Buying Houses in Northern Virginia
Steps to Buying Property In Northern Virginia

What Happens After You Apply For A Mortgage?

Scientists who study and measure human behavior find that buying a home is one of the most stressful experiences of our lives. Contributing significantly to this anxiety is waiting for the mortgage to be approved. Much of the home buyers' concern results from not knowing what is going on. You know credit checks and verifications of employment are taking place--but what makes the difference between getting or not getting that loan, and how long does it take? This page can dispel at least some of that anxiety by detailing the steps the lender takes in making the loan decision-process called "underwriting." Listed below are the topics addressed on this page.

Are You a Good Risk?

Just as wise stock market investors carefully research the companies in which they plan to buy stock, careful mortgage lenders investigate the financial background of each loan applicant. In lending the prospective home buyer the money to buy the home, the lender assumes a long-term risk. The assumption is that the borrower is going to eventually repay the loan and in the meantime make the loan payments on time.

Once all the information is collected and eligibility is established, the lender decides whether to extend the home buyer credit. In other words, lenders analyze the risk of lending (making the investment), and match it to an appropriate interest rate and loan term.

There are no established, industry-wide standards for underwriting, though most lenders follow standards set by government-related agencies, private mortgage insurers, private mortgage investors or institutional investors. The vast majority of mortgage lenders attempt to approve a loan application if at all prudently possible, but to approve a loan that will become delinquent serves no one's best interest. The burden falls on the lender to establish that an applicant is qualified.

The Initial Interview

The process usually begins when you, the customer, submit an online application. Go to the apply now section of our website and apply for your needed mortgage. After applying for your mortgage online, you may wish to begin gathering some documents. The following may be necessary,

The important document that gets the whole process rolling is the loan application. It asks in-depth questions concerning you, your income, assets and liabilities, your credit, and your legal history, as well as a description of the property you wish to buy. The lender will verify the information you provide on the application before making the decision whether to extend the loan.

Applicants usually will know after the initial interview if they are qualified for the type and size of loan they want. Lenders try to let the borrower know as quickly as possible if they really are not qualified for the size of loan that they request.

Consumer Safeguards

The initial interview sets in motion some important consumer safeguards. The Truth-in-Lending disclosure requirements provide the applicant with an estimated yearly cost for the loan - the Annual Percentage Rate (APR). The other important disclosure that follows from the Real Estate Settlement Procedures Act (RESPA), a federal law. This requires lenders to provide home buyers with information on known and estimated closing costs.

The initial submission of application starts a clock that will allow applicants to know whether or not they have been approved. Most Loan Officers will strive to answer your loan request within hours submission of application. If your loan is denied, we must disclose the specific reason (s) for the rejection.

Is Your Income Sufficient?

Following the loan application, the first step the lender takes is to verify your employment or income. This is done by mailing employment and income forms to current and past employers, and it will help the lender determine how much debt you can successfully take on. Remember, if you go for a no-income, no-asset verification loan or if you are self-employed, we may not need to go through the above process.

Is Your Credit Good?

Before extending credit, lenders will want to examine the risk of not getting the money back. To do this lenders will look at four crucial aspects of your credit history when you apply for a mortgage:

• History of past credit - what were the size and terms of past loans?
• Type of Credit - have you obtained real estate, auto, personal or other installment loans in the past?
• Attitude toward credit - are active accounts current , and is there any recent bankruptcy or judgment?
• Lapses in employment or debt repayment - how many unexplained lapses are there, and for how long?

From the information uncovered by these four questions, lenders can develop a fair idea of just how you will handle your responsibilities once you have signed the contract for repaying the loan. However, lenders cannot examine everything when putting together a credit history. They have two extremely important limitations on credit information gathering.

Credit Information Safeguards

The first limitation is the Fair Credit Reporting Act, which was designed to ensure fair and accurate consumer credit reporting. The Fair Credit Reporting Act stipulates that lenders must certify the purpose for which the information is sought and use it for no other purpose. The Act also prohibits reports based on subjective information from neighbors and others concerning character, general reputation and other personal aspects. Certain other credit information, such as bankruptcy more than seven years before, is also prohibited unless the principal involved in the action was $50,000 or more.

The second consumer safeguard limiting the credit information lenders can use to make a mortgage decision is the Equal Credit Opportunity Act (ECOA). ECOA prohibits discrimination in lending based on race, color, national origin, sex, marital status, age (provided the applicant may legally contract), and the fact that all or part of the applicant's income comes from a public assistance program.

Lender's are also prohibited by law from asking:

Is The House You Are Buying Worth The Price?

Mortgage lenders also examine the real estate being purchased to make sure that, in case of foreclosure, the lender has a salable property. The property's acceptability is established by an independent appraisal.

Do I Get The Loan?

Your lender has made all the checks. Your income, credit, assets, property and all necessary documentation have been scrutinized. Now comes the big decision.

If the lender's decision is to extend the credit, you will be notified, usually through a approval letter. The mortgage lender can approve the home buyer for the entire amount asked for, or a lesser amount based on the borrower's qualifications. The approval terms relating to interest rate and/or discount points may be firm at the time of approval or conditioned on the market rate at the time of closing. If the decision is not to extend the credit, the lender has 30 days from the acceptance of the completed application to notify the prospective home buyer. This notification must also include the reason(s) for the rejection.

Certainly there will always be some anxiety associated with applying for a mortgage, but if you understand the process, waiting for approval will be far less worrisome.

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