Mortgage Process

We have covered the qualification and pre-approval process. To qualify and pre-approve a borrower and/or co-borrowers, they need to complete the secured online mortgage loan application.

In the application process, the online mortgage application has fields to upload certain documents that is required in order for the MLO to proceed with qualifying and pre-approving the borrower.

MLOs do not have to ask tons of documents at this stage of the mortgage process. Initially, ask for the following documents during the application process:

• 30 days of the most recent paycheck stubs for the borrower and/or co-borrower.
• Two years of W2s for hourly and salaried wage earners (We will cover self-employed borrowers, borrowers with irregular income, and borrowers with multiple part-time jobs on a later thread).
• 60 days of the most recent bank statements
• If borrowers do not have two months of bank statements, then have them go to their bank teller, ask the teller for a 60-day bank statement printout, have the teller to stamp it, sign, and date it.
• Need all pages including blank pages.
• Copy of front and back of driver’s license and social security card.
• Source of down payment and closing costs. Gift funds are allowed. Bank or investment account showing funds for the down payment and/or closing.

Recap of The Mortgage Loan Application and Pre-Approval Process

The MLO will direct the mortgage loan applicant to the link where they can pull a tri-merger credit report and pay for it. Most mortgage companies now are directing borrowers to pay for the tri-merger credit report.

In the past, the MLO normally pulled the tri-merger credit report, and the cost of the credit report was charged at closing. However, with the credit reporting companies increasing a tri-merger credit report from $28,00 per borrower to $120.00 or more, many lenders could not absorb this type of high cost and later find out the loan applicant does not go ahead with proceeding with the loan.

By paying for the tri-merger credit report, the loan applicant will get a copy of the tri-merger credit report, and a second copy will be sent to the MLO. With the tri-merger credit report, the MLO then runs the mortgage loan applicants through the Automated Underwriting System (We will cover and discuss the automated underwriting system on a later MLO Training e-Learning Thread). With an approve/eligible per AUS, and a thorough review of the tri-merger credit report, the MLO will issue a pre-approval letter. The borrower will then interview and hire a buyer’s real estate agent and start shopping for a house.

Executed Real Estate Purchase Contract

After the homebuyer finds the perfect home to purchase, the homebuyer will consult with the real estate agent on how they will make a purchase offer. The realtor will guide the buyer and go over the recent comps, the housing market (is it a buyer’s or seller’s market), seller concessions, contingencies, earnest money, and tentative closing date.

The homebuyer’s realtor and the listing real estate agent will go back and forth and negotiate the terms of the purchase offer. In both buyer and seller are motivated, they will come to a compromise and come to terms.

Once the homebuyer and home seller comes to terms with the offer and contingencies of the purchase contract, each side signs and date the real estate contract. A copy of the real estate contract will be submitted to the mortgage loan originator. In states, like Illinois where homebuyers are normally represented by a real estate attorney, the attorney gets a copy of the contract. The MLO now goes to work.

MLO Assigned the Homebuyer to a Mortgage Loan Processor

Once the executed real estate contract is submitted to the mortgage loan originator (MLO), the MLO will assign a mortgage loan processor to the buyer’s file (We will cover the type of mortgage processors an MLO and/or Lender uses in a later thread: In-House Processor vs Third-Party Contract Processor). An experienced knowledgeable mortgage processor is key in going through a smooth, stress-free, mortgage process without delays or a last-minute mortgage loan denial.

The mortgage processors job is to prepare all documents are up to date, there are no missing pages, income, debt, and asset information have supporting documentation, divorce docs if applicable, child support docs if applicable, bankruptcy docs if applicable, letters of explanation if applicable, and any items that the mortgage loan underwriter will or may question.

The mortgage processor’s role is to submit the entire mortgage loan file of the borrower, which includes labels, supporting docs, letters of explanation, and well organized for the underwriter to zip through each line item and issue a conditional loan approval with as little conditions as possible. There are cases where a mortgage processor has the file in such a disarray where the underwriter kicks it back without looking at it where the file is in suspense. In the next MLO Training e-Learning Thread, we will cover going over a conditional loan approval, how the conditions get cleared, and how the mortgage processor submits the file back to the mortgage loan underwriter for a clear to close.

The Loan Estimate: The Old Good Faith Estimate

The mortgage processor is in charge of issuing the Loan Estimate. The Loan Estimate needs to get disclosed within three business days of the official mortgage loan application by law. We will cover the Loan Estimate in detail in a later MLO Training e-Learning Thread.

