Transaction Process |
Typical Oklahoma
Conventional Loan Process
Once a current or future
property owner (the Borrower) has decided to use financing on a property,
the first step in the “Conventional Loan” process is to obtain a credit
report from the Loan Originator (the local contact for the Lender). The
credit report should be from a national source to identify any “glitches”
that may be on larger databases, and not just from a local reporting agency.
The credit report many times generates a credit score that help the Lender
(the Mortgage Company) establish a profile of the Borrower’s payment
history. Please note that the ability of the Borrower to obtain credit is
not necessarily a reflection of a good credit score, which focuses on
payment timeliness, collections and the amount of credit already extended.
The credit report also should show all of the borrowers current debts
(including credit cards) and their associated payments. This process
involves signing a credit authorization and includes the Borrower’s (and
Co-Borrower’s/Spouse’s) Social Security Number(s) and takes about ten
minutes. A list of creditors and their contact information for corrections
should also be provided for the Borrower’s reference. Many times the
accounts are reported twice or may not have been properly released, and
create an ongoing problem with our current state of technology.
Once a report shows a
satisfactory credit score, the income of the Borrower is compared to the
debts of the Borrower to obtain a “Debt Ratio”, which shows if a Borrower
has too much debt to handle the loan payment. A Good Faith Estimate is
generated that identifies the costs the Borrower will incur to get the loan
for example loan application fees, appraisals, surveys, abstracting, title
opinions, document preparation and recording, discount points ( percentage
of loan to buy a rate down, if any) and origination fees (percentage of the
loan charged to process the loan, if any). The Good Faith Estimate also
shows the amount of money needed for prepaid items like interest, property
taxes and property insurance.
When the debt ratio appears
within limits and the Good Faith Estimate is acceptable, a loan application
must be completed and signed by the Borrower(s) and sent to the Lender. (In
some refinancing cases, the Borrower may pay for an appraisal prior to
submitting the loan application, to determine the maximum amount of the loan
they can acquire. In a purchase situation, the contract will determine the
maximum value, as long as supported by the appraisal.)
A list of things to bring to
the loan application appointment will assist the Borrower in gathering
documents that the Lender’s underwriter will need for their review. The
underwriter may ask for explanations or additional documentation depending
on the circumstances and many times can not be absolutely anticipated by the
Loan Originator. Borrower’s that are self-employed or own interests in real
estate investments, partnerships, corporations or trusts will have to
provide more information and the process may take longer and require more
explanations, but can be rewarded by a low interest rate compared to local
bank financing which may be easier to obtain although at a higher rate and
shorter term.
Once the loan application has
been submitted and most of the underwriter’s credit requirements have been
satisfied, a Conditional Approval is issued by the Lender. This generally
involves a few more conditions to be satisfied like good title and the
proper appraised value for the loan, but may require a few more detailed
explanations. At this time the rate can be locked (or fixed) and an
appraisal, survey and abstract bring-to-date are ordered. Once the abstract
is brought to date, the Borrower’s attorney will prepare a title opinion in
order to get a commitment for the title insurance policy for the Lender. Any
title problems must be cleared at this time and prior to proceeding further.
In such cases where the loan is larger than 80% (75% when any cash is taken
out) of the appraised value, additional insurance called Private Mortgage
Insurance (PMI) must be collected until the loan principle value falls below
the required limit previously mentioned.
Once clear title has been
determined, then the appraisals, surveys, inspections, etc. are coordinated
through the closing company. The “Closing Date” can then be set. At the
"Closing", the Borrower will be shown a "Settlement Statement" which will
have all of the expenses charged to the Borrower. The Borrower will sign any
loan documents or affiliated forms. Funds will be exchanged and the sale
will be “Closed” (or there will be a three-day right to rescind in the event
of refinancing prior to funding). The mortgage is filed at the County Court
House proving that you owe money on the property, and the copy of the
mortgage is placed in the abstract, for future reference. |
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