklist I have created for you (attached below in a few pages). It’s very thorough with a slight sarcastic and humorous tone because of the redundancies sometimes in my industry. It’s all in good fun though. I understand both sides: why the bank needs these things and the consumer complaint about the same things over and over, so you are not alone. Most of the time I would agree with you. The biggest question I always hear is, Is that all you need? My answer is simply, At this time, yes, but overall, no. There will always be things I need all the way up until after you’ve signed escrow.

So be ready and be continuously providing reoccurring items such as pay stubs, bank statements, and tax returns if we are nearing April, and always be ready to be signing another document. This is the way the industry currently is.

There are typically over 30 people involved in one transaction, up to 60 or so depending on what the transaction is. Everyone from your home inspector, pest inspector, other real estate agent, appraiser, title and escrow officers, set up clerks, managers, underwriters, processors, etc., all the way to the courier who drives the hard copy of original signed documents (unless you’re doing digital signatures).

I have two stories about couriers that cost time on a file. One had his car catch on fire on the I-5 freeway. Laugh, but that really happened! He was okay…and so were the files, thankfully. Another time, the courier carrying hard copies of signed original documents locked himself out of his car! These are great stories and examples of what can happen that cause delays. I have a lot more to share with you. I think it will be a fun book to write and I’m looking forward to it.

See the enclosed checklist that I have created – it’s four parts and helps describe the reasons behind the requests. I hope to help make the process easier!

Part 1 of 4: Welcome Letter, Checklist for Loan Application, and Detail of the Process Guide

My Commitment to you - First of all, thank you for applying for a loan. I look forward to helping you even if it means we do not do a loan, if it doesn’t improve your financial position at this time. As you know, there are many changes being implemented to improve the volatile lending industry. My commitment to you is improving your current situation. That means if for some reason the loans available don’t do that, then we’ll wait until something is available that does improve your situation.

PLEASE READ THIS GUIDE IN ITS ENTIRETY FOR MAXIMUM SERVICE AND UNDERSTANDING

What you can expect, what to do to help things go smoothly, answers to most questions, and things to be aware of…

This master listWILL be added to as we go along the process, from several departments, so thank you for being ready to provide items and sign forms at the time they are requested. I’ll help you get most of it up front.

On Part 2: Requested Items #1, #4, #5 are recurring, meaning you get new ones weekly or monthly. I will need your most current one including ALL pages, so please plan to send them to me regularly.

In any transaction from refinance to purchase, there are from 30-60 people involved in the process to complete and close the loan/sale. No matter the years of experience or number of transactions closed, there can and will be unexpected delays beyond our control. Thank you for being understanding and flexible, should we have any type of unforeseeable delay.

Keep in mind, also, that one delay on your end can trigger a week’s worth of delayed time for the lender. Files are addressed at their offices on a first-come, first-served basis, so if your file is found to be missing anything important when it arrives on the underwriter’s desk, it will go back to the end of their queue…just like at the DMV.

I apologize in advance for redundancy, etc. Seems like it’s part of the process. However, lenders do have reasons for all the things they ask for, and that is why I wrote this book. I also thank you in advance for your patience while we work together on your file.

Credit: We will need to pull your credit report at the beginning of the loan application to determine program and pricing. Even if you have one or know your score, to be compliant we need to order one through an approved service provider that is specifically for the mortgage loan process.

When you are using your credit, having a mortgage lender pulling a credit report and shopping within a 30-day window is NOT going to harm your score. Numerous credit report pulls over a several month window of time, even if you don’t do a new loan, can signal to the others there was some problem and that is what could lower your score.

The reason for this is also to prevent fraud. For example: You can’t apply with two banks and get two loans and close with the same data without one bank knowing about the other and using it in their calculations. Double dipping, so to speak.

Following your credit report request, you can expect a flood of calls and emails trying to solicit business from you. This is because the credit bureaus and servicers customarily sell your information.