Role Of Mortgage Processor During The Mortgage Process

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Role Of Mortgage Processor During The Mortgage Process

Role Of Mortgage Processor is to oversee the overall mortgage process from the time the borrower applies until the underwriter issues the CTC

Major advantage of the MLO subscribing to ARIVE is because ARIVE is a central portal where the MLO can pull tri-merger credit, run the Automated Underwriting System, and issue the pre-approval letter with a touch of a button in a matter of a few minutes. Tasks that takes 30 minutes to over an hour is accomplished in a matter of seconds with ARIVE. This thread covers a comprehensive overview about the Automated Underwriting System (AUS). Please do ot hesitate to ask questions on the comment section below. All questions will be answered in a timely fashion.

How The Automated Underwriting System Works In The Mortgage Process

The Automated Underwriting System (AUS) is an essential tool that mortgage loan originators use to help approve loans.

AUS is a digital platform that reviews a borrower’s credit, income, assets, debts, property details, and loan structure. It then gives a recommendation about whether the loan is likely to qualify for the selected mortgage program.

For conventional loans, the two main AUS engines are Fannie Mae Desktop Underwriter (DU) and Freddie Mac Loan Product Advisor (LPA).

Fannie Mae describes DU as its automated mortgage underwriting system that assesses credit risk and loan eligibility. Freddie Mac describes LPA as its AUS used to assess eligibility for purchase by Freddie Mac and provide a feedback certificate.

For FHA loans, lenders use an AUS that connects with FHA’s TOTAL Mortgage Scorecard. HUD is very clear that TOTAL is not the AUS itself. TOTAL is FHA’s scoring algorithm accessed through an AUS. HUD states that most FHA forward mortgage transactions must be scored through TOTAL, except certain loan types such as streamline refinances and assumptions.

For USDA loans, lenders use GUS, which stands for Guaranteed Underwriting System. USDA describes GUS as a system that allows approved USDA lenders to electronically enter, process, and submit applications for a USDA loan note guarantee.

What AUS Does In Plain English

• The borrower is not approved solely by AUS.
• AUS provides the lender with an underwriting recommendation based on the entered loan data.
• The underwriter reviews the file, verifies documents, checks data accuracy, and ensures loan requirements are met.
• You can think of AUS as the main checkpoint in the mortgage process.

It Answers Questions Such As:

• Does the borrower appear to meet the selected loan program guidelines?
• Is the credit profile acceptable?
• Is the debt-to-income ratio acceptable?
• Are the assets sufficient?
• Does the file need manual underwriting?
• Does the loan need additional documentation?
• Is the loan eligible for Fannie Mae, Freddie Mac, FHA, VA, or USDA guidelines?
• Are there specific conditions the underwriter must verify?

When Is AUS Initiated By The Loan Originator?

The AUS is usually initiated after the loan originator has enough information to complete a meaningful loan application.

This can happen during:

• Pre-qualification
• Pre-approval
• After a full mortgage application
• After the credit is pulled
• After the income and asset information is entered
• After the borrower has a property address
• After the purchase contract is received
• During processing, if the file changes
• Before final underwriting approval

To give a strong pre-approval, the loan originator needs to collect and enter verified details, not just rely on what the borrower says.

Step-By-Step: How AUS Is Started In The Mortgage ProcessStep 1: The Borrower Contacts The Loan Originator

The process begins when the borrower reaches out or applies to the loan originator. This is the initial contact in which the mortgage loan originator (MLO) begins collecting information.

The MLO Gathers Basic Information Such As:

• Borrower name
• Social Security number
• Date of birth
• Current address
• Employment history
• Income type
• Monthly debts
• Assets
• Credit history
• Desired loan amount
• Down payment
• Property type
• Occupancy type
• Loan purpose

The MLO should ask thorough questions at the start to make sure all the information is accurate and complete.

Step 2: The MLO Pulls Credit

The credit report is a pivotal component of the AUS decision.

The Credit Report Shows:

• Mortgage scores
• Tradeline history
• Credit card balances
• Installment loans
• Auto loans
• Student loans
• Collections
• Charge-offs
• Bankruptcies
• Foreclosures
• Late payments
• Public records, if reported
• Monthly debt obligations

AUS interprets the credit report and incorporates liabilities into the debt-to-income calculation.

Still, the MLO needs to carefully review the credit report, since AUS can sometimes misunderstand certain debts.

Step 3: The MLO Completes The Loan Application

Next, the MLO enters all required information into the loan origination system (LOS), outlining applicant details for AUS analysis.

