Loan Processing
When you submit your application to
Double Tree Mortgage for a mortgage loan, we are actually
doing the following:
● Verifying the amount of your
income and the stability of your employment
● Verifying the amount of other
debts you currently have
● Determining the affordability of
your new mortgage payment
● Verifying the source of your
down payment
● Analyzing your past credit
history
● Determining the property’s value
Income and Employment
You will be asked to provide proof of your current gross
income. Typically this will require that you bring in a copy
of your most recent pay stub and a copy of your most recent
W-2 Statement. Your pay stub will verify that you are
currently employed and will indicate the approximate amount
of income that you are currently making. Your W-2 statement
will indicate that you have been gainfully employed for at
least the past year – and it will indicate on an average,
what you make on an annual basis.
If you derive a good source of your income from commissions,
overtime and/or bonuses, we will require that you bring in
W-2 statements for the past two years. We will determine
your qualifying income as an
average of your income over the last two years.
If you are self-employed, you will be asked to provide your
most recent W-2 statements (if applicable), your corporate
tax returns and your most recent financial statements. We
typically will use a two-year average of income for
self-employed individuals.
When analyzing income, we look to how much you make and also
look to ensure that you have had stable employment for at
least the past two years. You would not however have to have been
with the same employer for the last two years. Even though
we look for two years of stable employment, your situation
may be such that employment of less than 2 years would be
acceptable.
Verify all debts
You will be asked to list all of your current debts on your
mortgage application. Your credit report will also list all
of your current debts. These debts will be added up to
ensure that you will not be overextended with debt when the
new mortgage payment is added.
Determine the affordability of the
mortgage payment
Once we have verified your total gross income and added up
all of your current debts, we then will compute basic ratios
to determine the affordability of your new mortgage payment.
All ratios are based on your gross monthly income figures.
The first ratio is calculated by dividing your new housing
expense into your gross income. Your housing expense is
equal to your new mortgage payment, plus monthly real estate
taxes, monthly homeowner’s insurance, monthly PMI premiums
and monthly association dues.
For example, (numbers are for illustrative purposes) on a 30-year $100,000 mortgage at 6.75% the
monthly principal and interest payment is $648.60. In
addition, the property real estate taxes for this $100,000
home are $91.67 a month, monthly homeowner’s insurance is
$43.33, and monthly PMI is $83.33. If you were purchasing
this property and you and your spouse made a combined gross
monthly income of $5,000, your housing ratio would be
computed as follows:
$648.60
$ 91.67
$ 43.33
$ 83.33
---------------
$866.93 Total Housing Expense
$866.93/$5,000 = 17.34%
The second ratio computed to determine mortgage
affordability is called the debt ratio and is computed by
adding your housing expense to any monthly recurring debts,
which you may have. If in the above example, in addition to
the monthly housing expense of $866.93, you also had a car
loan of $200 a month, a student loan of $50.00 a month and
minimum charge card payments of $60, your debt ratio would
be calculated as follows:
$866.93
$200.00
$ 50.00
$ 60.00
------------------
$1176.93 Total Debt Expense
$1176.93/$5,000 = 23.54%
The ratios for the above example would be 17.34 and 23.54.
The industry standards for a housing ratio are 28% and for a
debt ratio is 36%. At Double Tree Mortgage, we use the
industry standards as a guide, but in reality we have approved
loans with ratios much higher than 28/36.
Verifying your source of Down
Payment
You can purchase a property with as little as 1-3% down
payment. Your down payment cannot be unsecured borrowing.
Examples of acceptable forms of down payment include cash in
a bank account, mutual funds, stocks, proceeds from the sale
of another property, IRA/401K or gift from an immediate
relative.
When you come in for your application you will be asked to
bring in copies of your most recent bank statements or
account records in order to verify that the down payment
funds are available. The statements must indicate that the
funds have been in the account or another acceptable form of
account for at least 3 months.
Analyzing your credit
We order your credit report once you have completed an application
and authorized us to. If you are married, and your spouse is also
applying on the loan application, we will order a joint
credit report. In a joint credit report, any accounts held
individually by each spouse will be reported in separate
individual account records, while credit held jointly will
be reported in a joint record.
When analyzing credit, particular attention is paid to the
most recent 24-month period. More weight will be placed on
recent derogatory credit, especially late payments on either
existing mortgage or installment loan debt. If you have had a past bankruptcy, you should be
prepared to document the reasons for the bankruptcy and also
be able to provide discharge papers. You must have
re-established credit for the most recent 24-month
period. At Double Tree, we have specialists for dealing with
clients with a past bankruptcy on their credit and our
specialists have an extremely high loan closing rate. So if
you have a past bankruptcy in your file don't let it
discourage you.
In addition to past credit history, Lenders have been paying
particular attention to the credit score assigned to your
credit record. Credit scores are snapshots that objectively
assess your credit history and current usage at a given
point in time. Each credit score is a reflection of the
unique set of data on your credit file. The credit score
measures the relative degree of risk that your credit
profile presents.
Determining the property’s value
Since the only collateral for the mortgage loan is the
property itself, it is very important that during the
approval processes the value of the property is determined.
An appraiser is an individual who is hired to inspect the
property and compare property values in the neighborhood to
determine the value of the property. This process is called
appraising the property.
When purchasing a property, you should be aware of the
values of the homes in the immediate neighborhood. Much of
the property’s value is based not only on its condition, but
also on the properties selling in the neighborhood in the
past 6 months. Beware of properties selling at a purchase
price extremely higher than neighboring properties. This
could create a problem when determining the actual appraised
value of the property.
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