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Chapter 6: Processing: Pre-Qualification & Loan Application. Part III PROCESSING. By Dr. D. Grogan M.C. “Buzz” Chambers. PREVIEW.

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chapter 6 processing pre qualification loan application
Chapter 6: Processing:

Pre-Qualification & Loan Application

Part III PROCESSING

By Dr. D. Grogan

M.C. “Buzz” Chambers

preview
PREVIEW

The purpose of this chapter is to show the learner how the mortgage loan broker bridges the gap between the borrower’s infrequent borrowing of real estate loan funds and the lender’s frequent daily business transaction practices.

The mortgage loan broker aids in the paperwork and forms required to close a real estate loan.

The purpose of this chapter is also to familiarize the learner with the Uniform Residential Loan Application (URLA, FNMA 1003).

Different types of loans have differing, specific qualifications for each particular loan.

student learning outcome
STUDENT LEARNING OUTCOME

1. Complete buyer qualification data to determine qualifying ratios.

2. Differentiate between acceptable ratios for Federal Housing Administration (FHA), Department of Veterans Administration (DVA), and conventional financing.

3. Outline basic DVA eligibility criteria for veterans.

4. Explain the sections of the URLA 1003, loan application.

mortgage loan broker role
Mortgage Loan Broker Role:

Your title: Loan agent, loan representative

Your job: A liaison between lender & borrower

Your role: Accept & process the loan application Provide required disclosure

Verify information

Obtain additional information from borrower

Reject application

Provide borrower with written credit disclosure and reporting agency

Reject or Accept the loan based on the information

6 1 lender purchase statement
6.1 Lender/Purchase Statement
  • The lender should obtain a copy of the accepted purchase agreement after the mortgage loan broker has received a completed loan application and has a credit report.
  • The loan broker should provide a letter showing:
    • Borrower loan qualification
    • Purchase price maximum for borrower
    • Creditworthiness of the borrower
property profile
Property Profile
  • When a purchase agreement is finalized, the loan broker needs to obtain a property profile to determine:
    • Current title holders
    • Legal description
    • Status on property tax payments
    • Liens
    • Trust deeds
    • Comparables
    • Assessor parcel number (APN)
6 2 disclosure of home ownership counseling
6.2 Disclosure of Home Ownership Counseling

Purpose: The more the borrower knows about home ownership, the better the borrow can make realistic and wise purchase & loan decisions.

Required by some loan programs before purchaser approved for a specific loan.

How much money will be needed to consummate the transaction, including the down payment, closing costs, and the reserves?  

What does the credit history indicate about the future ability to make the loan payments?

What questions should the borrower ask when shopping for a loan to obtain attractive terms?

Can the borrower budget for the cost of home ownership to obtain the tax advantages of home ownership?

6 3 residential loan application
6.3 Residential Loan Application
  • FNMA form 1003
  • Pronounced: 10 – 0 – 3
  • New version Jan 2010
  • Appendix A shows the English/Spanish form
    • An explanation for each circled number corresponds with the form and directions.
    • The circled numbers on the form require detailed and accurate information for each item.
uniform residential loan application 1003 page 1
Uniform Residential Loan Application1003 – Page 1

Part 1 – Type of loan applied for. Loan terms

Part 2 – Property information. Loan purpose: purchase, refinance, construction)

Part 3 – Borrower info (socialsecurity number)

Part 4 – Employment info (number of years)

Note: Want to see at least 2 years employment history & 2 years residential history.

uniform residential loan application 1003 page 2
Uniform Residential Loan Application1003 – Page 2

Part 5: Monthly Income & Expense data

Income, commissions, dividends, rental income

Monthly housing expense for Loans, taxes, insurance, association dues

Part 6: Assets and liabilities data

Liquid assets (cash, checking accounts)

Other assets (real estate, retirement, vehicles)

Liabilities includes unpaid loan balances

Total assets - Total liabilities = Net Worth

uniform residential loan application 1003 page 3
Uniform Residential Loan Application1003 – Page 3

Part 6 (continued): Real Estate owned

Rental income and creditor name

Part 7: Transaction details

Purchase price + costs + discount points

List of subordinate financing and credits

Mortgage insurance and funding fee financed

Add loan amount + insurance + funding fee

Subtract cash from borrower

uniform residential loan application 1003 page 31
Uniform Residential Loan Application1003 – Page 3

