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Mortgage Market

Gather is all about providing home mortgage loans to members at competitive rates.

Gather is all about providing home mortgage loans to members at competitive rates. Buying a home, and knowing that your neighbors and fellow members have your back, is one of the best parts of Gather. And to help get you started, we’ve created this walk thru of everything you need to know, whether it’s your first home, your dream home or both. As always, you can contact us anytime for more help.

First off, check out the items below, they’ll get you orientated in the mortgage process.

Choosing a mortgage is a big decision. But don’t worry, you can do this. Here are some starter questions to consider:

  • How long do I intend to live in the house?
  • What is my tax bracket?
  • How much cash do I have for a down payment ?
  • Do I plan to pay off the mortgage early?
  • Is it smart to make extra principal payments?
  • Do I want my payment to stay steady, or am I ok with some variance?
  • Should I finance the closing costs in with the interest rate or the loan amount?
  • Is my income projected to remain stable?

The better you can answer these questions, the better a loan officer or financial advisor can tailor the loan selection to your needs.

Common Types of Loans

1. Fixed-Rate Fully Amortizing Loans
This is the most common type of loan, typically with a 15 or 30-year term. The interest rate and monthly payment are fixed (they never change for the term of the loan). Once the loan reaches maturity, the mortgage is paid in full. During the first part of the payment term, a large percentage of the monthly payment is used for paying interest. As the loan is paid down, more of the monthly payment goes towards the principal (and less to interest).

2. Balloon Loans
Generally, balloon loans have level monthly payments based on a 20-year fully amortizing schedule, but mature earlier than 20 years. That means you will have a larger payment due at the end of the loan, or a balloon payment. After the initial balloon period, the interest rate will adjust based upon the current market conditions.

Filling Out the Application

The first step in getting a mortgage approved, is filling out the loan application. Most residential lenders use a standard uniform application that is widely accepted by financial institutions. Because accurate information is so important in a loan application, often times people will fill it out with their loan officer. These are the sections of the standard uniform application:

  • Type of Mortgage and Terms of Loan.
  • Property Information and Purpose of Loan
  • Borrower Information
  • Employment Information
  • Monthly Income and Combined Housing Expenses Information
  • Assets and Liabilities
  • Details of Transaction
  • Declarations
  • Acknowledgement and Agreement
  • Information for Government Monitoring Purposes
  • Addendum for Additional Information

Validation Process

After filling out the application, the lender will begin the validation process. To get things going, they’ll require a check to pay for the credit report and appraisal processing. During this process, there are four areas of the application the lender will need to validate.

1. To validate employment status and income, the lender may require one or all of the following:

  • A current pay stub from your employer
  • W2 forms covering the most recent two years
  • Written verification of employment from the employer
  • Federal tax returns for the last two years and current period profit and loss statement for self-employed borrowers
  • Verification of employment noted on a credit union--income not usually verified
    (Note: periods of unemployment and dramatic rises in income may need to be explained.)

2. The lender will need to verify the funds necessary to close. This means verifying your assets, which can include cash and equivalents (like stocks and bonds), and equity in other assets (like real estate). Some of these assets may be used for the down payment and for paying the closing costs. Assets can be validated by using some or all of these methods:

  • The previous 2-3 months of bank or investment company statements
  • Written verification of deposits from the depository institution
  • The last 2-3 months stocks and bonds statements from the investment company
  • The sales contract on any real estate to be sold. (The lender will verify the balance on any liens on the property to validate the equity and will require a final HUD 1 verifying the receipt of the funds.

3. Credit Reports are a way lenders can determine a borrower’s willingness to repay proposed mortgage debt. Credit reporting agencies have access to past credit obligations and pay records on most consumers. Banks, department stores, mortgage lenders and other creditors provide this information to credit reporting agencies.

The agencies can also access public record files to determine if a borrower has any collections, judgments, liens, repossessions or foreclosures. Present and past addresses, present and past employment, and banking relationships are also included in credit reports. Some past credit problems can be easily explained with a letter of explanation from the borrower.

4. Lenders may also need to validate other items like your Social Security Number, any child support, future salary potential and more.

