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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 Undewrtiting Systemt (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/
gustancho.com
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
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