Chapter 1:

The Mortgage Loan Process. The Good, Bad, and Ugly, but the Real

Congratulations! So you want to buy a house...or refinance your house...or get a rehab loan...or a construction loan. You’ve done the hard part, which is the choice to apply. This book is designed to help you know the steps all the way through the mortgage process, not just the real estate side. I’m trying to give you a realistic path—not just the ideal but, along with the good, the bad and the ugly that can and often happens, along with why it does.

You’ll see thousands of books out there about the “Real Estate” industry and all the ins and outs of buying a home, but they just lightly cover the mortgage side itself and they leave out major things that happen. In this book I want to give you a real, clear picture of the process in its entirety along with the why’s so you can understand the other side of the coin….the investor who put the money up for you to borrow in the first place.

What if that were you? What would you want to know? How careful would you be if you were going to put thousands of your hard-earned money up for investment? Would you want all of it back and with interest? Of course, so let’s look closer.

In the very big picture, the money all goes in a big circle…the investor buys an investment instrument in the form of a bond, for example, with the expectation of getting it all back plus interest. The homeowner is at the other side of the circle and wants to borrow the money for their home. The money moves through insurance and investment companies and banks to accomplish this…the other parts of the circle. In other words, it’s not always the big bad banks who lend money, but it’s also grandmas, families, and companies who put those dollars up for investment.

I want to keep this part very basic because it can easily get overwhelming. Insurance companies collect millions in premiums…you pay those for your car or home owners insurance now…those dollars need a place to go, so they invest (buy) the bundles of mortgage loans in the form of investment vehicles and the cycle begins again.

Sometimes banks will “portfolio” or hold on to a loan vs. sell it to the secondary market, but that is rare. They are only making money when they make new loans so they don’t want their own money tied up. (More on that in “The Circle of Money” chapter.) The main thing to remember is that you are obligated to make a monthly minimum payment by the due date, regardless of who your loan is sold to.

I have a story on the reasons why in the chapter about “Loan Types: FHA, VA, CONV, USDA, ARM, etc.” that will drive this point home. Paper trail everything so you are ensured proper credit, especially during this time window of the loan being sold to another lender. Keep copies of all correspondence from each lender, the old and the new, along with your canceled checks and who they were paid to.

If you make payments to the wrong bank but you did generate a payment every month and have record of it, then the two banks can reconcile. This will protect you and your credit in case the banks make a mistake during the transition.

There are independent companies hired to give a rating on the bond/investments, such as AAA or AA and so forth, meaning how safe they are as an investment. The idea here is transparency. As you recall from the crash in 2008, all the bonds were getting AAA rating even though they were nowhere near that quality, meaning that the risk of default level on those mortgages was much higher than expected.

I could go on for days about the crash and the havoc that unnecessary greed and ignorance cost our nation, but let’s instead zoom down to you at a local level, now that we see a snapshot of where you are in the big picture.

The items you will need and reasons for those items can be found in a checklist I have created for you (attached below in a few pages). It’s very thorough with a slight sarcastic and humorous tone because of the redundancies sometimes in my industry. It’s all in good fun though. I understand both sides: why the bank needs these things and the consumer complaint about the same things over and over, so you are not alone. Most of the time I would agree with you. The biggest question I always hear is, “Is that all you need?” My answer is simply, “At this time, yes, but overall, no.” There will always be things I need all the way up until after you’ve signed escrow.

So be ready and be continuously providing reoccurring items such as pay stubs, bank statements, and tax returns if we are nearing April, and always be ready to be signing another document. This is the way the industry currently is.

There are typically over 30 people involved in one transaction, up to 60 or so depending on what the transaction is. Everyone from your home inspector, pest inspector, other real estate agent, appraiser, title and escrow officers, set up clerks, managers, underwriters, processors, etc., all the way to the courier who drives the hard copy of original signed documents (unless you’re doing digital signatures).

I have two stories about couriers that cost time on a file. One had his car catch on fire on the I-5 freeway. Laugh, but that really happened! He was okay…and so were the files, thankfully. Another time, the courier carrying hard copies of signed original documents locked himself out of his car! These are great stories and examples of what can happen that cause delays. I have a lot more to share with you. I think it will be a fun book to write and I’m looking forward to it.

See the enclosed checklist that I have created – it’s four parts and helps describe the reasons behind the requests. I hope to help make the process easier!

Part 1 of 4: Welcome Letter, Checklist for Loan Application, and Detail of the Process Guide

My Commitment to you - First of all, thank you for applying for a loan. I look forward to helping you even if it means we do not do a loan, if it doesn’t improve your financial position at this time. As you know, there are many changes being implemented to improve the volatile lending industry. My commitment to you is improving your current situation. That means if for some reason the loans available don’t do that, then we’ll wait until something is available that does improve your situation.

PLEASE READ THIS GUIDE IN ITS ENTIRETY FOR MAXIMUM SERVICE AND UNDERSTANDING

What you can expect, what to do to help things go smoothly, answers to most questions, and things to be aware of…

1. This master list WILL be added to as we go along the process, from several departments, so thank you for being ready to provide items and sign forms at the time they are requested. I’ll help you get most of it up front.
2. On Part 2: Requested Items #1, #4, #5 are recurring, meaning you get new ones weekly or monthly. I will need your most current one including ALL pages, so please plan to send them to me regularly.
3. In any transaction from refinance to purchase, there are from 30-60 people involved in the process to complete and close the loan/sale. No matter the years of experience or number of transactions closed, there can and will be unexpected delays beyond our control. Thank you for being understanding and flexible, should we have any type of unforeseeable delay.

Keep in mind, also, that one delay on your end can trigger a week’s worth of delayed time for the lender. Files are addressed at their offices on a first-come, first-served basis, so if your file is found to be missing anything important when it arrives on the underwriter’s desk, it will go back to the end of their queue…just like at the DMV.

I apologize in advance for redundancy, etc. Seems like it’s part of the process. However, lenders do have reasons for all the things they ask for, and that is why I wrote this book. I also thank you in advance for your patience while we work together on your file.

Credit: We will need to pull your credit report at the beginning of the loan application to determine program and pricing. Even if you have one or know your score, to be compliant we need to order one through an approved service provider that is specifically for the mortgage loan process.

When you are using your credit, having a mortgage lender pulling a credit report and shopping within a 30-day window is NOT going to harm your score. Numerous credit report pulls over a several month window of time, even if you don’t do a new loan, can signal to the others there was some problem and that is what could lower your score.

The reason for this is also to prevent fraud. For example: You can’t apply with two banks and get two loans and close with the same data without one bank knowing about the other and using it in their calculations. Double dipping, so to speak.

Following your credit report request, you can expect a flood of calls and...