Part 8: Borrower & Co-borrower Declarations

Any judgments, bankruptcy, foreclosure or lawsuit

Any SBA or student loans or government agency

Any alimony, child support or maintenance pay

No part of down payment is borrower

If borrower is a co-maker or endorser on a note

Resident status (citizen or permanent resident alien)

Ownership interest in property in past few years

uniform residential loan application 1003 page 32
Uniform Residential Loan Application1003 – Page 3

Part 9: Acknowledgements and Agreements

Acknowledge purpose of the loan & intent

The loan is senior

No illegal uses

Agreement to amend items during loan period

Transfer or assignment

No representations nor warranties by lender

Certification

Information provided is true and correct

Civil liability & criminal prosecution for misrepresentation

Signed and dated by each borrower

uniform residential loan application 1003 page 33
Uniform Residential Loan Application1003 – Page 3

Part 10: Government monitoring

Borrower states they will not furnish data, or

Borrower completes the requested information:

Race

National origin

Sex

Interviewer required to complete data

How application taken

Interviewer information

  • Part 10: Government monitoring
    • Borrower gives any additional useful information
    • All parties sign and date this page
section 2 pre qualifications
SECTION 2: Pre-Qualifications

Income:

Establish income

Verify pay stub, tax returns, W-2’s.

Document bonuses, rental & interestincome

6 4 qualifying ratios
6.4 Qualifying Ratios:

Front End Ratio = Total Housing expense/Gross Income

Conventional – 95% LTV Max. Ratio is 26%

Conventional – 90% LTV Max. Ratio is 28%

Conventional – 80% LTV Max. Ratio is 32%FHA – Max Ratio is 29%

Back End Ratio = Proposed Housing exp + All debt / Gross Income

Conventional loans – maximum 33%

36%

38%

FHA and DVA maximum ratio is 41%

Community Home Buyers Program may be as high as 45%

ratio calculation
Ratio Calculation

BACK END RATIO = PITI + HOA + MI + DEBTS GROSS INCOME (GI) MONTHLY

PITI + HOA + MI

FRONT END RATIO = GROSS INCOME (GI) MONTHLY

arm income expense ratios
ARM Income-Expense Ratios

Housing Total monthly

Expense Debt service

FNMA (LTV 90% or more) 26% 33%

FNMA (LTV 90% or less) 28% 36%

FHLMC (exceeds cap and 25% 33%

discount guidelines)

6 5 dept of veterans administration dva qualification
6.5 Dept of Veterans Administration (DVA) Qualification
  • DD form 214, Report of Release or Discharge From Active Duty
  • Original Certificate of Eligibility
  • Eligibility requirements for various conflict periods
    • Beginning and ending dates of the conflict
    • Specific number of active days of service
    • Minimum 24 full months for post-Vietnam
slide20

Service Period Criteria

E RA DATES LENGTH OF SERVICE

World War II 09/16/40-07/25/47 90 days active duty

Peacetime 07/26/47-06/26/50 181 days continuous active duty

Korean Conflict 06/27/50-01/31/55 90 days active duty

Post-Korean 02/01/55-08/04/64 181 days continuous active duty

Vietnam 08/05/64-05/07/75 90 days active duty

service period criteria cont
Service Period Criteria (cont)

Post-Vietnam 05/08/75-09/07/80 181 days continuous active duty

Enlisted 09/08/80-08/01/90 2 years (24 months) active duty

Officers 10/17/81-08/01/90 2 years (24 months) active duty

Persian Gulf 08/02/90-undetermined 24 months or period called to active duty, not less than 90 days

Veteran is still on 181 days of Continuous Service active duty

maximum dva loans calculating the sales price loan amount gross income
Maximum DVA loans: Calculating the sales price/loan amount gross income

Gross Income

Multiply by X 41%

Total debt service, including housing expense

Subtract monthly installment/revolving debts

Total debt allowed for PITI

Subtract figure for monthly taxes and insurance/Homeowners association dues (HOA)

Total debt for principal and interest

Divide by P & I factor for current allowable interest rate

Maximum loan amount borrower may receive

table of residual income by region
Table of residual income by region

For loan amounts below $79,999:

Family Size Northeast Midwest South West

1 $390 $382 $382 $425

2 $654 $641 $641 $713

3 $788 $772 $772 $859

4 $888 $868 $868 $967

5 $921 $902 $902 $1,004

Over 5 Add $75 for each additional member up to a family of 7

For loan amounts above $80,000:

Family Size Northeast Midwest South West

1 $450 $441 $441 $491

2 $755 $738 $738 $823

3 $909 $889 $889 $990

4 $1,025 $1,003 $1,003 $1,117

5 $1,062 $1,039 $1,039 $1,158

Over 5 Add $80 for each additional member up to a family of 7

6 6 federal housing administration fha qualifications
6.6 Federal Housing Administration (FHA) Qualifications

Calculate the maximum loan amount from the gross income.

