What can I expect during a purchase?
Something that is often overlooked within the home loan industry is the education of the client in the steps of doing business together. As the borrower, you should want know what the process is, and what to expect from your loan officer. This is a basic account of the events that take place during a purchase transaction when you are dealing with me.
First Contact – Every loan starts somewhere, and in the technology age it is usually a phone call or an email. Occasionally, it still happens when I meet someone in public and we exchange business cards. But it seems that phone calls, emails, and internet (blog links), are most common.
In the first contact we will introduce ourselves and talk briefly about what your basic goals are, and how soon you want to take action to get pre-approved. The first contact then ends with me saying “…the next step is the application, and that will take about 20-30 minutes. Do you want to do it now, or set a time to do it later this week?”
The Application - A full application is necessary to give you (the borrower) accurate information and loan options. There are hundreds of factors that lenders (banks) take into consideration when approving loans and these should all be identified in the application. The method I prefer, to get the most accurate information, is to interview you over the phone.
The questions that I ask are things you will usually know off the top of your head. I want your Social Security #, work history for last 2 years, information on your home, and basic financial information. As you answer the questions, I enter them directly into my computer. The next part of this phone application is when I ask permission to pull your credit report. We will then briefly review your credit report to identify strengths, weaknesses, and find any inaccuracies in it. I will also tell you your credit scores and even give you a copy of your credit report if you wish.
The last phase of the application is when we discuss your goals in more detail. Typical questions are…
• What price range have you targeted?
• What do you consider a comfortable monthly payment?
• How long do you see yourself in the house?
• Are you considering a Condo or a Townhome?
At the end of the application, I will tell you how much time I will need to produce your loan options. Usually, I need 24 hours to get back with you – but I will urge you to call me if other ideas or questions come up during this planning window. In some instances I can tell you immediately if you are approved and what your purchase ceiling is (maximum purchase price)
Loan Options – At the conclusion of my analysis, I usually come up with one (or more) purchase options that will make sense for you (the borrower) to pursue. To make things easier for you to understand, I will email one (or more) Good Faith Estimates (GFE) to you before our upcoming phone call. You will be instructed to print the Good Faith Estimates so that we can review them together over the phone. I always recommend that you print the Good Faith Estimates so you can take notes on them.
We will then review the Good Faith Estimates over the phone, and I will explain the loan program, fees, interest rates, escrows, and estimated payments until you (the borrower) are comfortable with all of the information on the Good Faith Estimate. This process could take a few minutes for some people, whereas others can take well over an hour to understand all of the concepts of this transaction. We will not move forward to the next step of the loan process until I feel you are comfortable with this material.
At this point you (the borrower) will tell me one of three things. All of which are OK.
• You like an option you see, and want to move forward by previewing houses
• You don’t like the amount you are approved for and want to hold off for now
• You would like to see more loan options on your target price
Once you have made the decision to move forward, I produce a one page letter called a Loan Status Report (LSR). This document states that you have consulted with a lender (me) and you are pre-approved to purchase a house. The letter will also have a maximum dollar value on it indicated how much money you have been approved for. This letter is then submitted with a housing offer to notify the seller that you have your money ready and you are a serious buyer.
Also, I recommend that we produce a custom LSR for each offer you submit. I am a firm believer in showing that you are only approved for the amount you are willing to offer. By submitting a LSR showing that you are approved for more money then you are offering will sometimes influence the seller to not reduce their price during negotiation because “you have the money to pay more”
Send You the Application - After we agree on a potential Loan Option, I will send you the application and it will be specific to that Loan Option. When you receive the application you will notice that it has already been filled it out with your information. As you review the application you will proofread the answers you gave me, sign it, and send it back.
There will also be a cover letter attached with the application that gives you a list of additional documentation that I will need. This list typically requests items like Pay Stubs, Tax Returns, Bank Statements, Photocopy of Your Driver License, etc… There will also be a return envelope for you to return the application and copies of the items I request. If there are any areas that are not perfectly clear we can review them at this time.
This application is basically a rough draft of your purchase transaction. All numbers will be subject to change as the purchase price will most likely be different than the estimate illustrated in the application. Also, by signing the application, you are still not committed to do business with me (the lender) it just allows me to continue to work for you in your best interest.
Looking for a House – I am not as involved in this stage as you preview houses with your realtor. However, a common question is “How long is my pre-approval good for?” Usually a LSR is good for 90 to 120 days assuming that your employment does not change during that period. Technically, your credit report is only good for 90 to 120 (depending on the lender/bank) so it needs to be re-pulled every 90 days to ensure your scores are accurate. I usually check in with you & your realtor every 3 weeks or so to get an update on your search.
You find a House – and it is time to put in an offer. Like I described earlier, I will usually write a custom LSR to go along with your offer. It is common to have multiple counter offers bounce back and forth between parties until you actually have a contract that is agreed upon, and signed by both parties. Once you have the signed contract we are in business and it is time to LOCK your loan.