This Includes:

• Borrower information
• Employment history
• Income
• Assets
• Real estate owned
• Liabilities
• Declarations
• Loan amount
• Sales price
• Down payment
• Property taxes
• Homeowners insurance
• HOA dues
• Loan program
• Occupancy
• Property type

AUS results are only as accurate as the information entered.

If you enter incorrect data, the AUS findings will not be reliable.

Step 4: The MLO Selects The Loan Program

The MLO selects the loan program as a key step before executing AUS.

Examples Include:

• Conventional loan through Fannie Mae DU
• Conventional loan through Freddie Mac LPA
• FHA loan through an AUS using the FHA TOTAL Scorecard
• VA loan through an AUS, depending on the lender platform
• USDA loan through GUS
• Jumbo loan, if the investor allows AUS or has separate guidelines
• Non-QM loan, usually not based on agency AUS.

The AUS result depends on which loan type you choose.

A borrower might be denied for one program but approved for another.

Step 5: The MLO Runs AUS

Once the file contains all required information, the MLO submits the loan to AUS.

The AUS evaluates the file and issues findings.

The Findings Usually Include:

• Recommendation
• Documentation requirements
• Income conditions
• Asset conditions
• Credit conditions
• Property conditions
• Ratio analysis
• Reserve requirements
• Messages about disputed accounts
• Messages about bankruptcies, foreclosures, or short sales
• Eligibility warnings
• Required verifications

For Freddie Mac LPA, Freddie Mac states that the system provides a feedback certificate with actionable insights.

Common AUS Findings And What They Mean Approve/Eligible Or Accept/Eligible

This is the strongest type of AUS result.

This indicates that the file meets the selected agency guidelines.

• The borrower may proceed with standard underwriting.
• The underwriter must verify the data.
• The lender must still apply any lender overlays.
• The file is not fully approved until underwriting signs off.

For Fannie Mae, the common terms are Approve/Eligible.

For Freddie Mac, the common terms are Accept/Eligible.

Refer/Eligible

This result means AUS withheld automated approval, but manual underwriting may be possible if permitted by the loan program and lender.

This Is Common With:

• Lower credit scores
• Thin credit history
• High debt-to-income ratios
• Recent derogatory credit
• Complicated income
• Limited reserves
• Higher-risk layering

For FHA, VA, and sometimes USDA files, a Refer finding may allow manual underwriting if the lender permits it.

This is where lender overlays matter. Some lenders do not manually underwrite loans even when the agency allows it.

Refer With Caution Or Caution

This is a stronger cautionary warning.

It generally signals that the file is unacceptable as presented to AUS.

Possible Reasons Include:

• Serious credit risk
• Recent major derogatory credit
• Excessive DTI
• Insufficient income
• Insufficient assets
• Ineligible loan structure
• Data issues
• Program guideline failure

Don’t see caution findings as the end of the road. Check for data errors, missing assets, incorrect debts, or the wrong loan program.

Ineligible

This means the file does not meet one or more eligibility requirements for that loan program.

Examples May Include:

• Loan amount too high
• Property type not eligible
• Occupancy not eligible
• Insufficient down payment
• DTI outside tolerance
• Waiting period not met.
• Mortgage insurance issue
• Program rule not satisfied

An ineligible finding may be correctable if the MLO identifies the issue and restructures the file appropriately.

What AUS Analyzes: Credit Risk AUS Reviews The Borrower’s Credit Profile, Including:

• Credit scores
• Payment history
• Length of credit history
• Number of accounts
• Recent late payments
• Revolving credit usage
• Installment debt
• Mortgage history
• Collections
• Charge-offs
• Bankruptcies
• Foreclosures
• Disputed accounts

The MLO should not rely only on the credit score.

A borrower with a 680 score and recent late payments may be riskier than one with a 620 score and a clean recent history.

Income

AUS evaluates the income entered by the MLO, but it does not automatically verify that the income was calculated correctly.

The MLO And Underwriter Must Still Verify:

• W-2 income
• Overtime
• Bonus income
• Commission income
• Self-employment income
• 1099 income
• Rental income
• Social Security income
• Pension income
• Child support or alimony, if used
• Part-time income
• Second-job income

One of the biggest MLO mistakes is entering income before properly calculating it.

If the income is entered incorrectly, the AUS approval does not mean much.

Debt-To-Income Ratio

AUS calculates the borrower’s DTI using the income and liabilities entered into the file.

