Georgia Real Estate - Section 17 Unit 1

Uh-oh! Someone's mixed up the props for our production of "As the Bank Loans!" Can you put the steps to the loan approval process in the right order?

-Borrower completes loan application One -Underwriter evaluates loan application and appraisal for approval Four -Lender arranges property appraisal Three -Closing attorney receives loan documents to be signed at closing Six -Lender's closing department prepares closing documents Five -Lender assembles loan application and documentation Two

The loan application is used to gather information needed to determine whether the applicant can repay the loan. What information is requested in the application?

-Borrower information -Loan information -Property information

Loan Application Stage

-Find a home: Once the buyer is pre-qualified, she can begin looking for homes. -Receive pre-approval letter: Once a property is identified, the buyer will meet with a lender to obtain pre-approval. This is a written statement from a lender that a borrower would qualify for a certain loan amount based on her verified income and credit report. -Complete the Uniform Residential Loan Application: This is the formal loan application that lists all assets (items of value) and liabilities (items of debt) in order to determine the borrower's net worth (how much an individual is worth). -Credit report: This is pulled to verify income and work history. A tri-merge credit report contains data from all three major reporting firms. From this report, the credit score is determined (generally, the lender will base rates on the middle score). -Appraisal: This is performed to determine the home's market value (the price the home could be sold for). This determination is based partly on the sales comparison approach, but appraisers use many other factors to determine value. -Title search: This is performed to determine a clear title. -Obtain title insurance: Lenders will often require title insurance to insure against financial loss from defects in title to real property. -Obtain homeowners insurance: Lenders require proof of homeowners insurance to ensure that the home is covered against any loss that could occur due to physical hazards.

Identify the three stages in the loan approval process.

-Pre-qualification -Loan application -Mortgage commitment

Mortgage Commitment Stage

-Underwriting: This is the process of comparing the borrower's credit, assets, and other financial factors, together with the property's appraised value, against the lender's standards. Underwriting occurs after the loan package is complete and results in the loan being approved or rejected. If the loan is approved, the loan documents are sent to the closing agent. -Final approval: The final approval is communicated to all interested parties through a loan commitment letter, stating that the lender has approved the loan and has committed to issue the loan. The loan commitment is only good for a short time. If there is a delay in the closing, the buyer may need to resubmit the loan application and start over.

Loan Approval Process

1. Prospective borrowers complete loan application and submit to lender, along with additional documentation. 2. Lender provides applicants with Loan Estimate within three business days of making the loan application. 3. Lender assembles application packet and documentation for processing. 4. Lender arranges appraisal of property. 5. Underwriter evaluates application packet and property appraisal. 6. Underwriter makes recommendation (yes, no, or maybe) related to the application. 7. Approved applications head toward closing. 8. Lender's closing department prepares documents for closing. 9. Settlement agent receives loan documents. 10. Settlement agent orders title search, survey, and insurance. (The title search is generally done weeks or months before the closing, but a second search of the title record is done right before closing to ensure that no new encumbrances have been added to the record, which is especially important when seller is financially distressed.) 11. The lender prepares the Closing Disclosure and the settlement agent prepares the deed for closing. 12. Borrowers receive Closing Disclosure at least three business days before closing. 13. Borrowers attend closing (conducted by settlement, escrow, or closing agent) and, after funding and recording, get the keys to their new home.

From Application to Funding in Georgia continued

12. Title insurance—Title insurance company performs title search and issues title insurance commitment 13. Closing documents—closing attorney prepares the settlement statement and deed for closing 14. Closing Disclosure—borrowers receive Closing Disclosure from closing attorney at least three business days before closing 15. Closing—borrowers attend closing conducted by closing attorney 16. Funding, recording, and keys after closing documents are signed and closing attorney has everything in place, borrowers receive keys to their new home

Curtis is completing a residential loan application. Which of the following would he include in the assets section?

Amount on deposit at his bank

Cash

Assets

Checking account

Assets

Items of value belonging to the borrower

Assets

Real estate

Assets

When a borrower is completing a loan application, items of value the borrower owns are listed in the ______ section.

Assets

When completing a loan application, applicants must list any items of value they own. What's another term for these items?

Assets

Which of the following net worth examples may a lender view most favorably?

Assets exceed liabilities

Find a home and obtain a pre-approval letter

Beginning step

Loan application

Borrower

Several parties are involved in the loan approval process. Who are the major players in a typical financing arrangement?

Borrower Lender Closing attorney Underwriter

Put yourself in the lender's shoes for a moment. Which borrower's net worth is the most favorable?

Borrower C's assets are twice as much as her liabilities

Who is responsible for completing the loan application and supplying supporting documentation?

Buyer

Biff is completing a residential loan application. Which of the following would he include in the liabilities section?

Car loan

Closing disclosure

Closing attorney

Taxes and insurance reserves are collected at the time of the loan commitment.

False

The lender is required to issue a loan once the borrower has been pre-approved.

False

Underwriting occurs before the loan package is complete.

False

Receive clear title and obtain title insurance and homeowners insurance

Final step

Borrowers must list their assets when completing a residential loan application. What are assets?

Items of value a borrower owns

Assets

Items of value owned by the borrower --Cash (in hand, balances in checking or savings accounts, loan down payment) --Stock and bond investments --Life insurance policies --Real estate (whether encumbered or not) --Retirements savings (vested amounts) --Automobiles

Brian is completing a residential loan application. On the application, he lists his assets. What are assets?

Items of value the borrower owns

Loan estimate

Lender

Who is responsible for providing the Loan Estimate?

