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Ebook by Angelo Christian

 

Table Of Contents

Chapter 1 ~ Real Estate Market

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p<>{color:#000;}. What is the Procedure to Purchase a Home?

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p<>{color:#000;}. What Role Does the Realtor Play

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p<>{color:#000;}. FSBO?

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p<>{color:#000;}. New Construction or Existing?

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p<>{color:#000;}. Why Foreclosures?

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p<>{color:#000;}. What Role Does the Loan Officer Play?

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p<>{color:#000;}. What Do Title Companies Do?

Chapter 2 ~ Home Loan Products

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p<>{color:#000;}. FHA loans

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p<>{color:#000;}. 15 or 30 Year?

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p<>{color:#000;}. Fixed or ARM?

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p<>{color:#000;}. Reverse Mortgages

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p<>{color:#000;}. 184 Indian Loans

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p<>{color:#000;}. VA Loans

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p<>{color:#000;}. USDA Loans

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p<>{color:#000;}. Conventional Loans 

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p<>{color:#000;}. PMI

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p<>{color:#000;}. First Time Buyer Programs and Grants

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p<>{color:#000;}. Tax Credits

Chapter 3 ~ Real Estate Scams to Avoid

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p<>{color:#000;}. Gimmicks and Scams in the Business

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p<>{color:#000;}. Lease Purchase with Wrap Program

Chapter 4 ~ How Lenders Make Money

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p<>{color:#000;}. Portfolio Loans

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p<>{color:#000;}. Private Money

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p<>{color:#000;}. Hard Money

Chapter 5 ~ Selecting the Right Company to do Business With

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p<>{color:#000;}. Different Types of Lenders

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p<>{color:#000;}. Banks

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p<>{color:#000;}. Credit Unions

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p<>{color:#000;}. Mortgage Lenders

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p<>{color:#000;}. Mortgage Brokers

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p<>{color:#000;}. Loan Servicing

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p<>{color:#000;}. Lender Default Rate

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p<>{color:#000;}. Regulatory Accolades

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p<>{color:#000;}. Agency Approvals

Chapter 6 ~ The Home Loan Process

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p<>{color:#000;}. Loan Officer Originates Loan following Methodology-

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p<>{color:#000;}. Loan Officer Job Duties

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p<>{color:#000;}. Contract IN

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p<>{color:#000;}. LOA Job Duties

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p<>{color:#000;}. Processing Job Duties

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p<>{color:#000;}. Underwriting

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p<>{color:#000;}. Closing

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p<>{color:#000;}. Life After Closing

Chapter 1 ~ The Real Estate Market

What is the Procedure to Purchase a Home

Here is the process you will go through in order to secure a home loan.

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p<>{color:#000;}. First you will need to complete and a loan application. Your lender can help you fill it out.

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p<>{color:#000;}. After the application has been prepared, ask your lender for a pre-approval letter. This letter confirms the amount you are approved for to purchase a home.

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p<>{color:#000;}. Next you loan has to be processed. You will need to submit financial documents to the lender for it to be processed. At this time, the property is also appraised to find the fair market value of the home.

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p<>{color:#000;}. Now you need to get approval for your loan. The lender will review the application, your financial papers, and make a decision. If you are declined, they can give you recommendations to obtain financing.

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p<>{color:#000;}. Before closing, your home mortgage consultant will help you secure all required paperwork. This could include title insurance and other real estate documents that protect you against others claiming that the property is theirs.

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p<>{color:#000;}. A date and time will be set for all papers to be signed, and payments to be made to complete the purchase.

What Role Does the Realtor Play?

The role the realtor plays in your purchasing a home depends on what relationship you have with that realtor. There are seller’s realtors and there are buyer’s realtors. The seller’s realtors are duty bound to help the seller. Whereas the buyer’s realtors are duty bound to help buyers. As a purchaser, you would want to have a contract with a buyer’s realtor.

This is a legal association between the buyer realtor and yourself. The buyer realtor will represent you better than if you speak with the seller’s realtor. The seller’s realtor is really looking out for the sellers’ best interest, whereas the buyer’s realtor will look out for your best interest as the buyer.

It is beneficial for someone selling a house to get a realtor, as it will save them time and money. The realtor will meet with potential buyers and handle all negotiations. They also will handle all advertising and open houses. Make sure that you understand any contract that you would sign with the realtor.

The realtor for the seller will provide many forms needed to sell the home. One of those forms is a disclosure statement about the house. This form tells potential buyers information about the home to help them make a decision. For instance, when the roof was replaced, how old the appliances are, and if they have had any plumbing issues. If this form is not properly filled out, it is considered fraud, and the buyer can sue for fraud.

Another form the realtor will supply is the agreement of sale. This form will detail the terms of the agreement, the parties involved, price, and plans for payment, such as down payment, in terror and payments, closing payment, and any amount the seller may finance. This form will comply with all the legal requirements of the state and is enforceable.

FSBO

FSBO means For Sale By Owner. This is the process of selling a home without having a real estate agent. There are many things to consider before going this route.

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p<>{color:#000;}. Will I set the price correctly?

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p<>{color:#000;}. Am I able to prepare the documents?

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p<>{color:#000;}. Will I have time to do this?

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p<>{color:#000;}. How will I know what laws I need to meet?

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p<>{color:#000;}. Should I hire a lawyer?

