Steve’s Info & Tips for Borrowers

General Info:
Mortgage Insurance
Your Credit
Your Credit
Tips about Lenders
Other:

What is the Loan Process?

What happens when you apply for a loan? What steps are involved?
Here’s a typical timeline (in a rush, it can be done faster):
Task: Submit loan (Approval process*) Receive conditional approval;
Review conditions;
Order loan docs.
(Loan docs
being processed*)
Escrow company prepares loan documents Sign loan papers;
Docs overnighted to lender
(Lender review,
wires funds*)
for Refi:
Rescission period*
Escrow co. receives funds Escrow closes
Turnaround time
(business days):
1 2~5 1 1~2 1 1 1~2 2 1 1
Total time
(business days):
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Avoiding Delaystop of page

When you obtain a loan, the lender will require you to have fire insurance, and in some cases flood insurance. To avoid delays, order your insurance early in the process and make sure that the insurance company forwards copies of the policy to your escrow officer as soon as possible. Be prepared to stay on top of them so that it gets done. If you obtain your loan through Steve, he will handle all of this for you.

If you are financing a home that is part of a homeowner’s association, such as a condo or a planned unit development (PUD), get the escrow officer in contact with the homeowner’s association early in the process. Some lenders require a certification from the association and associations are known for taking their time. If the lender has to wait for it, it could delay your loan and jeopardize your rate lock.

The Good Faith Estimate and Closing Costs top of page

Your "Good Faith Estimate" (GFE) itemizes all of the charges in connection with obtaining financing. You can learn detailed information about the costs involved here: All about closing costs.

Tip - just prior to closing, contact the escrow or title holder and request an "estimated HUD-1". This is the escrow closing statement and it will be the most accurate indication of the entire funds needed at closing. If you obtain your laon through Steve, he provides this to you automatically.

What is Mortgage Insurance?top of page

Mortgage insurance (MI) is insurance that a lender requires you to buy in order to protect the lender in case of default. Typically, loans which exceed 80% of the value of the property may require mortgage insurance.

Why? History shows that there is higher default rate for borrowers who make a down payment of less than 20%. Lenders make such loans but they want insurance to minimize the additional risk. If you default, the insurance company will make the lender whole.

For example, the property you plan to buy is appraised at $500,000. You intend to put down $50,000 (10%) and borrow $450,000 (90%). This loan-to-value (LTV) of 90% is higher than lenders prefer, so they require mortgage insurance.

You can pay the premium each month along with your regular mortgage payment or pay a one-time premium. The one-time premium can be significant, so some borrowers add the amount to the loan amount, increasing the loan but avoiding the higher monthly payment.

You can estimate the monthly premiums using this formula: [Factor] * [loan amount] / 12.

The approximate factors are:

for LTV 81%~90%: 0.00625

for LTV 91~95:   0.00800

Thus, on a $100,000 loan with an 90% LTV, the monthly premiums would be about $52.00.

Avoiding Mortgage Insurance top of page

If you want a loan exceeding 80% of the property value and you want to avoid mortgage insurance, consider obtaining a first and second mortgage (a "piggyback" loan). In this scenario, you would obtain an 80% first mortgage (which would not require mortgage insurance) and a second mortgage to bring your down payment up to 20%. The second mortgage has a higher rate but does not require mortgage insurance.

For example, you have a 10% down payment. Instead of getting a single 90% loan, you get an 80% first loan and a 10% second loan. This scenario does not require mortgage insurance.

The drawback to this technique is that the rates for the second mortgage will be higher, so your total monthly payment may be a bit higher than a loan with mortgage insurance. The advantage to this technique is that, since the interest on the second loan is tax-deductible, your actual after-tax payment may be lower than the loan with mortgage insurance (depending on your tax bracket). Talk to your accountant about this one.

Your Credit Scoretop of page

Credit scores are calculated from a lot of different credit data in your credit report. This data can be grouped into five categories as outlined below. The percentages in the chart show how important each of the categories is in determining your score.

chart

These percentages are based on the importance of the five categories for the general population. For particular groups - for example, people who have not been using credit long - the importance of these categories may be somewhat different.

Payment History

Amounts Owed

Length of Credit History

New Credit

Types of Credit Used

Please note that:

Because it is common for each credit agency to have slightly different data and use a slightly different scoring model, your score will vary from credit bureau to credit bureau. Therefore, the lender will use your middle score. In general, scores are ranked as follows:

Range Risk level Odds borrower will
pay 90+ days late
800 and higher ultra low risk 1 out of 1292
760 - 799 1 out of 597
720 - 759 1 out of 323
700 - 719 very low risk 1 out of 123
680 - 699 1 out of 55
660 - 679 acceptable risk 1 out of 38
620 - 659 1 out of 26
500 - 600 medium risk 1 out of 8
Below 500 high risk yikes!