Lender

Mortgage

Liabilities

Obligations or debts the borrower owes

Liabilities

Unpaid taxes

Liabilities

When a borrower is completing a loan application, obligations owed by the borrower are listed in the ______ section.

Liabilities

Car loan

Liabilties

Once completed, which of the following tasks initiates the loan process?

Loan application

The difference between assets and liabilities

Net worth

Complete a Uniform Residential Loan Application and obtain credit scores

Next step

Borrowers must list their liabilities when completing a residential loan application. What are liabilities?

Obligations a borrower owes

Liabilities

Obligations owed by the borrower --Installment accounts (credit card accounts, automobile loans) --Real estate loans --Student loans --Alimony or child support --Other accounts payable or debt owed (insurance premiums, medical bills)

Bobby is completing a residential loan application. On the application, he lists his liabilities. What are liabilities?

Obligations the borrower owes

Your buyer client, Jacob, is planning to obtain financing for a new home. What should his first step be?

Obtain a pre-approval letter

Pre-Qualification Stage

Obtain pre-qualification letter: Getting pre-qualified is an informal process that involves the buyer being interviewed by a mortgage professional about her income and expenses. The purpose of this step is to give the buyer an idea of the price range she can afford. It can also let the seller know that, based on this initial information, the buyer will qualify for the loan.

The Buyer's Loan Approval Process

Pre-Qualification 1. Obtain pre-qualification letter Pre-Approval 2. Find a home 3. Obtain pre-approval letter 4. Uniform residential home application 5. Credit report 6. Appraisal 7. Title search 8. Obtain title insurance 9. Obtain homeowners insurance Mortgage Commitment 10. Underwriting 11. Final approval

What's the correct order of the buyer's loan process?

Pre-qualification, loan application, mortgage commitment

Your client, Selena, is interested in buying a new home. You tell Selena that she should start by getting _____ for a loan so she has a general idea of how much money she will be able to borrow. Once she does this, you can begin showing her homes that interest her and are in her price range. Selena finds a home she wants to purchase and meets with her lender. After she completes the _____, she is _____. Toward the end of the loan approval process, the _____ reviews all of the necessary documents and approves the loan. At this point, the lender commits to issue the loan.

Pre-qualified Uniform Residential Loan Application Pre-approved Underwriter

What's On the Loan Application?

Since the inception of the secondary mortgage market, lenders have used a standardized loan application form (as well as other forms and processes) in order to facilitate the sale of mortgage loans to the secondary market. The Uniform Residential Loan Application form gathers information, such as the amount being requested, the borrower's financial situation, and the property the borrower is seeking to purchase. Generally, a residential loan application determines a borrower's financial situation by examining the borrower's: --Assets and liabilities --Credit references --Employment history --Income sources Assets and liabilities are commonly listed in a financial statement. This isn't a statement obtained from a bank or credit agency. Instead, it's more like a worksheet that allows the lender to quickly see the borrower's assets compared to the liabilities, which paints a picture of the borrower's net worth. Net worth is determined by subtracting the borrower's liabilities from the assets. Ideally, a borrower's assets should be greater than the liabilities, resulting in a positive net worth. If the liabilities are greater, it would result in a negative net worth, and would make it more unlikely that a new loan would be approved.

Naomi is completing a residential loan application. On the application, she lists her assets and liabilities so that her net worth can be determined. What's net worth?

The difference between a borrower's items of value and obligations

Which of the following statements is true of the mortgage commitment stage of the loan approval process?

The underwriter determines if a loan meets the lender's underwriting standards

The Buyer's Loan Approval Process

There are three basic stages of the loan approval process: pre-qualification, pre-approval, and the mortgage commitment.

What's the purpose of pre-qualification?

To determine in which price range the buyer should shop

What's the purpose of the pre-qualification stage of the loan approval process?

To determine the amount of money the buyer will qualify for based on initial information provided by the borrower

Why would a lender want to pull a credit report during the pre-approval state of the loan approval process?

To determine the borrower's credit risk

What's the purpose of the loan commitment?

To provide notice from the lender that the loan has been approved

A loan commitment is good only for a short period of time.

True

The underwriter determines if a loan is approved or rejected.

True

During the loan approval process, who evaluates the loan application, supporting documentation, and data, as well as the property's appraisal to make an approval recommendation?

Underwriter

From Application to Funding in Georgia

When borrowers prepare to purchase a home, they embark on a trip with a number of travel companions that spans several months and culminates in receiving the keys to their dream home. Letʼs review the stops theyʼll make along the way and get to know their travel companions. 1. Pre-qualification—borrowers work with lender to determine approximate amount they can spend on a home 2. Find home—borrowers work with real estate broker to find that perfect home and negotiate an offer 3. Pre-approval—borrowers work with lender to complete Uniform Residential Loan Application and provide supporting documentation (note that in some "hot" markets, borrowers should seek pre-approval before beginning the house-hunting process) 4. Loan estimate—lender provides borrowers with estimate of loan costs within three business days of making the loan application 5. Processing—lender assembles application packet and documentation for processing 6. Appraisal—lender schedules a property appraisal with an appraiser 7. Underwriting—underwriter evaluates application packet and property appraisal 8. Recommendation—underwriter makes recommendation (yes, no, or maybe) related to application 9. Approval—approved application heads toward closing 10. Closing documents—lender's closing department prepares documents for closing and provides closing attorney with necessary documents 11. Title work—closing attorney orders title search, survey (if needed), and title insurance (The title search is generally done weeks or months before the closing, but a second search of the title record is done right before closing to ensure that no new encumbrances have been added to the record, which is espe- cially important when seller is financially distressed.)