Neither I nor any other mortgage lender sell your info to any third parties, but there are no firm regulations preventing these outside bureaus or servicers from doing so, at this time. I apologize for the inconvenience and disruptions in advance, and I advise you to stay alert and in close contact with me, so you know which vendors that have contacted you are approved vendors working with me or my offices.

Call me directly to arrange payment for the report. You will immediately get a copy for your records. The fee for running a credit report is $28 - $32 for each borrower, at the writing of this book. There may be additional fees if more work is required to improve your credit score or correct any errors.

Application: Once I have received all of the items on the list on Part 2 that apply to you, I will be able to help you complete your loan application and shop several lenders on your behalf for the best priced loan rates and products to meet your needs. We will send you a proposal or loan estimate. In the days of old, they were called GFE for Good Faith Estimate.

Once you are happy with a particular loan product and/or rate, I can email, DocuSign, or hard copy mail, if necessary, your loan application package for to you to sign and return for the DU (Desktop Underwriting) or formal manual human underwritten loan approval.

After the loan pre-approval is issued, the lender will send you a notice of disclosure via email (with DocuSign capability) or U.S. Mail, and I request that you remain in communication with me about who that lender will be. You will need to respond that you have received said communication from the lender as a dual disclosure measure, usually within two days of receipt.

It will more than likely have differences in it as far as pricing, etc., but it will be basically the same loan program. This is just to ensure there is a client on the other side who applied for the loan.

Appraisal: Then, after the lender orders it, an appraiser will be selected and contact you and/or your agent to schedule an appraisal inspection. You will be charged a fee at the time the appraisal is ordered. Check with processing regarding the exact fee amount.

These fees vary from state to state, area to area, and the nature of the property (condo, 4-unit, SFR, waterfront, etc.). Most fees start at $600 and go up from there, as of the writing of this book.

Following the appraisal, receipt and review of title, and all other necessary documents will be final approval, then escrow signing, then funding/closing. See Part 3 for a more detailed outline of this entire process.

Change: Everything is subject to change at the lender’s discretion, although I will do my best to stay as close to the original Loan Estimate (GFE) as possible. However, even the loan program offered can change at the lender’s discretion, so be advised and stay in close contact so you understand what you are approved for.

Time: An important fact to bear in mind regarding any contracts or documents pertaining to the loan application process: The notation time is of the essence means ONLY that you and the other party to the contract must do your best to meet the dates and times of filing, document provision, etc. Lenders are, themselves, exempt from these dictates.

In other words, move the proceedings along in a timely manner as best you can, but some of these aspects of the process may be out of your hands, so be patient and in close contact with your agent and lender. Agents should also coach sellers to be patient and flexible when buyers are at the mercy of the bank.

Banks will do their best, but they can’t always rush. Sloppy underwriting is partly to blame for the crash of ’08. I have yet to see a seller walk away from a deal within a few days of closing. In 99% of cases it’s not good for anyone, especially the seller, because it starts the whole process over…meanwhile they keep making mortgage payments for at least two months.

Interest Rates & Fees: Everything regarding this process is subject to change at the lender’s discretion, but I will do my best to stay as close to the original LE (Loan Estimate; what was once known as a Good Faith Estimate, or GFE) as possible.

Another GOOD change in the industry is that we are now required to over-quote the costs and rate within, but not under a certain margin. This means if all goes well, you should receive at or better than the quote unless there is a product or lender change, and if we are lucky we will catch a good rate dip to lock in. No one in the industry can under-quote what they can’t lock in that day.

Also, in most cases, locks cannot be approved to be locked by the lender until your loan has been formally approved and is past certain check points in the closing process. Fees from service providers such as title, escrow, and appraisal are flat fee form, tiered based on loan size. Some items are a flat fee such as credit report, courier, transfer fees, etc.