If you have less than perfect credit, talk to Steve about some of our Subprime and No Ratio loan programs designed specifically for such situations.

The score that we focus on is the middle score of the three scores for the primary wage earner.

The credit scores of the non-primary age earner (i.e. a spouse or other co-applicant with lesser annual income) are generally ignored. Other lenders may use the "preferred repository" score of the primary wage earner, or may average all three scores. So when considering a loan, ask if credit scores are a requirement to obtain financing, and if so, which score or scores they concentrate on.

Each time your credit report is run, the new inquiry will reduce your scores by one to three points. However, if the report is run by companies within the same industry, i.e., mortgage lenders, within 30 days of each other, all such inquires will only count as one inquiry in relation to reducing your credit scores. So, don’t be afraid to allow your report to be run by more than one lender, because the Fair Isaac matrix is designed to recognize when you are comparison shopping. If you have any questions about your credit scores, contact Fair-Isaac Company at (415) 472-2211.

Refrain from Credit Card Use top of page

A common mistake made by many borrowers is that after they’ve made application, and received loan approval, they run up a credit card or two. Don’t! Lenders routinely run a back-up credit report prior to funding, and lo and behold, the additional credit card debt jeopardizes the loan approval. To avoid this, hold off on any large credit purchases until after the loan has funded.

Credit Report Disputestop of page

If your credit report contains inaccurate information, you should dispute it with the credit repository which is reporting the incorrect information. The credit report we obtain is a "three file" report - meaning it contains information from Experian, Trans Union, and Equifax. If you need your report updated quickly, and have proof of inaccurate information, we can adjust your report within a few days!

Your Rights

Under the Federal Credit Reporting Act (FCRA), both the Credit Reporting Agency ("CRA", such as Trans Union, Equifax, Experian) and the vendor/creditor/information provider that provided the information to the CRA, such as your bank or credit card company, have responsibilities for correcting inaccurate or incomplete information in your report. To protect all your rights under the law, contact both the CRA and the information provider in writing.

Correcting Errors

Your report will identify which of the three repositories is reporting the incorrect information (sometimes it’s just one of the three repositories, sometimes two of the three, and sometimes all three). Contact the repository(s) directly and follow their procedures for getting the disputed item(s) removed from your report.

How to Dispute

All three CRAs have an online dispute procedure. Each company is independent from the others, so dispute credit files with each bureau. Here are links to each bureau for obtaining their dispute resolution procedure, customer service contact numbers, mailing address, etc:

To dispute by mail, here is a simple dispute form you can use — a fancy letter is not required. As you can see on the form, you should:

Send your correspondence by certified mail, return receipt requested, so you can document what the CRA received and when. Keep copies of your dispute letter and all enclosures.

In addition to writing to the CRA, tell the original creditor or information provider in writing that you dispute the data that they provided. Many creditors specify an address for disputes. Again, include copies of documents that support your position. If the creditor then reports the item to any CRA, it must include a notice of your dispute. In addition, if you are correct (that is, if the disputed information is not accurate), the creditor may not use it again.

The Investigation/Correction Process

CRAs must investigate your dispute — usually within 30 days — unless they consider your dispute frivolous. They also must forward all relevant data you provide about the dispute to the creditor. After the creditor receives notice of a dispute from the CRA, it too must investigate, review all relevant information provided by the CRA, and report the results to the CRA. If the creditor finds the disputed information to be inaccurate, it must notify all nationwide CRAs so they can correct this information in your file. Disputed information that cannot be verified must be deleted from your file.

When the investigation is complete, the CRA must give you the written results. If the dispute results in a change to your report, they must provide a free copy of your report. If an item is changed or removed, the CRA cannot put the disputed information back in your file unless the creditor verifies its accuracy and completeness, and the CRA gives you a written notice that includes the name, address, and phone number of the provider.

Also, if you request, the CRA must send notices of corrections to anyone who received your report in the past six months. Job applicants can have a corrected copy of their report sent to anyone who received a copy during the past two years for employment purposes. If the investigation does not resolve your dispute, ask the CRA to include your statement of the dispute in your file and in future reports.