AUS Considers:

• Housing payment
• Principal and interest
• Property taxes
• Homeowners insurance
• Mortgage insurance
• HOA dues
• Credit cards
• Auto loans
• Student loans
• Personal loans
• Child support
• Alimony
• Other required monthly obligations

AUS might approve borrowers with higher debt-to-income ratios if they have strong compensating factors. This depends on the loan program, credit, reserves, and overall risk.

AUS reviews the assets entered into the file.

Assets May Be Needed For:

• Down payment
• Closing costs
• Prepaids
• Reserves
• Cash to close
• Large deposit review
• Gift funds
• Earnest money deposit verification

The AUS findings will usually state whether reserves are required.

Having reserves can make a loan file much stronger.

Loan-To-Value And Down Payment

AUS Analyzes The Relationship Between:

• Sales price
• Appraised value
• Loan amount
• Down payment
• Loan-to-value ratio
• Combined loan-to-value ratio

Even a small change in the down payment can affect the AUS result.

For example, increasing the down payment or lowering the loan amount may turn a weak file into an approval.

Property And Occupancy

AUS reviews the property information entered.

Important Fields Include:

• Primary residence
• Second home
• Investment property
• Single-family home
• Condo
• Two-to-four-unit property
• Manufactured home
• Planned unit development
• Purchase price
• Appraised value
• Property taxes
• HOA dues

The type of property and how it will be used can have a big impact on the AUS decision.

How The MLO Should Analyze AUS Findings Step 1: Read The Recommendation First. The MLO Should First Identify The AUS Result:

• Approve/Eligible
• Accept/Eligible
• Refer/Eligible
• Caution
• Ineligible

This tells the MLO whether the file is likely moving forward, needs restructuring, or requires manual underwriting.

Step 2: Review The Conditions Line By Line

The AUS findings are not just a yes-or-no answer.

The MLO should read every message.

Look For:

• Income documentation requirements
• Asset documentation requirements
• Reserve requirements
• Credit explanations
• Disputed account messages
• Bankruptcy or foreclosure messages
• Student loan payment messages
• Gift fund requirements
• Appraisal waiver or appraisal requirement
• Mortgage insurance messages
• Property eligibility issues

New MLOs sometimes see “Approve/Eligible” and skip reading the rest of the findings.

This can be risky.

The approval is valid only if the conditions are met.

Step 3: Compare AUS Findings To Actual Documents

The MLO should compare the AUS data to the borrower’s real documents.

Check:

• Pay stubs
• W-2s
• Tax returns
• Bank statements
• Credit report
• Divorce decree
• Bankruptcy papers
• Student loan documentation
• Purchase contract
• Homeowners insurance quote
• Property tax end the documents do not match the data entered into AUS, the loan could fall through later.

Step 4: Look For Red Flags Common AUS Red Flags Include:

• Income entered too high.
• Overtime, it has been used without a history.
• Bonus income used without a history
• Self-employment income not properly averaged
• Student loan payment entered incorrectly.
• Credit card debt omitted.
• Undisclosed debt
• HOA dues missing
• Property taxes underestimated
• Assets entered but not verified.
• Gift funds not documented.
• Borrower added or removed after AUS.
• Disputed accounts not addressed.
• Recent late payments have been ignored.

A good MLO does more than just run AUS.

A good MLO also checks if the AUS approval is truly valid.

Step 5: Check For Lender Overlays

This is one of the most important training points for new MLOs.

AUS may say the loan is eligible under agency guidelines, but the lender may have stricter rules.

Those stricter rules are called lender overlays.

Examples of Overlays Include:

• Higher minimum credit score
• Lower maximum DTI
• No manual underwriting
• Extra reserve requirements
• Restrictions on recent late payments
• Restrictions on collections
• Restrictions on gift funds
• Restrictions on property type
• Restrictions on non-occupant co-borrowers
• Restrictions on manufactured homes
• Restrictions on high-balance loans

This is why one lender might deny a file while another lender approves the same borrower under agency rules.

When AUS Must Be Re-Run

AUS should be re-run when material information changes.

Common Reasons Include:

• Loan amount changes
• Sales price changes
• Appraised value changes
• Interest rate changes
• Property taxes change
• Homeowners insurance changes
• HOA dues are added
• Borrower income changes
• Borrower changes jobs
• New debt appears
• Credit is refreshed
• Borrower pays off debt.
• Borrower adds or removes a co-borrower
• Assets change
• Gift funds are added.
• Loan program changes
• Occupancy changes
• Property type changes

The final AUS findings need to match the final loan file.