Property Value Confirmation

Mortgage loans are secured by the real property they’re used to purchase. Residential real property includes single family detached and attached homes. These properties can be used for primary residence, second homes and investment. Before lenders approve a loan, they need to know the value of the property. An independent appraisal on the property is the most common approach to determine its value. Appraisals use three approaches:

1. Cost Approach: The value of the land, plus the cost of the improvements, less depreciation
2. Market Approach: Compares the property with similar properties that have sold recently in the neighborhood.
3. Income Approach: Determines the value based on the rental income that can be derived from the property

Although all three approaches are considered in an appraisal report, the Market Approach is usually given the most weight because it’s backed by other, recent sales in the same area.

Most appraisals start with a physical inspection of the property by a professional appraiser. During the inspection, the appraiser measures the property, locates the rooms on a drawing and notes the overall condition of the property and surrounding neighborhood. After the inspection, the appraiser locates both the sales activity and current listings in the area from a real estate databases and prepares a written report. The report indicates the value of the property and summarizes the important aspects of the valuation process. Sometimes, appraisals are completed without the physical inspection and the value of the property is based solely upon the market approach.

Normally, after the appraisal is completed, the borrower is entitled to a copy of the appraisal from the lender.

Title Search

As the loan is being processed, the lender will require a title search on the property. This will reveal the property’s legal description, the owner of record, and any outstanding liens and encumbrances. Liens are items such as property taxes, mortgage loans and judgments. Encumbrances may be road maintenance agreements, right of way and utility easements. Usually, a plot map or land survey is prepared as part of the title search to show the location of any improvements on the property. After the search has been completed, the title company will prepare a written report that is delivered to the lender. This is called a preliminary title report.

Mortgage Loan Closing

After the loan is closed, the title company will prepare a title policy that reflects the new mortgage loan as a lien on the property. The policy is called an American Land Title Association (ALTA) policy. If there was a transfer of title, the new owner usually obtains a title policy as well.

After the borrower has been approved, the legal documents required for the loan closing are prepared by the lender and forwarded to the closing agent. Before funds are released to the closing agent, the borrower must sign the loan documents and meet any conditions required by the lender.

The lender will submit instructions to the closing agent that outline the procedure and conditions for loan closing. Closing agents can be title companies, escrow companies or lawyers. Each lender may have its unique instructions (lenders instructions) for loan closing, and each state may have different legal requirements. There are several major documents that are included for all closings.

Documents Required For Loan Closing

  • Mortgage Note: This outlines the amount of the debt, the terms and payments, the interest rate, margins and caps for ARMs, the name of the lender (beneficiary), the name of the borrower (mortgagor), and any other material item required by the lender. The borrower(s) must sign the note.
  • Security Instrument—Deed of Trust/Mortgage: A deed of trust is an instrument given by the borrower to a third party (trustee) vesting the title to the property in the trustee as security for the borrower's repayment of the mortgage loan. A mortgage is the conveyance of interest in real estate used as security for repayment of a loan. Depending upon the state and customs within that state, one of these instruments is generally used as security for the mortgage loan. In the event a borrower defaults on the loan, the security instrument outlines the legal procedure enabling the lender to take ownership of the property. Usually the security instrument is recorded as a public document.
  • Deed of Trust Riders: When the mortgage loan is an Adjustable Rate Mortgage, lenders require a rider that is recorded along with the security instrument.
  • Truth in Lending Statement—Regulation Z: The lender will provide an updated Truth in Lending Statement to reflect the actual costs of the loan and to indicate the annual percentage rate.
  • Closing Statement—HUD 1: After the loan has closed, the closing agent will provide a closing statement document that outlines the final costs of the loan. Borrowers can expect to receive this document within 3-5 days after loan closing.

Loan Funding

After the closing agent has received the loan documents, the down payment (if required) and other incidental closing items from the lender, they will make arrangements for the borrower and the seller to sign the necessary documents to finalize the transaction.

After the documents have been signed, the closing agent will request the loan funds from the lender. Lenders review the package before the funds are released to the closing agent. In some states the lender will release funds if the closing agent guarantees that the loan package meets all of the lender's requirements.

One additional document (required by most lenders prior to closing) is the hazard insurance policy. At a minimum, the policy must have fire and extended coverage with a special form endorsement that covers the loan amount. Borrowers can increase coverage for other items, such as earthquake damage, theft, flood and more.

After loan funding, the closing agent will make disbursements based upon the instructions from the lender, seller and buyer. For example, if there is an existing loan to be paid in full from the loan proceeds, the closing agent is responsible for making that payment. The closing agent will also make arrangements with a title company or county recorder to record any public documents, such as grant deeds or deeds of trust.

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