In the USA, the process by which a mortgage is secured by a borrower is
called origination. This involves the borrower submitting an application
and documentation related to his/her financial history to the
underwriter. Many banks now offer "no-doc" or "low-doc" loans in which
the borrower is required to submit only minimal financial information.
These loans carry a slightly higher interest rate (perhaps 0.25% to
0.50% higher) and are available only to borrowers with excellent credit.
Sometimes, a third party is involved, such as a mortgage broker. This
entity takes the borrower's information and reviews a number of lenders,
selecting the ones that will best meet the needs of the consumer.
Home
Loans are often sold on the open market to larger investors by the
originating mortgage company. Many of the guidelines that they follow
are suited to satisfy investors. Some companies, called correspondent
lenders, sell all or most of their closed loans to these investors,
accepting some risks for issuing them. They often offer niche loans at
higher prices that the investor does not wish to originate.
If the underwriter is not satisfied with the documentation provided by
the borrower, additional documentation and conditions may be imposed,
called stipulations. The meeting of such conditions can be a daunting
experience for the consumer, but it is crucial for the lending
institution to ensure the information being submitted is accurate and
meets specific guidelines. This is done to give the lender a reasonable
guarantee that the borrower can and will repay the loan. If a third
party is involved in the loan, it will help the borrower to clear such
conditions.
The following documents are typically required for traditional
underwriter review. Over the past several years, use of "automated
underwriting" statistical models has reduced the amount of documentation
required from many borrowers. Such automated underwriting engines
include Freddie Mac's "Loan Prospector" and Fannie Mae's "Desktop
Underwriter". For borrowers who have excellent credit and very
acceptable debt positions, there may be virtually no documentation of
income or assets required at all. Many of these documents are also not
required for no-doc and low-doc loans.
Credit Report
1003 — Uniform Residential Loan Application
1004 — Uniform Residential Appraisal Report
1005 — Verification Of Employment (VOE)
1006 — Verification Of Deposit (VOD)
1007 — Single Family Comparable Rent Schedule
1008 — Transmittal Summary
Copy of deed of current home
Federal income tax records for last two years
Verification Of Mortgage (VOM) or Verification Of Payment (VOP)
Borrower's Authorization
Purchase Sales Agreement
1084A and 1084B (Self-Employed Income Analysis) and 1088 (Comparative
Income Analysis) -- used if borrower is self-employed
Costs
Lenders may charge various fees when giving a mortgage to a mortgagor.
These include entry fees, exit fees, administration fees and lenders
mortgage insurance. There are also settlement fees (closing costs) the
settlement company will charge. In addition, if a third party handles
the loan, it may charge other fees as well.
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