An underwriter cannot approve a loan using old AUS findings if the file has changed in important ways.

AUS Is Not A Substitute For Underwriting

This is a key lesson for new loan originators.

AUS is a tool.

It is not the final underwriter.

The Underwriter Still Must Verify:

• The borrower’s income is stable and likely to continue.
• The assets are properly documented.
• The credit report is accurate.
• The property meets guidelines.
• The loan meets agency rules.
• The loan meets investor rules.
• The loan meets lender overlays.
• The file matches the AUS submission.

AUS can issue an approval, but the loan can still be denied if the documents do not support the information entered. For example, assume a borrower applies for an FHA loan.

The MLO Enters:

• 620 credit score
• $6,000 monthly income
• $2,900 total monthly debt
• 3.5% down payment
• Primary residence
• One-unit property
• Stable two-year employment history

The MLO runs AUS through the lender’s system, which is connected to the FHA TOTAL Scorecard.

The AUS returns Approve/Eligible.

That Sounds Good, But The MLO Still Needs To Verify:

• Is the $6,000 income correctly calculated?
• Are the pay stubs consistent?
• Are there unreimbursed expenses or variable income issues?
• Are all debts included?
• Are student loans calculated correctly?
• Are there disputed accounts?
• Is the borrower’s cash-to-close verified?
• Are gift funds documented?
• Does the lender allow the credit score and DTI?
• Does the property meet FHA requirements?

If everything checks out, the file can move forward.

If the income is actually only $5,200 after underwriting review, the AUS approval may disappear when the file is corrected and re-run.

Common Mistakes New Loan Originators Make With AUS. New MLOs Should Avoid These Mistakes:

• Running AUS with incomplete information
• Treating AUS approval as a final loan approval
• Not reading the full findings.
• Entering income without calculating it correctly
• Forgetting HOA dues
• Underestimating property taxes or insurance
• Ignoring student loan guidelines
• Ignoring disputed account messages
• Not checking reserves
• Not checking lender overlays.
• Failing to re-run AUS after file changes
• Issuing a pre-approval letter too early
• Not documenting compensating factors.
• Assuming one AUS result applies to every loan program

Best Practices For MLOs When Using AUSA Good MLO Should:

• Collect accurate information upfront.
• Pull and review credit carefully.
• Calculate income before submitting AUS.
• Verify assets early
• Choose the correct loan program.
• Run AUS before issuing a strong pre-approval
• Read the entire AUS findings.
• Save the findings in the loan file.
• Explain conditions to the borrower clearly.
• Re-run AUS when material changes happen
• Know the difference between agency guidelines and lender overlays.
• Ask an experienced underwriter or manager for help on complex files.

Why AUS Matters For Borrowers: AUS Helps Borrowers Because It Can:

• Speed up the pre-approval process.
• Identify problems early
• Show what documents are needed.
• Help determine the best loan program.
• Reduce surprises during underwriting.
• Help borrowers with strong compensating factors.
• Give lenders a clearer risk picture.

However, borrowers should understand that AUS findings are only as good as the information entered.

If AUS approval is based on wrong income, missing debts, or assets that are not verified, it is not a real approval.

Final Training Takeaway For New MLOs

The Automated Underwriting System is one of the most powerful tools in the mortgage process, but it must be used correctly.

AUS helps the loan originator, processor, and underwriter determine whether a borrower appears eligible for a mortgage loan. It reviews credit, income, assets, debts, loan structure, property type, and program eligibility.

But AUS does not relieve the loan originator of their responsibility.

A Professional MLO Must Know How To:

• Enter accurate data
• Read the findings
• Spot red flags
• Understand conditions
• Recognize lender overlays
• Know when manual underwriting may be possible.
• Re-run AUS when the file changes
• Communicate clearly with the borrower.

The best loan originators do more than just run AUS.

They understand what AUS results mean, why they matter, and how to set up the loan so the borrower has the best chance to close.

Automated Underwriting Systems: Benefits & How They Work

• This discussion was modified 1 week, 3 days ago by  Sapna Sharma.
• This discussion was modified 1 week, 3 days ago by  Sapna Sharma.

gustancho.com

Automated Underwriting Systems: Benefits & How They Work

Learn how automated underwriting systems speed decisions, reduce risk and improve accuracy using AI and data automation for loans and insurance decisions.

The following is a summary of the homebuying and mortgage process.

