By Woldu Yoseph

Most people buying a home, no matter how many times they may done it, find the process of applying for a mortgage mystifying and even intimidating. Considering that most folks don’t do it that often, this is understandable. After all, the lender does have the power of the pen to either grant or deny the loan with one fell stroke, and since “time is of the essence” in most real estate deals, borrowers must make every effort to get it right on the first application. But getting a home loan need not be a fearful leap into the unknown. The principles behind real estate finance are basically simple and straightforward.

The procedures for financing real estate can be broken down into just a few steps: 1) finding a lender, 2) filling out the application, 3) processing the application, 4) the underwriter’s analysis of the loan package, 5) the loan committee, 6) funding and closing in escrow.

Finding a lender
The first step and probably the most important in obtaining a mortgage is, of course, finding the right lender. The buyer or the real estate agent, acting on the buyer’s behalf, will arrange an appointment with a loan officer. Most real estate agents will have established business relationships with one or more loan officers who they have come to know as competent and trustworthy. If no realtor is involved, or the realtor can’t refer the buyer to a lender, the search is on.

For many of us, when we think “mortgage” the next words that come to mind are “bank” or “saving and loan.” This isn’t bad, but limiting your search to just these institutions narrows the choice of loan programs considerably. Most banks and S&L’s have only a few loan programs to offer and often they will try to fit a borrower into one of these. This is fine if the borrower’s qualifications really do fit the bank or S&L’s loan underwriting requirements. But in most cases, borrowers don’t come that neatly packaged.

This is why a mortgage broker or banker fits the bill most of the time. These lenders will represent a variety of investors offering many loan programs, one of which is bound to be just right for any legitimate borrower.

The Application Interview
Once the lender has been selected, an appointment will be set up and the borrower will be expected to have on hand personal and financial documents. Being prepared for this can save time and may avoid a string of “conditions” that will need to be met before the loan can be funded. Many of these conditions are requests for more documentation.
If the borrower will search out and supply these items at the outset, a mad scramble near the close of escrow can be avoided. The loan officer will supply a list of the items that need to be on hand.

The loan officer will have to ask a lot of personal and financial questions that may seem an infringement of privacy. Lending personnel are obligated to keep your confidence and only those persons who must be privy to this information will see it. Don’t be intimidated and do know that loan officers are looking for ways to grant the loan, not refuse it. They are your advocates, not your adversaries. Loan officers usually do not get paid if the loan doesn’t get approved and funded.

Processing the Application
After the loan officer submits the loan package to his processor, the processor will send out requests for more documentation, such as verification of employment, verifications of bank accounts, as well as current mortgage ratings, property appraisal, preliminary title report, credit report and a myriad of other stuff. This is the step that requires the most patience because it takes time to gather this documentation from the sources. Sometimes the processor will be unable to get all the documentation needed and it is not unusual for borrowers to get a phone call or a letter from the processor during this stage, asking for more documents or additional information. Borrowers should not be alarmed at receiving more requests for additional information; this is not a sign that the loan package is going sideways. Processors are simply trying to satisfy the requirements that predetermined underwriting guidelines have imposed on the particular loan program
being considered.

Underwriting
After the application and all required documentation and reports have been received and packaged by the processor, the loan package is sent to the underwriter. The underwriter studies the entire loan package. He or she will calculate the borrower’s debt-to-income ratios, analyze the appraisal to determine that the value of the collateral (i.e. the property) is there, study the title report to make sure that the house is free and clear of liens and generally “put the package together” for the loan committee with a cover letter outlining the strong points. Underwriters like to point out that underwriting is subjective and not a science and that, just as no two like snowflakes are alike, neither are loan packages. Therefore, as the theory goes, a borrower’s loan package should not be accepted or rejected without considering the weight and balances of all aspects of the loan package together.

Threading your way through the lending maze can be difficult even if you’re done your homework. This is why reliance upon the skill and experience of a savvy loan officer can effect an expedient transaction that will make everyone happy. I would be pleased to answer any questions about real estate loans.

On the next issue I will finish this subject about the Loan Process and continue writing about the Underwriter, the Loan Committee, the Funding and Escrow.
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Woldu Yoseph is a regional loan manager with IBF Mortgage Capital. Los Angeles. For more information on subjects in this article contact Ato Woldu Yoseph at (213) 680-9601