1. Overview of the Loan Process
Chapter 8
Overview of the Loan Process

2. I. The Loan Process

3. A. THE LOAN APPLICATION
The first step in obtaining a real estate loan is to fill out the loan application.
The home buyer sets up an appointment with the lender.
The buyer will attend this appointment armed with a good deal of personal and financial data, which will be the basis of the lender’s decision whether or not to make the loan.
During the initial interview, the buyer will learn about the various types of financing programs offered by the lender.
The lender will also require a deposit to cover the expenses that must be paid up front.
The purchase agreement will be examined at this interview as well.

4. Figure 8-1
RPA-CA REVISED 11/07 (PAGE 1 OF 8) Print Date

5. 1. Credit Scoring FICO SCORES
CREDIT SCORING give lenders a fast, objective measurement of your ability to repay a loan or make credit payments.
Factors that are used to calculate your score include:
Payment History
Amounts Owed
Length of Credit History
New Credit
Types of Credit Use
FICO SCORES

6. B. ANALYSIS OF THE BORROWER AND THE PROPERTY
Once the application has been properly filled out, the lender can begin gathering other pertinent information on the buyer.
CREDIT REPORT
APPRAISAL
After examining the application, the lender may also ask the buyer to submit further information, including:
1. a copy of any divorce decree (to verify any child support or alimony obligations and any settlement agreement that may be the source of the down payment);
2. an investment account record;
3. pension plan documentation;
4. tax returns (if the buyer is self-employed or retired and living on investment income); and
5. any other documentation that may have an effect on the buyer’s income or credit status.

7. 1. Equal Credit Opportunity Act
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 on the basis of income adequacy, satisfactory net worth, job stability, and satisfactory credit rating.
Lenders must apply their credit guidelines to each potential borrower in the same manner.

8. C. PROCESSING THE LOAN APPLICATION
When the credit report, verification forms, preliminary title report, and appraisal have all been received by the lender, a loan package is put together and submitted to the underwriting department.
The loan underwriter thoroughly examines the loan package and then makes the decision to approve it, reject it, or approve it under certain conditions.
A conditional approval usually requires the submission of additional information, such as:
1. the closing statement from the sale of the buyer’s previous home;
2. pay stubs to verify employment;
3. a final inspection report; and
4. a commitment for private mortgage insurance (PMI) if the down payment is less than 20% of the purchase price.

9. D. CLOSING THE LOAN
After the conditions are met, all the necessary documents are prepared for closing.
The mechanics of closing are normally the responsibility of the escrow agent.
If there are no unforeseen problems during closing, the loan papers are signed and sent to the funding department.
The loan funds are then disbursed to the proper parties.

10. II. Filling Out the Loan Application

11. Filling Out The Loan Application
As mentioned earlier, the buyer fills out a loan application at the initial interview with the lender.
Lenders expect the loans they make to be repaid without collection, loan servicing, or foreclosure problems.
Therefore, employment stability, income potential, history of debt management, and net worth are important considerations to the lender.

12. A. (Section I) TYPE OF MORTGAGE AND TERMS OF LOAN
The lender notes the type of loan provided, i.e., Conventional, FHA, VA, as well as the loan amount, and the interest rate.

13. B. (Section II) PROPERTY INFORMATION
The application begins with a section on the property. Questions as to the type of loan sought, the terms of the loan, location and legal description of the property, the property’s value, and the manner of taking title must be completed.

14. C. (Section III) BORROWER INFORMATION/INCLUDING DEPENDENTS

15. D. (Section IV) EMPLOYMENT INFORMATION

16. E. (Section V) MONTHLY INCOME AND COMBINED HOUSING EXPENSE INFORMATION

17. F. (Section VI) ASSETS AND LIABILITIES

18. G. (Section VII) DETAILS OF TRANSACTON

19. H. (Section VIII) DECLARATIONS

20. I. (Section IX) ACKNOWLEDGEMENT AND AGREEMENT

21. J. (Section X) INFORMATION FOR GOVERNMENT MONITORING PURPOSES

22. III. Loan Application Checklist

23. Loan Application Checklist
In order to properly fill out the loan application, the borrower will need to know a variety of information that may not be easily recalled from memory.
To ensure that all necessary data is at the borrower’s fingertips, it would be wise for him or her to take the following information to the initial interview:
1. The purchase agreement.
2. A residence history.
3. Employment history.
4. Income.
5. A list of assets.
6. A copy of a gift letter.
7. A list of liabilities.
8. A Certificate of Eligibility for VA loans.
9. If there is to be the sale of a present home.

24. IV. CHAPTER SUMMARY The loan process consists of four general steps:
1. Filling out the loan application;
2. Analyzing the borrower and property;
3. Processing the loan application; and
4. Closing the loan.
Each of these steps can be simplified if the borrower (and real estate agent) knows what is required of him or her. By supplying all the necessary data the lender needs, the borrower can ensure a much smoother loan process for all concerned.
Some of the information the lender will require include the following: 1. The purchase agreement
2. A residence history
3. An employment history
4. Income information
5. A list of assets
6. A copy of any gift letter
7. A list of liabilities