These are many of the questions that you’ll ask if you are considering selling your home without a realtor. The upside to selling it yourself is that you do not have to pay a realtor’s commission, which can be 5 or 6% of the sale price.

However, you can use a flat fee listing service. For a minimal fee they will place your property on the multiple listing service to market your property to agents in the area and nationwide on MLS realtor.com. When you greeted this, you also agree to pay a commission to the agent that brings the buyer. The fee is about half of what it would be had you hired a realtor to do it all.

There are also real estate agents that will accept a flat fee or an hourly fee. This allows homeowner to avoid the commission and still receive help from an agent.

New Construction or Existing?

Should you purchase an existing home, or one that has just been built? There are benefits on both sides. You need to look at the pros and cons of each and decide which makes more sense for you and your family.

Benefits of a new home are many. You could go for a custom-built home and work with the contractor for the layout of your dreams. New appliances are energy efficient. Additionally, new windows and insulation enclose the home efficiently in a less expensive to cool or heat than older model homes. That means your energy bills will be lower.

New smart technology will allow you to automate your cable, alarm, Internet, and speakers. Additionally, new homes with new building materials can improve the quality of air inside.

You will also find that your new home would require less maintenance because everything is new. Warranties can cover you in your new home for years before you need to worry about major repairs.

On the other hand, new construction typically is on a smaller lot with a little outdoor yard. It may also mean a longer commute to get to work. The landscaping can take years to get to maturity. Your home may look like all of your neighbors, with no individuality. But if you are building a custom home, in an area you like, it can take five or six months longer than just purchasing.

Existing homes give you many options that you will have to decide on. Do you want to live in the city or the suburbs? Do you have children who need a park that you would find in the suburbs? Or is there only two of you with no plans of children that prefer being close to your jobs?

If you live close to job, you might not have to have two cars. You might be able to walk or take a bus if preferred to get to work. Unless of course you are in New York City, then plan on taking a cab. But if you do have to drive consider your commute time. Is this something you wanted to every day until you retire?

What about shopping? If you live in the country how often we have to come into town to buy groceries or other items? Is this something you would enjoy or would it really stick in your craw?

How safe is the neighborhood that you are looking at houses in? Would you feel safe walking around the block at night? What about the dog? Would you feel safe walking your dog?

These are many of the questions that you need to ask yourself, before determining if you want to live in the city or the country or somewhere in between such as a suburb. Once you’ve answered these questions, you should have a better idea as to where you want to live.

Why Foreclosures?

Here too, there are pros and cons to making a purchase of a foreclosed home.

First and foremost, do not consider buying property through an auction of foreclosures. There are too many risks. You are not able to look at the home, or see if there’s any liens or taxes owed. Additionally there could be expensive repairs needed, or creditors lined up for money. You will be required to pay in cash. Additionally if the owner is still living in the home, you have to evict them, and hope they don’t vandalize the place.

The better way to do it is to look for homes owned by the bank or that are real estate owned. The bank would have to pay off back taxes, you’ll be able to inspect the home, and see if any repairs are needed. There are real estate agents who specialize in foreclosures, and it is advised that you connect with one of them. Before house hunting, it is better to get a letter of prequalification.

The appraisal of a house that is then foreclosed will typically be lower than neighboring homes. That’s usually because of neglect or vandalism. Don’t forget to consider cost of repairs because foreclosures are usually sold as is.

What Role Does the Loan Officer Play?

The loan officer is the contact between the lender and the borrower. He or she does the research and reviews the applicant’s financial history to see if they qualify for a mortgage. This person must be registered and follow strict federal and state laws. If you have previous credit or debt issues, the loan officer might have ways to help you improve your chances of being approved. He or she will also help you fill out paperwork and answer all your questions. If you are declined, the officer will help you see why, and recommend ways for you to improve your odds for next time.

What Do Title Companies Do?

A title company ensures that the requirements for a real estate transaction are completed satisfactorily. The company coordinates all parties, which includes lenders, real estate agents, sellers, and buyers. A check for accuracy and completeness, which includes the following items.

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p<>{color:#000;}. The abstract of the title – the history of the property and ownership.

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p<>{color:#000;}. The survey– this is usually required by the lender, and given to the buyer at time of settling.

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p<>{color:#000;}. Verification of property taxes – the title company verifies taxes have been paid.

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p<>{color:#000;}. Issuance of title insurance policy – they issue both owner’s and lender’s coverage.

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p<>{color:#000;}. Closing documents – the title company reviews all documents for requirements of closing. They also prepare documents necessary to comply with state and federal laws.

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p<>{color:#000;}. The title company explains all documents to all parties before signing. After closing may disperse any money that was collected at settlement and pay all vendors. They also prepare the loan documents that will be sent to the lender.

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p<>{color:#000;}. Finally, the title company will make sure all documents, such as the mortgage and deed, are properly recorded.

Chapter 2 ~ Home Loan Products

FHA Loans

FHA loans are insured against loss by the Federal housing administration, and are funded by private lenders. They are available to current homeowners and people needing financing to purchase a home. FHA loans are an affordable alternative to conventional loans, which normally require larger down payments and have a stricter criteria for qualifying. The loans are offered at a fixed rate over 30 year period FHA loans are typically used by first-time homeowners.

15 or 30 year?