Origination, much like realtor commissions, is a derivative or percentage of the loan size directly. That said, expect slight changes throughout the process to the exact fees and interest rate until you get to the three-day preview before signing. That is the final draft.

Rate Lock & Time Delays: Again, no one in the industry can under-quote what they can’t lock in that day and APR also must be quoted. APR is the combination of the fees plus interest, divided into an annual percentage for easier comparison.

So, calling everywhere asking what rates are without an application in process will normally get you a range, but it has no real value. The loan process usually takes 4-6 weeks, and rates fluctuate daily.

There are several steps involved in which we just wait, staying ready to do our part when called on. Never forget: A one-day delay on your end can cause a week’s delay for your lender…and your lock! I will assist you as we arrive at each step and make the necessary requests at that time.

Here is an outline of the general workflow for you to follow along. Once we have had a general discussion and I’ve determined your needs, please start the process by gathering items that pertain to you from Part 2 below.

Loan Application Checklist

(Part 2of 4)

Items needed for loan process:

These items are typical for most lenders for most types of loan transactions, purchase or refinance. Please review all and send what applies to your situation. Ask me if you aren’t sure of something. Depending on the computer-generated loan pre-approval, some items may be added or omitted. Final approval is subject to manual verification by an underwriter after property is identified and under contract unless it’s a refinance.

Please provide the following and include ALL PAGES of each item so that I may better help you qualify for the best program to fit your personal needs. The more complete the file, the faster and often cheaper!

Apply online today with your lender of choice or The Mortgage Loan Process, and send me a message to get started on where to go. complete the LONG FORM. You can E-Mail or FAX [phone]. The best method is through secure portal- I will set you up and email you the link.

For your application we will need:

The most current full month pay-stubs for each borrower, showing year to date earnings. Include December 31 if you do not yet have your prior year W2 or 1099. Please send these automatically every time you get a new one.

Last two years’ W2s or 1099 for each employer and from each borrower. Please give dates at each job (if there is more than one). Include December 31 if you do not yet have your prior year W2 or 1099.

Last two years’ income tax returns, include all schedules (or year-end pay stubs for prior year if the return is not filed). Please sign page 2 of each tax return.

Most current three months’ consecutive bank statements. Please include all pages, even if the last one is blank…the lender’s auditor will hold up funding on this).

Most current one month, quarterly, or annual statement for all retirement and investment accounts, such as 401K, IRA, or annuity, for example. Please include all pages on this also, please; again, auditors will hold up closing if all pages are not there.

Name, address, agent and phone number for the insurance company you plan to use for homeowners insurance. I am also a licensed insurance agent and, although there is no obligation, I offer this.

Payment for that appraisal is due at the time it is ordered and paid via credit/debit card. We collect payment at the time of application and it will be applied as a credit to your loan closing costs. Costs range from $450-$950 on up, depending on property type: jumbo, multi-unit, waterfront, or commercial ($650 being the average as of the writing of this book). The lender will select the appraiser as of 4/27/09; we no longer have any contact with appraisers.

Per the US Patriot Act, as of October 2003, two pieces of ID are mandatory from each borrower. A valid driver’s license and passport are the most commonly used acceptable forms of identification. Social Security card, military ID, photo ID, or employee badge may also work.

If you are doing are a refinance, stand-alone 2nd, or FHA Streamline, we need a copy of the existing Promissory NOTE from the package that you got at escrow when you closed on the purchase or most recent refinance of the first mortgage, in order to calculate the streamline and verify benefit to you before applying for the loan.

Original Certificate of Eligibility and DD-214 on VA loans. Also let me know if you are exempt from funding fee.

Other items if applicable: Please review

Last two years’ Corporate/ Partnership Tax Returns (all schedules, and all pages)

Year-to-date Profit & Loss and Balance Sheet (through most recent quarter)

If you are applying for a commercial loan, also a financial statement

Business License if self-employed—at some point a third-party verification may be required, such as a letter from a CPA.

