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CHAPTER X -- YOU'RE APPROVED!

LESSON 20: WHAT HAPPENS NEXT -- BEHIND THE LENDER'S CLOSED DOORS

Congratulations! You've applied for a loan and been approved. But the battle's not won yet. Now, you have to endure the period between approval and closing -- one of the most stressful because the process is pretty much out of your hands at this point.

Several things happen concurrently to move your loan along the assembly line to the closing table, but let's start with a review of what's going on behind the scenes at your lender's office. In most cases, the lender's underwriting department has to check everything on your application to verify that any documents you submitted are legitimate.

Who's who

A loan processor gathers and verifies the accuracy of your financial documents for the loan application.

An underwriter determines whether to make a loan to you based on your credit, employment, assets and other factors, and the matching of this risk to an appropriate rate and term or loan amount.

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Someone will call your employer, for example, to make sure you have the job you said you do and are paid what you said you were paid. The amount of work involved depends on how risky a borrower is. Customers with pristine credit and $50,000 in the bank who are getting low-LTV loans may be whisked through the process in a matter of hours.

At the same time your lender is performing these underwriting steps, it's also ordering services from third-party vendors. These services have to be performed before closing can take place. Here are some of the major ones:

1) Appraisal -- An appraisal is an estimate of the value of a property made by a qualified professional, called an appraiser. The appraisal helps determine how large a mortgage your bank or mortgage company will approve. In some cases, the appraised value returned by the appraiser will impact the rate and terms you have to pay.

Let's say you're obtaining a loan that you say will be for less than 80 percent of your home's value. Such a mortgage wouldn't require PMI. But if the appraisal says the house you thought was worth $100,000 is really worth only $90,000 and you're looking to borrow $80,000, you'll have to pay PMI. In extreme cases where the appraisal doesn't support the mortgage amount, you may have to come up with a larger down payment or renegotiate the sale price with the seller before the lender will loan you money at all. See Tips

MisconceptionA common misconception is that appraised value and the assessed value are the same.

Actually, the appraised value will determine how much a lender is willing to lend you, whereas the assessed value determines your property taxes. A home's appraised value is typically more than its assessed value.

The property appraisal is one of the most important steps. If a property isn't worth enough to support a loan, that loan won't be made. If the value comes in high enough for a loan but not as high as a borrower expects, the borrower's financing costs will be higher. That's because the appraisal determines the mortgage's loan-to-value ratio and the higher that ratio, the more onerous the loan's terms.


WarningOverinflated appraisals can trap consumers with too much debt and lock them out of the refinance market. They can also force people into default.

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TABLE OF CONTENTS

CHAPTER I
  Lesson 1
  Quiz

CHAPTER II
  Lesson 2
  Quiz

CHAPTER III
  Lesson 3
  Lesson 4
  Lesson 5
  Quiz

CHAPTER IV
  Lesson 6
  Lesson 7
  Quiz

CHAPTER V
  Lesson 8
  Lesson 9
  Quiz

CHAPTER VI
  Lesson 10
  Lesson 11
  Quiz

CHAPTER VII
  Lesson 12
  Lesson 13
  Lesson 14
  Quiz

CHAPTER VIII
  Lesson 15
  Lesson 16
  Lesson 17
  Lesson 18
  Quiz

CHAPTER IX
  Lesson 19
  Quiz

CHAPTER X
  Lesson 20
  Quiz

CHAPTER XI
  Lesson 21
  Quiz

CHAPTER XII
  Lesson 22
  Lesson 23
  Lesson 24
  Quiz

CHAPTER XIII
  Lesson 25
  Lesson 26
  Lesson 27
  Quiz

CHAPTER XIV
  Lesson 28
  Lesson 29
  Lesson 30
  Quiz

Definitions




RELATED STORIES

Appraisers can bust your bubble by inflating the value of your home.

 
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