Should you get a 15-year mortgage or a 30-year mortgage? They both have pros and cons. The 30-year mortgage is what our parents and grandparents got when they bought their homes. It is as common as apple pie. The 15-year mortgage is less popular and the difference being terms. By getting the 15-year mortgage, you will have higher monthly payments than if you get the 30-year mortgage. Surprisingly, the shorter 15-year mortgage is actually cheaper than the 30-year mortgage.

The purchaser pays on the outstanding balance. The monthly payment and the interest rate are both fixed. Over time interest and principal change. At the beginning, most of the buyers payment goes on interest because the loan is so high. As the balance reduces fish interest declines and the payment starts going towards the principal.

The balance reduces more slowly in a 30 year loan, then in a 15 year loan. Additionally, it is less costly for bank to make a shorter-term loan than a longer-term love. Therefore, the buyer pays lower interest on the shorter loan. Not to mention, Fannie Mae and Freddie Mac both charge price adjustments to purchasers with low credit scores or that put less money.

The major difference, is the monthly payment. You can have a payment on a 15 year loan of $2000 versus a $1000 payment for 30 year loan. Therefore, if you can afford it, you save money by getting shorter loan.

Fixed or ARM?

A fixed rate keeps your interest set throughout the time of the loan. An adjustable rate mortgage (ARM) means the interest may go up or down. Typically, the ARMs start slow and raise later. Most ARMs are limited to how much they can be adjusted up or down.

When looking at an adjustable rate mortgage, there are items you need to consider:

a) How high each adjustment could go.

b) How frequently the adjustments might be.

c) How soon the adjustment might happen.

d) If a cap has been set, how high can it go?

e) If a cap has been set, how low can it go?

Note: Things happen. You may be unable to refinance or sell your home before the rate changes. Additionally, the property value could decline or your finances could change. If the higher payment seems too high with what you make today, you should consider another loan.

Reverse Mortgages

A reverse mortgage is a special loan where you can convert a portion of your equity in your home into cash. Unlike traditional loans the borrower does not have to repay the loan until they no longer use the home or they fail to meet the conditions of the mortgage.

The Home Equity Conversion Mortgage (HECM) is the reverse mortgage program put out by FHA. This plan gives older Americans financial security. Seniors can use it to supplement their income, meet medical payments, make home improvements, etc. For more information you can contact the national Council on aging at 1 – 800 – 510 – 0301.

To be eligible for this loan you must be a homeowner of 62 years of age or older, own your own home, have a low balance on your mortgage that can be paid off at closing with proceeds from the reverse mortgage, or have the financial resources to pay ongoing property charges which include insurance and taxes, and you must live in the home. You are also required to meet with the HECM counselor prior to receiving the loan. You can find them online or call 1 – 800 – 569 – 4287.

Homes that are eligible are single-family homes, 2 – 4 unit homes with one unit occupied by the borrower, HUD – approved condominiums and manufactured homes that meet FHA requirements.

The difference between a reverse mortgage and home equity loan is that on ahead home equity loan you must make payments monthly on the interest and principal. On the other hand, a reverse mortgage pays you – you are only required to pay real estate taxes, utilities, and flood and hazard insurance.

184 Indian Loans

The 184 Indian loans are a guaranteed program for a home mortgage specifically designed for Alaska native of families, Alaska villages, tribes, tribally designated housing entities, and for American Indians. Established in 1992, it facilitates homeownership in Native American communities.

With this program, borrowers can get into a home with a low down payment and underwriting that is flexible. These loans can be used on or off native lands, for rehabilitation, purchase of an existing home, new construction, or refinancing.

In HUD’s office of native American programs, the Office of Loan Guarantees will guarantee the loan made to native borrowers. This office assures the lender that its investment will be paid in full if there is a foreclosure. The borrower applies for section 184 loan with a lender that is participating in this program and if it is on tribal land, works with the tribe and Bureau of Indian affairs. The lender then evaluates the necessary documentation and submits it for approval to HUD and the Office of Loan Guarantee.

These loans are limited to single family housing and fixed-rate loans for 30 years or less. Additionally, the applications must go through a HUD-approved Section 184 lender.

Note: Native Hawaiians are also eligible for homeownership loans through the Section 184 a program.

VA Loans

Eligibility Requirements

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p<>{color:#000;}. Served 181 days Active Duty during peacetime

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p<>{color:#000;}. Served 90 days Active Duty during wartime

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p<>{color:#000;}. Served six years in the National Guard or reserves

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p<>{color:#000;}. You are the spouse of a service member who was killed in the line of duty and you have not remarried

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p<>{color:#000;}. You were not dishonorably discharged

The first thing to do is get pre-qualified for your VA loan before you start searching for the house. Then you will know how much you are qualified for, making your search for a house more efficient as you won’t be looking at houses you can’t purchase. It is best if you work with someone that is familiar with the VA loans.

To qualify for VA loan most creditors require that you have a credit score minimum of 620. There will also be a minimum residual income requirement depending upon your family size and location. Your employment is looked at, and while there may be extenuating circumstances, the preference is two or more consecutive years in one position. If you’ve had a bankruptcy, you may have to wait. VA requires that you wait 2 years after a Chapter 7 bankruptcy one year from a Chapter 13. Once you’ve passed all this, then you will want to get a Certificate of Eligibility.

