1105 Massachusetts Avenue, Suite 1F
Cambridge, Massachusetts 02138
Phone: (617) 492-1122
Fax: (617) 492-0303

308 Harvard Road
Stow, Massachusetts 01775
Phone: (978) 430-9175
Fax: (978) 897-5345

Keith W. Michon, P.C. – Lender Information

Which Type of Mortgage Lender is Right for You?
The Mortgage Loan Approval Process – How it Works
Mortgage Loan Pre-Qualification, Pre-Approval and Final Approval – What is the Difference?

Which Type of Mortgage Lender is Right for You?

When choosing a mortgage loan, it is important to know that there are several home-financing providers from which to choose. It is important to look at the available options and make your decision based on the one that is right for you.

Mortgage banks

A mortgage bank, which can be large or small, is a direct lender. The mortgage bank employees themselves review your application and make the decision on whether to lend you money or not. Since your loan is a marketable commodity, quite often mortgage banks will "sell" your loan on the secondary market to another mortgage lender.

There are many benefits to choosing a mortgage bank. They are typically very reliable and are regulated by state and federal agencies and usually maintain strong ties with your community. In addition, mortgage banks allow you to deal directly with the source of your loan, which may reduce the amount of loan processing fees you can expect to pay. Mortgage banks may also process your loan faster than other home-financing providers and provide you with better rates and terms in the event you maintain deposits or assets with the bank.

However, mortgage banks typically offer a limited number of internal loan programs. In order to comparison shop, you will need to speak with several lenders.

Mortgage brokers

Mortgage brokers are middlemen who may have access to various mortgage loan products offered by hundreds of different lenders. The mortgage broker will try to match you up with the loan product that best meets your needs at the best price. Once your loan is approved, you will usually deal directly with the lender's loan originator or its mortgage service provider.

There are many benefits to choosing a mortgage broker. By shopping across a range of different programs and lenders, a mortgage broker often will find you a better fit than a mortgage bank. In addition, a mortgage broker may be able to better steer you to the national or regional lenders that are most likely to accept your application based on your financial and personal information. This may result in a more favorable loan rate while saving you time as the mortgage broker shops for you.

Banks, thrifts and credit unions

Most banks, thrifts and credit unions offer a limited menu of loan products just as mortgage banks do. These financial institutions either hold mortgages in their portfolios, or sell them on the secondary market. In the event they hold or "portfolio" the loan, you may be able to avoid certain specific conditions that pertain to secondary market requirements. You may also feel more comfortable knowing that your mortgage loan is less likely to be sold.

Home builders and real estate agencies

Many large home builders and large real estate agencies now own their own on-site mortgage company to make it easier to buy their properties. These affiliated companies may operate as a mortgage banker or broker. The type of mortgage loan programs may depend on the type of "project" being marketed. For a large condominium or single family development, these lenders may allow you to cut though some of the "red tape" that may be associated with complex developments.

Internet lenders

Mortgage lenders have proliferated on the internet in recent years, offering fast, easy loans at competitive rates. Some are online channels of established financial institutions or mortgage brokers; others are internet-based banks or brokers. If you prefer to work through the internet, you may find such lenders desirable. Often times however, if a problem arises, you typically cannot readily visit the offices to help try to resolve the problem.

The Mortgage Loan Approval Process – How it Works

Mortgage Application

The first step after you have selected a mortgage lender is to complete and mortgage loan application (also called a form 1003). A mortgage lender will also provide you with several disclosure forms including a good faith estimate of closing costs which is meant to very closely mirror your actual costs at closing, subject to the Federal Governments' mandated tolerances (not to exceed 10%). You will also be provided with authorization forms that allow the lender to process your loan. In addition, you will be required to provide the mortgage lender with certain financial documentation (such as bank statements, pay stubs, and W2s). If the information is sent through the mail, the process will take more time. However, it is important to note that the loan approval process cannot begin until the application is completed and provided to the mortgage lender along with the various disclosures and requested financial information.

Mortgage Processing

When all of your loan documentation is received by the mortgage lender, a processor is assigned to your file. The loan processor will verify and validate all of the information to be true and correct. Verification requests may be sent to your employer, mortgage holder/landlord and lending institutions. This is done by fax when possible. It is usually during this time frame that the appraisal and the title search are ordered through the mortgage lender's attorney and the appraisal company. It is important to note that the lender's attorney represents the mortgage lender only, unless you have made additional arrangements for that attorney to also represent you as buyer.

When all the information is collected, the loan processor verifies that the basic mortgage lender loan requirements have been met. The file is then packaged in a manner the lender specifies. The completed package (including the appraisal and title report) is sent to the underwriting department, either in-house or to a lender-specified location. The processing of your loan usually takes about one to two weeks, but it can often be delayed when third parties do not respond to the validation requests or appraisals are delayed.