Accurate Negative Information

When negative information in your report is accurate, only the passage of time can assure its removal. Accurate negative information can generally stay on your report for 7 years. There are certain exceptions:

Adding Accounts to Your File

If you have accounts with vendors but have told you were denied credit because of an "insufficient credit file" or "no credit file," it is because not all creditors supply information to CRAs. For example, some travel, entertainment, gasoline card companies, local retailers, and credit unions are among those creditors that don’t report their accounts.

You can begin establishing your credit file by asking the CRAs to add information to your credit file. Although CRAs are not required to do so, many will add verifiable account information for a fee. You should understand, however, that if your creditor does not report to the CRA on a regular basis, any info added will be a one-time event since it won’t be updated by vendors who don’t report current information.

Getting Help

If you need help resolving credit issues in connection with your loan, please contact us and we’ll do our best to assist you.

Using Retirement Accounts for Down Payment, Closing Costs & Reserves top of page

If you plan to use funds from a retirement account to cover the down payment or closing costs, be sure to let us know in advance and be aware that you may incur a liquidation penalty (typically a percentage of the amount withdrawn). Consult your plan guide or administrator to know what the liquidation rules are, and/or talk to your accountant.

If you are borrowing against a retirement account to obtain funds, we need to know the details of this "borrowing." Most likely, we consider this another debt that you must pay (usually an automatic payroll deduction) and this will reduce the amount of loan for which you qualify. Be sure to disclose this to us at the time of application so that there are no last-minute surprises.

Also, for many loan programs, the lender requires that you have two to three months of payments in reserve before they’ll fund the loan. The good news is that if you have a retirement account such as a pension, IRA, Keogh or 401K, those funds will count toward the reserve requirement without the need to liquidate them. (Please note that on 401K loans, the payment is required to be added on all programs except Conforming FHLMC loans.)

Some loan programs require that your reserve funds be liquidatable within a 30-day period, so you may have to look for an alternative source of monies to meet the reserve requirement. To determine how quickly funds can be liquidated in the pension account, consult your plan guide or administrator. If you determine that it takes longer than 30 days to liquidate funds, this may not be acceptable for your particular program.

Appraisal Problemstop of page

If the appraisal comes back too low or the appraiser identifies problems with the property, talk to Steve and, if need be, the appraiser. Appraisal problems are uncommon but they happen. Generally, the appraiser just needs some additional information on comparable sales information in order to revise or complete the report and get things back on track.

Impound Accountstop of page

An impound account means that you pay a portion of your annual property taxes and insurance to the lender with each monthly mortgage payment and then, when the property taxes and insurance come due, the lender will pay them for you from your impound account.

Property taxes are paid twice a year and insurance once a year. If you don’t like surprises in the form of large property tax and insurance bills, you may voluntarily request an impound account (let us know when we take your application). For some loans, particularly high loan-to-value loans, the lender may require an impound account.

Loan Conditions top of page

Every loan approval is subject to conditions — everything from a request for a current paystub, to a current landlord rating, and everything in between. Even after receiving the good news that your loan is approved, there are conditions that must be satisfied in order to get the loan funded.

If the conditions seem too nit-picky, you may be able to have them waived or modified, but you must be prepared to produce the requested items, otherwise the loan won’t get funded. Also, be sure to keep copies of everything you forward to us, such as paystubs, tax returns, rental agreements, etc.

Locking the Ratetop of page

Depending upon the type of financing you applied for, the interest rate may be automatically locked from the date the loan is approved. Automatic locks generally last for 30-60 days from the approval date, which is generally sufficient time for the loan to get funded. In many cases, however, the rate on the loan will float up or down daily even after approval has been obtained, until the loan is locked.

Lock policies vary from program to program, so talk to us about which one is best for you. Also, we offer a "Lock & Locate" program where you can lock in a rate to protect yourself against rising interest rates, yet if rates go down, the loan can be resubmitted for the lower rate. Contact us to find out more about this program.

Issues to Consider Regarding Internet Lenderstop of page

Tempted to get a loan from an "Internet-only" lender? Read the Issues to Consider Regarding Internet Lenders

Sneaky Loans from Builderstop of page

Buying new? Offered a credit or "special deal" by the builder? It might be more special for the builder than for you. Read the builders’ secret

Calculatorstop of page

Interesting, fun, graphic calculators. Easy-to-use, try one:

Note: After clicking the link, you may need to "Allow blocked content" in the security warning at the top of your screen.

Forms / Disclosurestop of page

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Direct: (408) 723-5200, Toll-free: 1(866) 597-3258 x 1100,