The VA Loan Offers

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p<>{color:#000;}. Low interest rates

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p<>{color:#000;}. Minimal credit qualifications

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p<>{color:#000;}. A mortgage with no down payment

The VA Refinance Benefits

You have two different VA refinancing programs available – the Cashout Refinance, and the Streamline Refinance. The Streamline version is for those that already have VA loans and want to lower their rates. The Cashout version is for those homeowners who want to cash out using the equity in their home, to consolidate mortgages, pay off debts, or transition into a VA loan.

The VA Streamline Benefits

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p<>{color:#000;}. No cost out-of-pocket

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p<>{color:#000;}. Lower interest rates

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p<>{color:#000;}. No required appraisals

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p<>{color:#000;}. No verification of income needed to qualify.

VA Cashout Benefits

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p<>{color:#000;}. Financing 100%

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p<>{color:#000;}. Use the cash to pay off your debts

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p<>{color:#000;}. Mortgage at a fixed rate

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p<>{color:#000;}. Closing costs not out-of-pocket

Again, your best bet if you’re interested in a VA loan is to find a loan officer that is well versed in VA loans.

USDA Loans

The USDA Loan is properly called The USDA Rural Development Guaranteed Housing Loan. For the suburban and rural home buyers that are eligible, it is a loan that is a 100% no money down mortgage backed by the US Department of Agriculture (USDA).

Eligibility

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p<>{color:#000;}. There are certain guidelines on household income that you must meet.

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p<>{color:#000;}. The home you want to purchase must be located in an eligible rural area as defined by the USDA.

Utilizing the USDA loans, buyers are able to finance 100% of the home’s purchase price. There’s no down payment. You will be required to take a fixed rate loan. You can be a first time buyer or a previous homeowner. These loans also require mortgage insurance that is added into your mortgage. When mortgage rates fall, your loan is eligible for refinancing.

Conventional Loans

Conventional Loans have low costs, great rates, and flexibility in home buying. They are the mortgage option chosen by 60% of all applicants. They are also known as Conforming Loans, as they conform to Fannie Mae and Freddie Mac standards.

The Conventional Loan Program

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p<>{color:#000;}. This gives you the option to buy a primary, secondary or rental property.

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p<>{color:#000;}. They are available in adjustable rates, fixed rates, and various loan terms from 10 to 30 years.

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p<>{color:#000;}. The down payments can be as low as 3%.

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p<>{color:#000;}. If you have a 20% down payment, no monthly mortgage insurance would be required.

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p<>{color:#000;}. The mortgage insurance is lower in cost than FHA.

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p<>{color:#000;}. You can cancel your mortgage insurance when your equity reaches 20%.

PMI

PMI stands for Private Mortgage Insurance. It is required when you place less than 20% down on a conventional loan. If you have good credit, it can cost less with a conventional loan then within FHA loan. PMI insurance is risk-based, which means the better your credit, the lower your premiums. Rates can vary so make sure you shop around.

First Time Buyer Programs and Grants

There are many First Time Buyer Programs and Grants. You can find really good information at the HUD.gov website. Here is what they suggest you do.

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p<>{color:#000;}. Calculate what you can afford.

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p<>{color:#000;}. Know your rights. You can check on Fair Housing, Real Estate Settlement Procedures Act, Borrowers Rights, and predatory lending.

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p<>{color:#000;}. Shop for a loan. Shop, compare, and negotiate for the best deal on mortgages; check out FHA, and look into interest only loans.

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p<>{color:#000;}. Check out home buying programs. Your state may have home buying programs that you can qualify for. HUD also has special programs, including the Good Neighbor Next Door Program, which is for teachers, police officers, and firefighters. There are also special interest loans for Indians and native Hawaiians.

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p<>{color:#000;}. Shop around. What features are you looking for? Don’t forget to check out HUD homes, fixer-upper’s, and mobile homes.

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p<>{color:#000;}. Make an offer.

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p<>{color:#000;}. Have the home inspected.

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p<>{color:#000;}. Shop around for insurance on the home.

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p<>{color:#000;}. Sign papers. Prepare to close.

First-time buyers can check out the following programs. FHA, VA, USDA, the HUD Dollar Home Program, Fannie Mae, Freddie Mac, and the Good Neighbor Next Door program, which is for teachers, law enforcement, emergency medical technicians, and firefighters. Additionally you should check and see if your state has any programs specific to the state you live in.

Grants

Each year HUD awards billions of dollars to state and local agencies to help families get into homes. However, you have to know what state or agency handles them. Each state is different. One block grant is called the Home Investment Partnership Program. To find out more about this program do an Internet search in your state or check with your local bank.

Another search to do would be on state Housing Finance Agencies (HFA). They can provide free counseling to let you know what is available and what you might qualify for. Additionally you should check in your city to see if they have any programs.

Other programs to check out would be Down Payment Assistance Programs, Mortgage Credit Certificate Tax Credit Program, the Home Investment Partnerships Program, and Home Buying Assistance from Nonprofit Organizations.

Tax Credits

While these tax credits all look great, keep in mind that laws change from year to year. Do your due diligence and make sure the credit you want to use is still available before you make a major decision based on one or more of these credits.