Mortgage Underwriting

The underwriter reviews your loan package to make sure it conforms to all the guidelines required for that loan product. They also review the appraisal and title report and may do additional validation of employment, mortgage payments and credit, and anything else they feel is necessary to document your loan. They have ultimate power and decision authority over the approval of your loan. The time required to do this is driven by the volume in the market. If the market is very busy, the approval process may be extended a few weeks. It is important to make sure that the mortgage contingency clause does not expire prior to receiving underwriter approval. The mortgage contingency can be extended by written request to coincide with any delays in the approval process. Many lenders today use automated underwriting (by computer). The advantage is less documentation and it speeds up the process. The computer actually makes the approval decision and the underwriter only reviews the supporting documentation and the appraisal. However, if any documentation is missing, inaccurate, or does not agree with the 1003 (loan application), the loan will be kicked out of this system until documentation requirements are met, or the loan is turned down or resubmitted.

Conditions Required To Close

When the underwriter completes his review of your mortgage loan file, he will send a list of "conditions required to close" to your loan officer. These are normally just requirements for further documentation to support your file. When these requirements have been met, the underwriter provides a final approval and a "clear to close" for your mortgage loan.

Clear to Close

When the loan officer receives the clear to close, they notify the lender's attorney who then schedules and coordinates with all the parties the time and location to sign the final documents to close the loan.

Closing Documents and Actual Closing

When everything has been scheduled by the lender's attorney, the closing package is prepared by the mortgage lender's closing department. Most closing packages are delivered to the lender's attorney electronically usually within 24 hours of closing.

Under normal circumstances, the process should take about four weeks from loan application to closing, on a purchase transaction once a loan application (1003) has been submitted. However, certain external factors could negatively affect the time it takes to process and approve your mortgage loan. For example, a sudden drop in interest rates could lead to a sudden increase of refinance applications. During busy times, most mortgage lenders make every effort to give priority to purchases. Refinances usually take a little longer because the urgency isn't as great. Lenders also have the ability to "rush" files through the approval process under certain circumstances.

Mortgage Loan Pre-Qualification, Pre-Approval and Final Approval – What is the Difference?

While these terms may sound almost the same, they are really quite different and need to be fully understood before a decision is made to submit an offer to buy a home.

When you obtain a mortgage pre-qualification, you only provide the lender with very basic information about your financial situation. This would include your monthly income and debts. Based on this, the lender will give you a "ballpark" amount they might be willing to lend you. A mortgage pre-qualification is not an in-depth process and should not be relied upon to any great extent when trying to establish a home buying budget. In most cases, you can get pre-qualified without even submitting a mortgage application.

As part of a mortgage pre-approval, the mortgage lender will actually start to verify your financial background. This is what sets it apart from pre-qualification. The lender will request a variety of documents from you, such as tax records and bank statements. The lender will also check your credit score. The pre-approval process gives you a more accurate idea of how much you can borrow. This process should be completed before shopping for a home. This will allow you to get a rough estimate of what you can afford, and then begin the home shopping process by staying within those parameters. After an offer is submitted and accepted, many borrowers go back to the same lender for final approval.

From a lender's perspective, the pre-approval process will establish two things. First, the lender will determine if you're even qualified for a home loan. You must meet their minimum criteria for credit score, debt ratios, income, etc. If these requirements are met, the lender will give you a maximum loan amount to use for house hunting. Bear in mind that the lender will also be taking into account the down payment (or the cash you will contribute to the purchase) you will be providing. It will also give you a pre-approval letter to use during the home shopping process. The pre-approval letter may show a seller that you are doing your homework and the letter itself may be the difference between two otherwise very similar competing offers.

It is important to understand that obtaining a mortgage loan pre-approval is not a guarantee that you will ultimately receive a final approval. The issuance of a pre-approval does not obligate a mortgage lender in any way. You'll face a secondary formal review process later on, in order to get your final approval. Most lenders have some version of a disclaimer on their websites which indicates that being pre-approved for a home loan doesn't guarantee that you will ultimately get the loan.

In order to get a final approval from a mortgage lender, you will have to go through the lenders' full underwriting process. You will also be required to provide your mortgage lender with a copy of the purchase and sale agreement. The mortgage lender will also order home appraisal and title search of the property. The formal loan approval process is described in more detail in this website.

A partial list of the benefits of obtaining of obtaining a pre-approval are as follows:

Getting pre-approved for a mortgage helps you identify any financial problems you have (too much debt, a low credit score, etc.). The sooner you can find about these issues, the better, as it gives you more time to correct them;
Real estate agents will be more willing to work with you. Before a real estate agent invests several hours helping you locate a home, they want to know that their buyers have obtained a pre-approval letter;
Sellers will take you seriously. As mentioned above, the pre-approval letter may be the difference between two otherwise equal offers; and
It also helps you narrow your field when house hunting. Once you know how much a lender is willing to lend to you, you can shop within that price range. This is the sensible approach to house hunting.