View information on the home loan process

OVERVIEW OF THE LOAN PROCESSLos Angeles Real Estate Agent

There are four steps to obtaining a real estate loan:

  • Analysis
  • Processing
  • Closing

The application. Historically, application forms varied from lender to lender. Now, however, a “standard” form for residential mortgage loan applications is commonly used: the FHLMC/FNMA 1003. Even FHA and VA use this form.

A loan application package consists of:

  • The loan request;
  • Borrower information;
  • Property or collateral information;
  • Credit analysis;
  • Lender’s action (approval or disapproval); and processing check list.

The loan request. This is a written request by the prospective borrower giving the borrower’s name, setting forth the amount and terms of the requested loan, the purpose of the loan, and how and when it will be repaid. The federal Equal Credit Opportunity Act prohibits discrimination based on age, sex, race, marital status, color, religion or national origin. Senior citizens, young adults and single persons must be considered in light of income adequacy,satisfactory net worth, job stability and satisfactory credit rating, and creditguidelines are to be applied to each potential borrower in the same manner.

Borrower information. The following information helps the lender gauge the borrower’s ability and willingness to repay the loan:

  1. Purpose of the loan (home purchase, investment, refinance).
  2. Type and duration of employment. If under 2 years, or type of employment appears unstable, further investigation is usually needed.
  3. Other income: e.g., rents, annuities, royalties, etc.? How much? (Other sources of income are often not fully counted because they are usually less stable than full-time jobs.) Does spouse work? There can be no discrimination against income of spouse.
  4. How many dependents must be supported by the borrower and for how long? Children help stabilize a borrower in one way but also add considerably to financial obligations.
  5. What are the borrower’s living expenses? How much of gross income is available for loan payments, taxes and insurance? How much are borrower’s other installment payments and liabilities?
  6. What happens to the loan in the event the borrower becomes disabled or dies? Is there sufficient insurance?
  7. What previous experience has the lender had with borrower?
  8. What is applicant’s debt repayment record? What kind of credit and other references does the borrower have? Many lenders rely heavily on the findings of credit reporting services. Telephone check-ups made by the lender to other creditors of the prospective borrower can be revealing.
  9. Type, location, value, encumbrances and repayment schedules for other real property applicant owns.
  10. Borrower’s other assets: bank and savings accounts, personal property, etc.