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p<>{color:#000;}. The Mortgage Credit Certification Program – is for lower income buyers to help them afford to buy a home. This credit goes against what you owe in taxes and lowers the amount. This federal credit is offered at state and local levels so it can vary in the different states. It offers from 20 to 30 percent of the interest the buyer paid on their mortgage back to them as a credit on their taxes. To qualify, you need to get the Mortgage Credit Certificate from your local or state government when you make your purchase. This certificate qualifies you to receive credit each year using IRS Form 8396 for the entire time you pay on your mortgage.

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p<>{color:#000;}. The Deduction for the Mortgage Payment Interest – is especially helpful to buyers with a new mortgage. You should receive a Form 1040 from your loan provider at the end of the year, and then file an itemized return.

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p<>{color:#000;}. Tax Free IRA Withdrawals – is for those under 59 ½. First time buyers should consider using their IRA funds for the down payment or other costs. As a first time buyer you are not charged the 10 percent penalty for withdrawing before the age of 59 ½. Current homebuyers that have homes before may also qualify if they have not purchased a home in the last two years.

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p<>{color:#000;}. Deduction for Mortgage Points – the prepaid interest on your mortgage also qualifies the buyer for a lower interest rate for the time of the loan. Buying points to lower your interest rate is a great tax break. You get a double return on your investment – you can deduct the amount paid in interest in the same year as the home purchase and deduct the cost of the points.

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p<>{color:#000;}. Home Improvements – can help you qualify for deductions. If you use a loan secured by your home to pay for the financing of home improvements, these loans help you qualify the same as with your main mortgage on mortgage interest deductions. Keeping track of your home improvements can help when it comes time to sell as you can include the cost of any improvements made to the property when determining capital losses and gains on the sale. If you sell your home for more than you paid for it, the difference is considered to be taxable. However, yu can lessen that liability by writing off the costs of the home improvements you made. Keep your receipts so you can prove your claims.

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p<>{color:#000;}. Real Estate Tax Deduction – is for home owners who itemize their deductions on Schedule A. You are eligible to deduct your taxes for real estate on your primary and secondary residences. These are taxes you have paid for the year you are filing.

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p<>{color:#000;}. Private Mortgage Insurance Deductions – are deductions you can take against the insurance you are required to have.

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p<>{color:#000;}. Home Energy Tax Credits – these can be taken when you make energy efficiency improvements. This credit applies to that uses energy such as solar panels, geothermal heat pumps, wind turbines, and fuel cells. Using Form 5695, you can apply for this 30 percent credit on cost of the improvement, including installation and labor.

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p<>{color:#000;}. Home Office Deduction – this can be taken when you work from home. This can include such expenses as insurance, repairs, mortgage interest, and utilities, based on the percent of your home that you used to do your business. Make sure you meet the requirements for taking this deduction.

Chapter 3 ~ Real Estate Scams to Avoid

Gimmicks and Scams in the Business

Homeowners facing foreclosure are vulnerable to real estate scams such as phony loan auditing, bait and switch ploys, fake foreclosure counseling, fraudulent government notification programs, and leaseback programs. Many of the scams start with a phone call promising the homeowner help in their foreclosure related issues. Most of these scams ask for an upfront fee, which is your red flag.

Workshop scams are prevalent with the Internet. You sign up for an educational seminar that may cost little or no money up front. Then at the seminar, the pitch continues, and you are told to sign up for the advanced course, which can cost thousands of dollars. What you get in return is not worth the hard-earned money you put out. Not to mention you signed a release that you would not hold the scammer liable…

Rent to own tends to attract inexperienced, first time homebuyers. Because of this, there are many rent to own scam artists out there hoping to lure naive renters into their trap. It can be difficult to identify them, since the industry isn’t subject to much inspection. No worries though, we’ll go over the most common characteristics of an rent to own scam so you’ll know what to watch out for.

Lease Purchase Scams

1. Your Agreement Sounds Too Good to be True

Rent to own scam artists attract their prey by promising them far-fetched rewards. They’ll make claims to give you financing with no money down, inconceivably low rent prices, and other misleading offers. It is always a good idea to question your seller’s authenticity, especially if prices are ridiculously low or if the agreement appears to lean drastically in your favor.

2. You’re Skeptical About the Seller

It’s critical that you perform a background check on both the landlord/company and the property before signing. Many rent to own scam artists pretend to list homes online when they don’t even own the property. By performing a thorough background check, you can ensure the seller or company hasn’t committed fraud transactions or embezzlement in the past.

Likewise, you should investigate the property to find out if stable mortgage payments are being made or if there are tax claims on the house. Some rent to own scam artists will list houses on the market that are subject to foreclosure, so be careful. You can contact a local tax assessor to make sure all the listing is legitimate.

 

 

3. Prices Are Unreasonably Overpriced

Many rent to own scam artists will list their property at exceedingly high prices. They to this to take advantage of those who desperately want a house but cannot secure a mortgage. You should always confirm if the listing price of the home and the monthly rent price are close to market value. You can do this by contacting a mortgage lender.

In addition, many rent to own scam artists will deliberately seek tenants who they know cannot afford the house. These scammers hope to steal their option money and rent credit when the lease expires. These sellers don’t even aim to sell their home and will repeat this process as long as ill-prepared tenants fall for it.

4. Lease Contract Wording is Ambiguous

It is optimal to hire a lawyer to check for discrepancies in the contract. This can help to interpret difficult legal terms and conditions. For example, it’s common for sellers to void the rent credit and option fee if you are late on just one payment. If you are unaware of this before you sign the contract, you could lose a lot of money towards the purchase of your home.