Rental Agreements and rent rolls for all rental properties—lending guidelines require a certain number of months’ reserves for each rental, depending on all other client criteria.

Divorce Decree, to document debt owed or to show that it is not owed, or to document income that is received from child support, only if you wish to reveal the income received to be considered as a basis for repaying the loan. Complete copy of Divorce Decree and any parenting plan will be required.

Condo/PUD: Name, address, and telephone number of contact person for the Homeowners’ Association. Master Policy, CC&R’s, minutes, resale certificate and questionnaire will be needed.

Bankruptcy documents if filed in the past seven years. (Includes CH 7, 11, 13.) Please include all pages and discharge page if you have it.

If there are credit issues, please write a page or less explanation letter for any and all credit issues and reasons. (Ex: divorce, medical, etc.) I will help you go over it. Reason, Remorse, Response is the standard structural formula for this letter. Short but to the point helps the underwriter.

If you are applying for a construction loan, more detailed information will be needed about the builder at a later date. You can expect to provide a description of materials, contractor’s cost breakdown, and builder resume. Depending on the lender, it will more than likely need to be completed on their forms as well.

If you are buying a short sale, foreclosure, or REO, there may be additional items required, including filling out several forms with mainly the same information for the lender who is currently the lien holder in addition to your new lender that we will be getting your new loan with. These can take from 3-12 months to close depending on liens and volumes.

Thank you again for your cooperation. I apologize in advance for redundancy, etc., but it is part of the process. Lenders do have reasons for all the things they ask for. I also thank you in advance for your patience while we work together on your file.

Part 3 of 4: Loan Application, Pre-Approval, and Closing Process

As stated before, there are several steps we just have to wait for and be ready to do our part when called on. I will assist you as we get to each step and make the requests needed at that time. I will outline a general workflow here that you can follow. Once we have had a general discussion and I’ve determined your needs, please start the process by completing #1 below.

Application - Pre-approval Process

What I will need you to do first.

Provide everything from the list on page 2 and upload to Basecamp software link or email me per my instructions.

Fill out the online application, on link where directed by LO. Simply click the tab at the top of the page that says Apply Now (Steve Berger Broker). Please put your cell phone number in the home # spot on the application; this way, escrow will not miss you by calling your home phone number while you are at work.

Be ready for my call regarding over-the-phone payment for your credit report (typically $28-55, depending on the borrowers). There may be additional charges from the credit reporting company, based on the work involved. Sign and return credit authorization form. The credit card information required for payment of the fee can be given via a telephone call versus in written form (email, post, text, etc.).

Your loan will receive a pre-qualification first, followed by a conditional pre-approval by the computer DU software, then later, formal approval by a human underwriter once all conditions are turned in, such as appraisal, title, 3rd party verifications, etc.

It will be analyzed by Processing and me to prepare for an automated underwriting software pre-approval. If the information provided is correct and no guidelines have changed, it will create a preliminary conditional pre-approval for the human underwriter to go off of once we get to that stage. This computer pre-approval is often needed prior to signing around a final offer for a purchase. When doing a refinance, it’s helpful to determine what things the lender will allow and what other items will be needed. The conditional pre-approval sometimes gives additional instruction that will be needed.

The human underwriter will add or subtract conditions once they see the file. (Generally add, and that’s why we give them what we give them…we don’t want to do something that will trigger the need for more items.) The human underwriter doesn’t see the file until we have (purchase and sale, if it’s for a purchase) title, appraisal, and any other conditions from the DU automated system. (The efficiency is to have the computer do as much work as possible and the human the least but to be the quality control, to reduce costs.) It is worth noting that during this part of the process, many people are baffled that the lender will ask for a piece of information at what seems like the last possible minute. In fact, this is usually the first time during the entire process that the human underwriter will have seen this information. This also frequently occurs when auditors review relevant material just before documents are sent to escrow.

Once the human underwritten conditional