Borrowers Should Understand Steps in Gaining Mortgage
Mortgage shoppers should have some understanding of the major steps involved in obtaining a mortgage, which have been impacted by several recent developments. The process begins with an initial contact with a lender, and ends with a closed loan. While there are many differences in the ways that lenders operate, they must comply with the same or very similar laws and regulations, they use the same or very similar technology, and they sell their loans in the same secondary markets. For these reasons, the similarities among lenders in how they process loans are more important than the differences.
Of course, the scoundrels that dot the mortgage landscape have their own procedures that may be very different. Potential borrowers who know what to expect from honest lenders are positioned to smell trouble if they encounter the very different approach of a scoundrel.
In writing this article, I was helped greatly by Jack Pritchard of Home-Account, whose knowledge of mortgage operations is second to none. Home-Account is a site where consumers can shop among a group of mortgage banks.
Step 1: Borrower interviews lenders to select one with which to proceed. See my concluding comment on making this selection.
Step 2: Borrower contacts the selected lender to get price and perhaps other information bearing on whether or not to proceed further with that particular lender. The typical borrower wants a price quote. The lender wants the borrower to provide enough information to permit a preliminary judgment regarding whether the borrower will qualify and what the price will be. The borrower will respond, using telephone or e-mail, by providing undocumented information covering credit, income, assets and property.
Step 3: Lender assesses preliminary information, and reports favorable results back to the borrower with a request to move ahead. If the borrower assents, the lender requests the borrower's Social Security number so that the borrower's credit record can be accessed, and also asks for income and asset documentation.
Step 4: Borrower provides the information required to move to the next stage. At this stage if not done earlier, borrower and lender agree on the type of loan that best suits the borrower.
Step 5: Lender assesses the borrower's credit report and documentation, completes the borrower's written application form, and prepares a packet of documents including a good-faith estimate (GFE) and Truth in Lending (TIL) disclosures. These disclosures contain the terms of the loan being offered.
Since prices are reset every day, the lender may provide the borrower an opportunity to lock the prices before receiving the documents. (If the documents are sent out overnight, the prices in them expire before the borrower sees them.) The lender explains how long a lock period is needed to be safe. The period has become longer recently, partly because of regulation-induced delays in obtaining property appraisals.
If the terms in the disclosure documents are not locked the same day they are set, the borrower is vulnerable to gamesmanship by the lender in setting new terms. …