5. Seller Demands Additional Fees From You

While scoping out potential homes, be wary if a seller asks you for an application fee to view the property. It’s more common than you might think for scammers to post listings for nonexistent houses in order to collect money from inexperienced buyers.

Also look out for mortgage lenders who expect you to follow strict conditions, such as pay extremely high interest rates on your mortgage. Consult several different options before entering the transaction to ensure you receive the best rates out there.

Chapter 4 ~ How Lenders Make Money

Potential homeowners can save themselves a lot by educating themselves on how mortgage lenders make money.

1) Lenders typically use their own money to extend mortgages and charge an origination fee of .5% to 1% of the loan value which is payable with the mortgage payments. This fee increases the total cost of the home, causing the homeowner to pay an increased interest rate.

2) Discount points are part of the loan and maybe do a closing to lower the mortgage interest rate. 1% of the mortgage is equal to one discount point. By paying the points upfront, it can typically lower the loan payments each month, saving the homeowner money. New homebuyers should have their lender explain how their interest rate on the mortgage would be impacted by paying the discount points.

3) The Yield Spread Premium – lenders use depositor’s funds or borrow from banks at lower interest rates to extend loans. The interest rate difference between what the lender charges the homeowners and what he pays for replacing what he borrowed is called the Yield Spread Premium (YSP).

4) Mortgage-Backed Securities (MBS) – are mortgages that are grouped together is sold for profit by the lender. This gives the lender the opportunity to free up money to extend other mortgages and earn more. Typically, institutional investors will purchase the MBS for income long-term.

5) Closing costs – the lender charges processing fees, underwriting fees, application fees, loan lock fees, to name a few, in addition to the loan origination fee. These closing costs vary by lender; and are explained in the Good Faith Estimate upfront. This is a time for buyer to beware. The buyer should read the list of fees and discuss whether any of them are negotiable, or consider doing business with the different lender.

6) Loan Servicing is a means for lenders to continue earning on the MBS they sell. If the purchasers of the MBS are unable to process payments or and or handle administrative tasks, the lenders may perform these duties for a small percent of the mortgage value or a set fee.

Portfolio Loans are held onto and serviced by the lender that issued the money. This is beneficial to the homeowner as you can keep your relationship with lender that you originally worked with. Lenders typically keep those mortgages goods credit scores in their portfolio because it lowers the amount of risk in the portfolio.

Private Money – an individual or company that loans money is considered to be a private money lender. It is typically secured by a note and deed of trust. These can be found in a number of places. For example, family, friends, neighbors, and coworkers are considered to be your primary circle for private money. Your secondary circle would be associates of your primary circle. Your third-party circle would be people found through advertising, accredited investors, people found through networking, and strangers.

Hard Money (HMLs) – this type loan is an asset-based loan where the funds are secured by real property rather than your credit score. They are typically issued by companies or private investors and cost more than an average mortgage. They also have high origination fees. These hard money loans cut through red tape. HML’s are good for short-term flips, for the initial purchase, or rehabs.

Chapter 5 ~ Selecting the Right Company to do Business With

Different Types of Lenders – some of the different types of lenders are still lenders, correspondent lenders, retail lenders, mortgage brokers, and portfolio lenders.

1) Mortgage lenders make the loan and provide the money used by it or to refinance it.

2) Mortgage brokers work with multiple lenders to find the one that will offer you the best rate. They are only the intermediary.

3) Wholesale lenders are institutions or bank that offer loans through third parties such as mortgage brokers, other banks, and credit unions. In most cases, the third party is receiving a fee for being the agent.

4) Retail lenders are those who issue mortgages directly to consumers. They may use their own money or be an agent.

5) Mortgage bankers don’t lend their own money, but borrow funds to cover the mortgages they issue. Typically, they would then sell to investors through Fannie Mae and Freddie Mac allowing those agencies to set the minimum underwriting standards.

6) Portfolio lenders use their own money when making loans. They are able to set their own terms.

7) Hard money lenders is a last resort option. Interest rates tend to be quite high and down payments could be 30% or more. Because of that, they are typically used for short-term loans.

8) A direct lender is one that or originates his own loans with his own funds or borrowed funds. They do not involve third parties in making loans.

9) Correspondent lenders are defined by what happens after the loan is issued. They work with an investor who purchases mortgages meeting certain criteria. Frequently this is Freddie Mac or Fannie Mae. They earn their money by collecting when the mortgage is issued a point or two.

Banks are great for you to use, if your credit is good. However if you are having trouble qualifying with your bank you may need to use a mortgage broker.

*
p<>{color:#000;}. Pros of working directly with bank are

*
p<>{color:#000;}. Existing relationship

*
p<>{color:#000;}. You already know the banker

*
p<>{color:#000;}. Is considered more trustworthy

*
p<>{color:#000;}. Possible lower interest rates

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p<>{color:#000;}. Ability to add mortgage to existing banking profile and make automatic payments.

 

 

Credit Unions – here are three reasons to use a credit union for your mortgage.

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p<>{color:#000;}. They may have lower fees.

*
p<>{color:#000;}. They are considered to have better customer service.

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p<>{color:#000;}. They are more likely to give a loan to someone with less than perfect credit.