• The initial step in purchasing a home is to determine eligibility by meeting with a mortgage loan originator (MLO).
• The MLO will inquire about the desired property type, location, comparable home prices, estimated property taxes, and homeowners’ insurance.
• To assess eligibility, the MLO will review the applicant’s financial information, as well as that of any co-borrower.
• Required documentation includes two years of W-2 forms for hourly or salaried employees, or two years of business and personal tax returns for self-employed individuals or those receiving 1099 income, in addition to 30 days of recent pay stubs.
• If income is irregular or includes overtime or part-time work, the mortgage processor may verify employment to obtain an accurate income assessment.
• Creditworthiness is evaluated using a tri-merge credit report, with the middle score serving as the qualifying metric.

Automated Underwriting System (DU or LP Findings)

After reviewing income, debts, assets, and credit, the MLO submits the file to the automated underwriting system (AUS), which provides one of three outcomes:

• Approve/Eligible
• Refer/Eligible
• Refer/With Caution.
• Approve/Eligible indicates system approval
• Refer/Eligible suggests potential qualification, but requires manual review
• Refer/With Caution signifies that the application does not meet basic eligibility requirements for programs such as HUD, VA, USDA, Fannie Mae, or Freddie Mac, often due to factors like insufficient time since bankruptcy or recent late payments.

When Does a Loan Originator Issue a Pre-Approval Letter

• Upon qualification and AUS approval or satisfaction of manual underwriting guidelines, a pre-approval letter is issued.
• At this stage, the home search with a real estate agent may begin.
• Once a property is selected and a purchase price is agreed upon, both parties sign the purchase contract, which is then forwarded to the MLO, officially initiating the mortgage process.

The Loan Estimate

• Entry of the property address into the loan application system marks the start of the official loan application, after which the lender has three business days to provide a Loan Estimate.
• The Loan Estimate, which replaced the Good Faith Estimate, outlines the anticipated fees and costs associated with the process.
• Borrowers may notice that the Loan Estimate often lists higher costs than those ultimately incurred, which is permissible.
• If a loan officer underestimates a cost by 10% or more, the officer is required to pay the difference, even for costs unrelated to the lender, such as inspections or title charges.

For further details regarding the Loan Estimate, refer to the attached guide.

https://gustancho.com/loan-estimate/

• This discussion was modified 1 week, 4 days ago by  Sapna Sharma.

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Everything You Need To Know About the Loan Estimate

HUD's GFE, which was created in 2010, and replaced by CFPB's Loan Estimate. HUD Settlement Statement is replaced by the Closing Disclosure

Upon applying for a mortgage, applicants receive a Loan Estimate (LE) from the lender within three business days. This document does not constitute an approval or denial. Rather, it provides an early overview of the loan terms and potential costs associated with proceeding.

The application process officially begins once the lender receives the applicant’s name, income, Social Security number, property address, property value, and desired loan amount. Upon receipt of this information, the lender must provide the Loan Estimate within the specified timeframe.

Contents of the Loan Estimate

The Loan Estimate is a three-page document designed to clarify the costs associated with a mortgage. It includes the following components:

Loan Terms:

This section details the total loan amount, the total interest to be paid, the required monthly payment for principal and interest, the loan terms and conditions, whether the interest rate is fixed or adjustable, whether there are any prepayment penalties or balloon payments, and the total monthly escrow payments.

Closing Costs:

This section outlines the estimated closing costs and the total cash required at closing. It encompasses the down payment, closing costs, prepaid taxes, homeowners’ insurance, escrow reserves, lender credits, and other settlement expenses such as interest prepayment.

Comparison Section:

The Loan Estimate provides a comparison of the Annual Percentage Rate, Total Interest Percentage, and estimated total costs for principal, interest, mortgage insurance, and loan expenses over the initial five-year period.

Summary for Borrowers

The Loan Estimate provides a concise summary following a mortgage application. It presents the estimated loan amount, monthly payment, closing costs, and the total cash required at closing.

You’ll receive this section after you sign the purchase contract and before your file moves to processing. This is the stage when your loan moves from pre-approval to an active application for a specific property.

https://gustancho.com/loan-estimate/

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Everything You Need To Know About the Loan Estimate

HUD's GFE, which was created in 2010, and replaced by CFPB's Loan Estimate. HUD Settlement Statement is replaced by the Closing Disclosure

What is the next step after the homebuyer shops with a pre-approval letter with the buyer’s real estate agent and finds the house of their dreams. The real estate agent guides the buyer with negotiating the real estate purchase contract, contingencies, and both the home buyer and seller signs the contract. The real estate contract needs to be submitted to the buyer’s attorney if applicable and the mortgage loan originator. The loan officer will request recent paycheck stubs, bank statements, and updated documents. The MLO will question the homebuyers about any changes to income, debt, employment, assets, and other important necessary information prior to packaging up the file and assigning to a mortgage processor. The role of the mortgage processor is to prepare the file and make sure all necessary documents are in order to submit to the mortgage underwriter.

