RHODE ISLAND MORTGAGE CLEARINGHOUSE

 

"WHERE RI CONSUMERS FIND RI MORTGAGE AND INSURANCE LEADERS"

"Since 1995 Providing RI Consumers with Internet Mortgage and Insurance Services"

Understanding the Rhode Island Loan Process

Many people describe the mortgage lending process as a "jungle", difficult to navigate. Years ago this may have been true, however with the advent of Web lending services the process of securing a loan is becoming more and more simple. RI Mortgage Exchange helps you "jump over the jungle". The future is simple, log on.

Brokers versus Banks – Increased Product Selection

There are two main sources of obtaining a mortgage, banks and mortgage brokers. Banks will be competitive in and limited to the products they choose to provide, and encourage their loan originators to sell these products to the consumer. Often banks will choose to fill a niche, such as free pre-approvals, rather then attempting to be competitive in rate. Going down to the branch of the local bank was probably the way that your parents obtained their mortgage, but the trend is clearly moving towards the broker or the multi-lender platform such as Mortgage Exchange
Brokers represent a number of lenders and offer these lender's products through a wholesale arrangement. The lender upon delivering a loan compensates the broker, and the compensation is invisible to the borrower. Brokers who provide their services on the Internet tend to be the most competitive source for mortgages, due to reduced overhead and implementation of the latest in technology.

Brokers versus Banks – Unbiased Service

Banks are restricted to their own products. That is, they will not provide unbiased advice nor selection. Brokers on the other hand can offer all available products, from multiple sources, and can be objective in their recommendations. The compensation provided from one lender is equal to that from another lender, therefore the motivation is to provide you with the best loan product for your situation.
When you walk into your local bank, the application is usually taken right in the branch by one of the bank's loan originators. Odds are, your loan will be underwritten within that same branch, and upon approval it is that bank that will loan you the money. Should you get declined, you will be forced to start this process over from step one with another lender. Should you opt to work with a broker, and a lender declines you, the broker simply evaluates the reason for decline, and forwards your application to a lender that will accept your situation. Many times the broker has your application reviewed by more than one lender right from the beginning of the process to ensure a timely closing.

The Application Process

Whether you apply for your loan on the Internet, or you speak with a Mortgage Consultant over the phone, all lenders require an actual application. The form is standardized and known as the "1003'' which is the Fannie Mae designation for this form.
The lender will verify information about you the borrower(s) and will require additional property information. Borrower information will include verification of income and employment, assets, and credit history of the applicants. You, the applicant, as part of your application process, will provide some of this information. For example, you will be requested to provide copies of W-2 forms for 2 years, pay stubs, and bank statements for asset verification. Other information, such as your credit history, will be obtained directly from the credit bureaus even if you have a current credit report on hand. The lenders will always verify this information independently.
The lender will order an appraisal and a legal description of the property, such as a title report. Certain lenders will work with certain appraisal companies, so if you have an old appraisal the new lender may not necessarily accept it. Even if the loan is to be made with a relatively large down payment, the lender still wants the property appraised. In the case of a purchase, other inspections may also be done, such as a pest inspection, and are separate from the appraisal.

The Approval Process

During the "processing'' and / or "underwriting'' period, your credit, assets, income and other qualifying information are verified and compiled. The underwriter then reviews this information and either approves it outright, approves with conditions to be met, or declines it.
Conditions are further documentation or verifications that the lender needs to finalize your loan before funds can be dispersed. These conditions are often identified towards the end of the process, thus causing some borrowers to become frustrated. This is because the loan may go through several review processes prior to actual funding of the loan, and some final conditions can be added even after the loan documents have been signed. Just work with the lender and remember, the process is not perfect and the lender is simply trying to meet conditions imposed by other sources on them.
When all conditions are met, your loan documents are drawn up and forwarded to the place of settlement or closing. You sign everything and in some states the lender reviews the package one last time.

TIP: DO NOT make any changes to your financial situation during the loan process. A simple increase in debt such as an addition department store credit card can jeopardize your approval. On the same note, do not make any changes to your employment situation. Your loan is being reviewed based on your current income and debt situation.

The Lock Process

Before your loan documents are prepared, you will "lock in" an interest rate with the lender. This ensures that you will be provided the funds at most competitive interest rate available, as long as the loan closes before the lock period expires, typically 60 days. You can lock at application, upon approval, or anywhere in between. Typically, the shorter the duration between your rate lock and your actual closing, the lower the interest rate or points.
To summarize, there are many ways to approach your mortgage process beginning with whether you choose to use a local bank or broker. The advantages of working with an Internet based broker such as RI Mortgage Exchange are substantial and account for the shift away from banks and direct lenders. Understanding the loan process can minimize the likelihood of frustration during the loan transaction. Remember to work with a source that has established itself as a company with integrity that cares for the borrower throughout the experience.

Loan to Value Considerations

What is the Loan to Value or LTV?

Loan to value, or LTV as it is commonly referred to, is the ratio of Loan Amount to the Value of a property. For example, a loan of $200,000 on a property valued at $400,000 is at an LTV of 50%. Loan to Value is extremely important in determining what type of loan product you need.

Purchase loans

When purchasing a property, the amount you have for a down payment is vital to the lending decision. When you have less than 20% for a down payment (80% LTV or greater), the lender will usually require mortgage insurance or PMI. Programs requiring PMI will also need an additional level of approval, approval by the Mortgage Insurance Company. PMI as it commonly referred to, is a premium or fee, which is included in you monthly payment. The premium can range from .22% to as much as 1% of the loan amount annually. The loan type, the PMI COMPANY, and the LTV determine the exact coverage.

NOTE: PMI is not tax deductible.

There are many ways to avoid paying PMI. One option is to structure your financing so that the loan is the combination of a first and second mortgage. Also, there are many programs available that do not require PMI.

Refinance

When refinancing your home, many of the same considerations apply. LTV is determined by the loan amount (including any closing costs) divided by the appraised value. LTV?s greater than 80.01% may require PMI, depending on loan program. Programs without PMI often have a higher rate, with the advantage being that mortgage interest is tax deductible.
In summary, the lower the LTV, the lower the risk to the lender. Thus the lender will look more favorably upon the transaction. LTV considerations will also differ in situations where the property is an investment property, and non-owner occupied.

Paying Points

What are points?

Points are fees that are paid at the front of the loan to reduce the interest rate. A point is equal to 1% of the loan amount. In most cases, loans with points usually have a lower interest rate than that of ?no points? loans. Assuming that you don't finance the points, paying points is a trade off between paying the money now or later.

When You Should Pay Points

Because points are prepaid interest, you need to be sure you will keep the loan long enough to recoup these costs through lower monthly mortgage payments. If you know that there is a possibility that you will not keep the loan for the full term (ie: you move or refinance in a better market climate), you should not pay points