Locking - This term refers to how we secure the interest rate on your new loan. The bank that your loan is going to, will allow us to “lock in” today’s interest rate that they are offering. They will guarantee that specific rate for a fixed period of time, typically 30 days. I recommend locking the rate as soon as we have a contract, and begin processing the loan.
You also have the option to Float. Floating means that you are not locking in today’s rate – rather, we will see what the market does over the next few days (or weeks) and try to get a better rate. We can do this for you in hopes of bettering your situation, but it is a gamble and there are losers.
The truth is that interest rates change every day, and even the savviest financial expert cannot tell you what is going to happen to rates. We can make educated guesses on the future of interest rates, but there are so many variables that affect the market that we can often be wrong. My advice to everyone is, “…If the loan makes sense with the rate you see today, you should lock that rate and move on.”
Usually, the close of escrow will be set roughly 30 days into the future, so your option to float will only last about 10-14 days until it is time to send you loan to underwriting. You need to commit to a rate at that time.
Inspection- You will most likely have a 10 day window (from the date the contract was signed by both parties) to have an inspection done on the subject property. The inspection is mostly for your information to let you know what problems the property might currently have (bad roof, mold, bad wiring, etc…). After you get the results from the inspection you can decide…
• You still like the property and will buy it as is
• You don’t want to pursue buying the property
• You want to negotiate with the seller to repair the property
• You want to negotiate with the seller to compensate you for the cost of repair
To complete your loan, I do not need a copy of your inspection. The only reason I am pointing it out here is because I usually recommend that we wait to have the property appraised after the inspection has taken place. Appraisals usually cost $300 - $400, and I do not want you to pay for an appraisal if it turns out that you reject the home after a poor inspection.
Processing - This is a general term in lending that can mean so many things. In this case I am referring to the internal paperwork that I request on your behalf in addition to your application. We can have dozens of items to collect for your loan, but the big ones are your Appraisal, Title Report, Home Owners Ins., Loan Payoff Amount, HOA, Flood Certification, and Property Tax info. In most cases, all of these items get collected by me without any effort on your part.
I will be asking you at this time to send me updated paystubs and bank account statements if the ones you previously submitted are over 30 days old. Once my processing is complete, and I receive updated documentation, we enter a new stage called Underwriting.
When I receive a copy of the appraisal I will contact you with the value of the property and send you a copy of the full appraisal either electronically or by mail.
Underwriting – The bank that will be servicing this loan always requests that the loan gets underwritten before they fund it. Underwriting is the process of a special person reviewing all of the information & documentation to verify that all of the loan requirements are met. This process of underwriting usually takes a few hours, however it can take several days before the underwriter can see the file due to their current volume, or where they are physically located.
During the underwriting process, the underwriter can request additional documentation from us if they have any issues with the loan. This additional list of documentation is referred to as “conditions”. In most cases, I will handle all of the conditions myself. On occasion, I may call you to get me more info on something, or to write a letter of explanation to the underwriter.
Once all of our conditions are “satisfied”, we can now move on to you signing the documents on the loan for your new home.
Signing the Documents – Here is when I call you with the good news that your loan has been approved, and to schedule a time for you to sign the final loan Documents. This usually takes place at the Title Company and will take from 30 – 90 minutes depending on how many questions you may have. Be prepared to sign your name about 100 times. If your schedule does not permit you going to the Title Company, I can have a mobile signer come to your home or office at your convenience.
This will actually be the very first time that you see the final numbers on the loan. The more important numbers would be your monthly payment and how much money you will be paying at the closing table. Up to this moment, everything you have seen in the application and the good faith estimate are truly estimates. It is common for you to sign the document several days before the close of escrow.
Funding & Recording - Just because you have now signed the documents, does not mean everything is finished. There are two more elements that take place before you get your keys. You need the loan to Fund and for title to Record before you take possession. These are things that the Lender and the Title Officer do for you. Generally, the loan will fund and the title will record on the close of escrow date. The close of escrow date should be on a weekday, and you should only assume that you will get the keys sometime before 5pm on that day.
• Funding is the act of receiving a wire of money from the bank to the Title Company. All wires are routed through the Federal Reserve so they can take about 4 hours to complete. In most cases the Loan will fund around 12:00pm on the close of escrow.
• The actual recording of title is a County function (by County employees) and it is just best to assume that your loan will not record until 4:59pm on the close of escrow.
Timeline – A typical purchase will have a 30 day escrow period in which all loan functions (and the inspection) are to be completed. Sometimes a longer escrow period is called for because it helps the buyer or seller coordinate a move day (i.e. 45 days or 60 days).
Sometimes there is a desire to have a shorter close of escrow due to special circumstances. Please note that it will still usually take about 15 business days to complete your loan if everyone rushes.
Community First Financial, LLC
7575 E Redfield Rd Suite 235
Scottsdale, AZ 85260
480-305-8900 ext 305 - office
480-907-2435 - fax
602-434-8261 - cell