Subsequent Steps Following the Signing of a Home Purchase Contract

Once both parties have signed the purchase contract for the selected property, the buyer must provide the signed contract to the mortgage loan officer and, if necessary, to legal counsel.

• The loan officer reviews the contract to verify the sales price, closing date, seller concessions, earnest money deposit, and any financing or inspection contingencies.
• This information is added to the borrower’s file before the loan is submitted for processing.
• Current bank statements are also required at this stage.
• Current documentation of assets must also be provided.
• Explanations for any recent credit issues should be included if applicable.
• Recent documentation verifying assets, along with explanations for any credit issues, is necessary to complete the transaction.
• The buyer must also inform the loan officer of any significant changes since pre-approval, such as alterations in employment, income, debts, credit status, assets, marital status, or the source of the down payment.
• Once all updates are provided, the loan officer enters the application into the system and assigns it to a mortgage processor.
• The processor verifies the loan’s purpose and collects all necessary documentation.
• This stage is critical because pre-appt guarantee final loan aroval does nopproval.
• The underwriting process must review the signed purchase agreement, updated documentation, title work, appraisal, credit, income, assets, and any applicable mortgage program requirements before issuing conditional approval.

https://gustancho.com/earnest-money-on-home-purchase/

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Earnest Money On Home Purchase From Homebuyers

Earnest Money On Home Purchase Transaction will be applied towards the down payment. The large earnest money deposits show strength

Every mortgage loan application can be different. There are so many case scenarios depending on the borrower. No two mortgage loan applicants are the same. There are countless types of case scenarios where some falls in a gray area. Depending on the type of mortgage lender you work for, a particular borrower may fall within agency guidelines of HUD, VA, USDA, Fannie Mae, or Freddie Mac but may not qualify with a particular mortgage lender due to lender overlays. If you are an MLO for a mortgage broker, you have the wholesale lenders the mortgage broker has wholesale lending agreements with. There are many reputable wholesale lenders with no lender overlays, as well as alternative and non-QM wholesale lenders who can make exceptions on a case by case scenario. If there are cases of a unique situation and is a manual underwriting file, the MLO can turn the file as a TBD underwriting pre-approval file. What this means is the mortgage loan originator does not issue a pre-approval letter until the file is underwritten by a mortgage underwriter with a TBD property. Once the mortgage underwriter qualifies it and pre-approves the file, the pre-approval letter is issued by the mortgage underwriter and not the MLO. With other tough one off cases, the MLO can go over the case scenario with the wholesale mortgage lender’s account executive and if needed, get a second opinion involved with the underwriting desk and/or the underwriting manager.

https://gustancho.com/fully-underwritten-tbd-mortgage-approval/

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Fully Underwritten TBD Mortgage Approval As Pre-Approvals

Fully Underwritten TBD Mortgage Approval are full approvals for borrower on manual underwrites and tougher mortgages without the property

The number one reason for stress during the mortgage process and the reason for a last-minute mortgage loan denial is because the mortgage loan originator did not properly qualify the borrower prior to issuing the pre-approval letter. Borrowers depend and rely on the mortgage loan originator that the pre-approval is solid and valid. A mortgage loan originator should not issue a written pre-approval letter if they have even a one percent doubt that the loan with not get approved and close on time. All pre-approval letter should not be issued to borrower if the loan cannot just close but close on time. Borrowers are giving their faith and trust on the loan officer that their loan will close and not stress out during the mortgage process. Borrowers are notifiying their utility companies to disconnet their service at their current home and ordering new service at their new home purchase. They are registering their children to their new schools. They are notifying their employers of the new change of address. They are selling their old furniture and belongings and buying new furniture to funish their new home. What if everything falls through? Due to issuing a pre-approval letter, the life of the the entire family of the homebuyer is turned upside down? In this thread, we will go over the proper way of qualifying and pre-approving a homebuyer prior to issuing a pre-approval letter.

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FHA loans is the most popular home loan program for first time homebuyers, borrowers with higher debt to income ratio, borrowers with prior bad credit, borrowers with low credit scores, borrowers with outstanding collection and charge offs, borrowers with little down payment. Seller concessions can be used for Buyers closing costs. Remember that many lenders have lender overlays. Attached is a cliff notes version of the minimum HUD guidelines on FHA LOANS.

