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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.
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.
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
 A
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.
 Overinflated
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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