Mortgage Lenders

When looking for a Mortgage Lender, do your due diligence. Compare rates. Ask questions about fees, communications from them, and requirements. Read the fine print. Additionally, check out the category that fits you best:

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p<>{color:#000;}. The best mortgage lender for you to refinance with

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p<>{color:#000;}. The best mortgage lender for you if you do not have good credit

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p<>{color:#000;}. The best mortgage lender for you if you are using someone online

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p<>{color:#000;}. The best mortgage lender for you if you want to work face-to-face with them

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p<>{color:#000;}. The best mortgage lender for you if you are a first-time buyer.

Mortgage Brokers

Pros of working with mortgage broker are

*
p<>{color:#000;}. They do the legwork

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p<>{color:#000;}. They compare rates

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p<>{color:#000;}. Their interest rates can be lower than bank rates

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p<>{color:#000;}. You get more options because they work with numerous lenders

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p<>{color:#000;}. They are less bureaucratic and typically easier to connect with.

Loan Servicing

Loan servicing is the means by which a bank or serving company collects the escrow, interest, and principal payments from the one that borrowed the money and administrates the dispersal of said funds. This service also covers maintaining records of balances and payments, collecting of insurance, taxes, and payment of same, and following up on delinquencies.

Lender Default Rate

The Lender Default Rate is the rate of the borrowers who fail to stay current on their loans. This information is critical to lenders.

 

 

 

 

 

Agency Approvals

What is an FHA Loan?

The Federal Housing Administration (FHA) is a United States government agency created in part of the National Housing Act of 1934. It sets standards for construction, underwriting, and insures loans made by banks and other private lenders for home building.

 

What is a VA Loan?

VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders. The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry).

 

What is a USDA Loan?

USDA home loan from the USDA loan program, also known as the USDA Rural Development Guaranteed Housing Loan Program, is a mortgage loan offered to rural property owners by the United States Department of Agriculture.

 

What is a Conventional Loan?

conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), the Farmers Home Administration (FmHA) and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate.

 

Mortgage Regulators-Who is Watching?

 

 

Mortgage and Lender Complaints
Federal and State Regulatory Agencies

If you are unable to resolve your complaint -You may want to contact the appropriate federal or state regulators and enforcement authorities. Depending upon their authority under applicable state or federal law, regulators may either attempt to help you resolve your complaint or record your complaint and recommend other action.

 

National Banks

Office of the Comptroller of the Currency (OCC)
OCC handles complaints and regulates National Banks (which usually have “National” in their names or “N.A.” after their names).[
**]

State Member Banks of the Federal Reserve System

The Federal Reserve Board
The Fed handles complaints and regulates state-chartered banks and trusts. It also administers the Truth-in-

 

 

Federally Insured Non-Member State-Chartered Banks and Savings Banks

Federal Deposit Insurance Corporation (FDIC)
FDIC handles questions about deposit insurance coverage and complaints about FDIC-insured state banks that are not members of the Federal Reserve System.[
**]

Federally Insured Savings and Loan Institutions and Federally Chartered Savings Banks

Office of Thrift Supervision (OTS)
OTS handles complaints about federal savings and loans and federal savings banks.

Federal Credit Unions

National Credit Union Administration (NCUA)
The NCUA is the regulator for federal credit unions.

State-Chartered Credit Unions

If your complaint is with a state-chartered credit union, you should contact the appropriate state regulatory agency for its credit unions.

Mortgage Companies and Other Lenders

Federal Trade Commission (FTC)
The FTC handles complaints involving credit reporting agencies or lenders other than credit unions, banks or savings and loans.[
__]

Entities in the Farm Credit System

Farm Credit Administration (FCA)
FCA regulates banks, associations, and related entities that comprise the Farm Credit System, including the Federal Agricultural Mortgage Corporation (Farmer Mac).

Housing Discrimination, Land Sales, or Manufactured (Mobile) Homes

Department of Housing and Urban Development (HUD)
HUD handles complaints involving housing discrimination; fraud and abuse when buying or leasing land from developers; and the construction of manufactured (mobile) homes. 

State Agencies / Regulators

You may also contact your state’s consumer protection offices, banking authorities, and offices of the attorney general to complain against lenders doing business in your state.

 

 

 

 

 

Home Loan Process

Loan Officer Originates Loan Following Methodology-

Originates loans from power base, realtors flyer or Lead referral using final outcome within 10 days and aggressive lead management in all major statuses in velocify especially app-ending, and pre-approved.

Loan Officer is not allowed to pull credit or issue approvals on their own, unless released to do so. Must get permission to pull credit and cannot pull credit in funding suite, only encompass.

Extremely Critical to follow the TOP Producer Schedule and have Active Management with customer through whole process especially with realtors and builders.

Loan Officer Job Duties

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p<>{color:#000;}. Properly Pre-Qualify Borrower

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p<>{color:#000;}. Submit Clean Quality Loans into processing that can close

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p<>{color:#000;}. Discuss loan terms and lock rates

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p<>{color:#000;}. Originate Business like a Maniac

Pre-Approval Letter Issued (not a commitment to lend or final approval all rates subject to market and not final until locked and loan has funded)

Once pre-approved you request e-consent, any pending docs (follow scrub and red-light checklist) are gathered and put in folder and ALL Docs must be in the file prior to going under contract.