HUD 4000.1 FHA Handbook For FHA Home Loans https://share.google/RYFwzBZrPfnXds6jZ

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HUD 4000.1 FHA Handbook For FHA Home Loans

The Revised HUD 4000.1 FHA Handbook accepts IBR payments, and 0.50% of deferred student loans is used in lieu of the old 1.0% balance

Once your mortgage loan originator issues a pre-approval, the next step of the home buying and mortgage process is working with a real estate agent. Working with a real estate agent is not mandatory and can shop for a home yourself. However, hiring a realtor is highly recommended. Your loan officer can refer you to a preferred real estate agent partner, or you may get referred to a realtor from family, close friends, or business associates. Armed with a pre-approval letter and a real estate agent you hired and you feel comfortable, you are now ready to shop for homes. Talk with your real estate agent and discuss the type of home you are looking for. Are you interested in buying a condominium, town home, multi-family, manufactured home, or single-family home. Discuss the must have’s and the want to have but can live without. Home buyers should carefully take time in going over your budget and always keep this question in mind: HOW MUCH HOUSE CAN I AFFORD AND NOT HOW MUCH HOME CAN I QUALIFY. What are you paying now for rent or housing expense vs how much will you be paying on the new home purchase (The difference between what you have been paying for rent now to what you will be paying is called PAYMENT SHOCK).

MISTAKES HOMEBUYERS MAKE THEY REGRET AFTER THEY MOVE IN:

There are mistakes home buyers make that could be avoided if you think things through before signing the real estate purchase contract. Remember that a home listed for $300,000 in one area may have a different monthly housing payment compared to a different $300,000 house in a different location. There are variable line items that affect the monthly payment of a home. Not all homes in a certain price range have the same housing payment. The housing payment can vary widely depending the property taxes, homeowners insurance, if the home requires flood insurance, and if homeowners association fees is applicable. Please go over several case scenairos and hypothetical cases based on your budget, home price, property taxes, HOA, homeowners insurance, and other expenses.

HOW MUCH HOME CAN I AFFORD VS HOW MUCH HOME CAN I QUALIFY

Keep in mind that mortgage lenders consider only debts that normally report on credit bureaus. No two families have the same household expense and income. Typical debts that lenders factor in when calculating debt to income ratios are the sum of all minimum monthly credit card payments, car loans, installment loans, student loans, and other creditors that report on credit bureaus. Debt not included in DTI calculations are monthly debts that do not report on credit bureaus, which is often referred to non-traditional credit tradelines. Example of non-traditional credit tradelines are cell phone bill, water, electric, gas, and other utility bills. Cable, Internet, insurance, and other creditors that do not report on credit bureaus. Expenses vary from family to family. Some families may need to allocate a certain amount each month for child care, education, elderly care, children’s extracurricular activities, fuel, auto expenses, or other debts that may be consired very important. Therefore, always keep in mind to ask yourself how much home can I afford.

HERE’S THE LINK FOR THE BEST MORTGAGE CALCULATOR Powered by Gustan Cho Associates:

https://gustancho.com/best-mortgage-calculator/

Home buyers should research the area they want to live, average cost of homes, distance from home to work, proximity to major expressways, proximity to shopping centers and stores, and other factors that is important to them. Property taxes can vary from one neighborhood to another neighborhood. For example, one house priced $600,000 in a semi-rural area has property taxes of $12,000. Two miles east of this house, a similar house on a larger listed for $649,000, the property taxes on this house is $2,200. The reason for such a large difference is because the house with the lower property tax has a large landfill, dump owned and operated by Waste Management. Property taxes is a huge cost factor all homebuyers need to seriously consider and think things through.

On our next sub-forum of GCA Forums e-Learning MLO Training Bootcamp, we will go over the real estate purchase contract, earnest money, how the real estate contract should be written up, contingencies, seller concessions from seller to cover part or all of buyer’s closing costs, tentative closing date. Contingencies include home inspection contingency, appraisal, mortgage approval contingency, and sometimes contingency that the buyer needs to sell current home. Please feel to share your thoughts, ask any questions, or want us to explore further topics of discussion.

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Best Mortgage Calculator | PITI, PMI, MIP, and DTI

The best mortgage calculator powered by GCA Mortgage Group is different than the competition due to PITI, PMI, MIP, HOA, and DTI features.