Proof of total verifiable income from all sources.

Total monthly expenses that continue for six months or longer.

Determine ratios: 31% front end; 43% back end.

Calculate maximum loan amount.

Estimate closing costs and down payment for total cash required to close escrow.

maximum fha loan amount
Maximum FHA loan amount

$ _________ Gross income

Multiply by × 43% Back-end ratio

Total debt service including housing expense

Subtract monthly installment/revolving debts

Total income allowed for PITI

Subtract figure for monthly taxes and insurance/HOA

Total income for principal and interest

Divide by P & I factor for interest rate (varies with point structure—buydown)

Maximum loan amount borrower may obtain 

ADD CASH DOWN PAYMENT

Total Price Total Sales Price

monthly gross income
MONTHLY GROSS INCOME

Borrower’s Base Income $

Other $_____________

Co-borrower’s Income $

Other $_____________

TOTAL MONTHLY INCOME (Gross) $_____________(A)

debts and obligations
DEBTS AND OBLIGATIONS

Installment Debt $ ______

(10 mo. or longer-Car, Student Loans, Etc.)

Revolving Debt (Credit Cards) $______

TOTAL MONTHLY OBLIGATIONS $ _________(B)

monthly payments
MONTHLY PAYMENTS

Prin. and Int. $___________

Loan Amount $_________ + MIP_________ = $ __________

Homeowners Assoc. (Monthly Dues) $ __________

Not Covered______________ (i.e., fire, flood, etc.)

Hazard Insurance (Fire Only) $ __________

Property Taxes @ __________% of the purchase price $ ________

TOTAL HOUSING EXPENSES $ ________________ (C)

fha qualifying worksheet
FHA Qualifying worksheet

TOTAL HOUSING EXPENSE

(C) $______ ÷ Total Gross Income (A) $______ = ______%

TOTAL FIXED PAYMENTS

(B) + (C) $______ ÷ Total Gross Income (A) $______ = ______%

Ratio Guidelines are 31%/43%. These ratios may be exceeded by up to 2% if the property is "Energy Efficient" (built after 1976).

Cash-Out Refinance: No compensating factors allowed, ratios as stated, 31%/43%, CANNOT BE EXCEEDED.

6 7 conventional qualifications
6.7 Conventional Qualifications
  • Reserve requirements:
    • $417,000 > 2-3 months PITI held as cash
    • $417-$729,750 6 months reserves
    • > $1 million 12 months reserves
  • Obtain borrower’s total gross income from all sources.
  • Determine housing expense (A PITI).
  • Obtain borrower’s assets & liabilities.
  • Calculate ratios: front end & back end.
calculating the sales price loan from gross income
Calculating the Sales Price/Loan from Gross Income

Gross Income

Multiply by × 36% (33, 36, 38% back-end ratios based on the LTV)

Total debt service including housing expense

Subtract monthly installment/revolving debts

Total allowed for PITI

Subtract figure for monthly taxes and insurance/HOA

Total allowed for PI

Divide by P & I factor for interest rate (varies with points charged)

Maximum loan amount borrower may obtain

Divide by loan to value percentage (0.95, 0.90, 0.80)

Sales price borrower may purchase

6 8 other qualifications
6.8 Other Qualifications
  • When a borrower or property falls into the following categories, additional qualifications are often required:
    • the structure does not conform to the zoning of the land (for example, a single family residence is located on land that is zoned C-1, commercial, I-1, or industrial).
    • the borrower’s mortgage payment record is slow and there have been three to four late payments in the last twelve months.
    • the property is been placed into foreclosure.
    • the borrower’s length of time on the job does not meet FNMA/FHLMC guidelines.
match borrower to loan program
Match Borrower to Loan Program

I. LOAN-TO-VALUE RATIO (LTV)

DVA – up to 100%

FHA – down payment of 3%

Conventional – up to 95% (103%) as of 2/1/02 some lenders

Commercial loans – usually only up to 60%

Community Home Buyer – up to 97%

II. Each loan program has unique features

III. Each mortgage loan broker may represent numerous lenders with various program & loans