If doing a rescore that must be completed prior to contract. There are no guarantees on the outcome of a rescore.

If you know the customer is putting an offer in, check the file to make sure it’s complete before they put in offer and make sure offer has correct days for close and concessions.

When someone goes under contract, they are signing a binding agreement to purchase a real estate asset; they put up earnest money and option money to take the house off the market. Earnest money is a good faith deposit and option money gives the buyer the right to secure financing and order inspection on the home within a specified amount of time. Earnest money and option money are not set rates but vary and generally a negotiation. Option and earnest money are credited to the buyer’s cash to close. If buyer reneges from home purchase prior to option expiration, he only forgoes his option money. If buyer reneges after option expiration then he loses all the money he put up unless there is a problem with the property.

It’s very important that you close on time so the buyer does not lose the money-- In order to close on time you must fulfill submission, verified funds for close, realistic close date on contract.

Contract IN

Once contract comes in LO and LOA; have three working days to sub-loan to processing. LOA is assigned to you they are not your employee but there as a team member to help the company and customer get the loan closed ahead of schedule. It’s very important that you meet with your LOA and Loan Processor frequently to communicate about the loans you are working on to ensure there is not any overlapping of doc request or misinterpretation of documents or expectations of job duties. As file moves closer to closing both you and the LOA will complete the red light checklist in. Loan Officer and LOA need to discuss everything. DON’T leave anything to chance or assumption.

Loan Disclosures are prepared also known as the Loan Estimate (LE)

FHA Case # ordered, appraisal ordered, tax transcripts requested

LOA Job Duties

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p<>{color:#000;}. Sorting of documents

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p<>{color:#000;}. Complete the 1003

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p<>{color:#000;}. Review income and credit, calculate debt ratios, and price loans

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p<>{color:#000;}. Send out disclosures

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p<>{color:#000;}. Submit Loan to processing with management approval

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p<>{color:#000;}. Processing

When Loan goes to processing, they are the intermediary with the loan underwriter. Their job is to review the file to ensure it meets the program requirements and upload the file to the underwriter.

They work in tandem with the underwriter to get the loan closed. It normally takes about one to two days in processing to get the loan submitted to underwriting. They are doing various things in processing such as ordering insurance, verifying assets, income, credit, and document management.

Processing Job Duties

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p<>{color:#000;}. Communicate with Borrower, LOA, Closer, Loan Officer, and underwriter to get the loan closed on time

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p<>{color:#000;}. Have a sense of urgency to meet closing deadline

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p<>{color:#000;}. Upload file to underwriting

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p<>{color:#000;}. By the time the contract comes in, your team needs to have the red-light checklist completed. Be as thorough as possible

Underwriting

Loan gets subbed to underwriting it generally takes the underwriter about three days to underwrite the loan. They will issue a conditional loan approval. Inside of the approval will be a list of conditions that we must get immediately in order to close on time. Failure to get these items quickly will delay the loan from closing. The Loan Officer, LOA MUST have a great sense of urgency and get all parties involved to get these items in order to meet the closing deadline. It’s very important that we get the conditions that are being requested. Failure to get the correct items will only delay the process.

Write out in explicit details the pertinent information related to the file you want the processor to know about.

Once everything is completed the underwriter will issue a Clear to Close(CTC). From there our closing department will issue a Closing Disclosure (CD) that will be disclosed three days prior to closing and Saturday counts.

Closing

Disclosures will be prepared by LOA and you will go over these with the borrower. The FHA case # will be ordered, and sends them to the title company, along with specific instructions on what must be done on the loan. The closer at our bank works in tandem with the escrow officer at the title company to balance out the final numbers and get all the paperwork in sequential order.

On the third day, the borrower can go to closing at the title company or real estate attorney’s office where the closing has been scheduled. Our closing department prepares the loan documents.

Appraisal will be ordered (these can only be ordered after docs are signed)

After this is done the buyers and seller come to the title company or if out of town a mobile notary will come to them and all parties sign the documents. Once the documents are signed, the closer releases funds via wire to the title company and the title company disburses money to all parties, seller, realtor, broker, lender, surveyor, etc. Now that the loan has funded, title has changed names, and a mortgage is in place against the property.

Life After Closing

Once loan is subbed into processing, the processor will upload the file to the underwriter. Underwriter reviews loan and issues conditional loan approval. Once those conditions come in review those with processor and reach out to borrower and realtor.

Generally, the buyer gets one month no payment after closing. Property taxes and insurance are collected monthly with the house payment unless customer is doing a conventional loan with 20% down and opted to waive escrows. The escrow account is managed by BOE Servicing department and cuts checks to the tax assessor and insurance company with respect to the correct dates.

Immediately to get those cleared. If you let this area drag out, your loan will not close on time, and it will be a disaster.

If it’s a USDA loan after we are done clearing the conditions, it goes to the USDA local state office to get a second review. At that time frame can take a few days to a few weeks. Check with processing to see current review times.


Don't Get Scammed When Buying a Home

Buying a Home can be very intimidating. Don't get ripped off by not knowing. Angelo Christian teaches you what to look out when getting a home loan and what to pay attention to make sure you get the best home loan.

  • ISBN: 9781540800848
  • Author: Angelo Christian
  • Published: 2016-12-04 04:50:11
  • Words: 8185
Don't Get Scammed When Buying a Home Don't Get Scammed When Buying a Home