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The Mortgage Approval Process: An Interview with Steven Bray of Lone Star Lending

By Steven Bray

Tell us a little bit about your company and its foundation.

Texas Lone Star Lending is a different kind of mortgage company. We're small and prefer the personal touch. We don't operate on bank hours. We're not on the golf course at 3p. Your questions and needs are important. While we cannot always answer the phone, if you call between 9a and 7p Monday through Friday, we will return your call within two hours. (We'll even return calls on Saturday between noon and 6p, but please cut us some slack on holidays.)

Steve and Stacy have over 30 years of combined industry experience, and if we don't know the answer to your question, we know where to find it. We mean it when we say we're "Your Loan Educator."

What are some of the services your company provides?

Residential mortgage, commercial mortgage, land loans, construction loans.

What are some important questions to ask your mortgage broker before applying?

How is my interest rate determined?
How are you (the loan originator) paid?
Should I lock my rate at application or later in the process?

What are some important aspects of the mortgage approval process?

I'm going to break the process down into six important steps. While it's possible to argue that other parts of the process are also important, I think these six capture the essence of it.

Application: During this step, you meet with your loan originator (LO), in person or on the phone, to discuss your needs and provide financial information. Your LO should give you a list of required documentation, which will support the loan application.

Appraisal: I'm listing this as a step because it's so critical to the approval process. The appraisal is an estimate of the market value of your property. If the value is less than expected, we may not be able to approve your mortgage.

Underwriting: Once we have all your documentation, we submit it to our underwriter. It is this person's job to verify that your financial information conforms to the loan program's requirements and to make sure all the documentation makes sense. The underwriter also reviews the appraisal to make sure that the appraiser followed accepted guidelines and that the appraised value supports your loan application.

Conditional approval: Assuming your financial information meets the loan program requirements, the underwriter will issue a "conditional approval." This means the approval will be granted if you satisfy certain conditions. Typically, these are requests for additional documentation to explain something in the loan file, such as a large deposit, a recent job change, or mismatching addresses on your bank statements. I recommend you be patient with this process. It can seem tedious, but as a result of the financial crisis, all i's get dotted and t's get crossed.

Closing: Once you satisfy the conditions for approval, you're ready to close your transaction. Generally, the closing process takes a couple days as the lender's attorneys prepare the loan documents and iterate with the lender and the closing agent (usually a title company) to get all the numbers right. The most important number for you at this point is how much money you have to bring to closing. Your LO should be able to give you a good estimate, but the closing agent will calculate the final amount. Closing happens when you sign the loan documents and give the closing agent your check.

Funding: For a home purchase, you should get the keys when your mortgage funds, and that should happen the day you close (unless you close late in the day). If you're refinancing, federal regulations dictate that your mortgage cannot fund until the fourth business day after closing. You have the right to cancel the transaction during this time. Funding pays off your previous mortgage.

How do you suggest clients prepare for this process?

Get your financial documents ready. Your LO likely will need copies of the following:
Most recent 2 months of bank and investment account statements- If you don't receive paper statements, see if you can download them from the institution's Web site or contact the institution for copies.
Most recent 2 years of tax returns- If you don't have copies, you can order them from the IRS. If you filed an extension for the most recent year, you will need a completed copy of the extension request form. You may have to document that you paid any income tax due.
Most recent 2 years of W-2s- If you don't have copies, your employer(s) should be able to provide them.
Pay stub- You will need to provide your most recent pay stub.
Driver's license- Your lender will need a copy to comply with the Patriot Act.
Legal papers- Examples include a divorce decree, child support order, bankruptcy filing, or anything other legal matter that could affect your financial situation.

If you're refinancing, your LO also will need copies of your existing survey and your property insurance declarations page.

In addition, it is important to pay attention to the following so you don't rock your credit boat. Until your mortgage funds:
Do not apply for new credit
Do not co-sign for anyone else's debt
Do not quit your job
Do not make unnecessary large deposits
Do not move money between accounts unnecessarily
Do not make late payments on existing debt
Do not spend your closing funds

What are some common issues you face when it comes to approving a mortgage?

The most common issues we encounter are associated with the applicant's credit or with the appraisal:

Credit issues: If you ignore the advice above and "rock your credit boat," you may torpedo your approval. We will check for new credit accounts and verify that you're still employed just before closing. If anything changes, the underwriter must consider how it affects your ability to repay the mortgage.

Appraisal issues: The appraiser is our "eyes" on the property. If the appraiser identifies issues with the property that could affect your health or safety, these must be corrected before we can approve your mortgage. Keep in mind that the appraiser is not a home inspector, but he/she is going to notice issues like a broken exterior door lock (safety issue), non-functioning bathroom (health issue), or large cracks in walls or the foundation (safety issue).
A more common appraisal issue we face is the appraised value not equaling the sales price (for a home purchase) or expected value (for a refinance). For a purchase, approval depends on the seller lowering the contract price or you increasing your down payment to cover the difference between the price and the value. For a refinance, the resolution depends on the amount of equity you have in your property. Outcomes range from no effect to a slightly higher interest rate to a higher amount of cash due at closing.

What advice do you have for those with a low credit score?

For someone looking to purchase a home, I suggest you work with your LO or a reputable credit services company to improve your scores. If your credit report contains errors, you have the right to have them corrected. You may not be able to buy a home right now, but if you work on the issues depressing your scores, you can buy in the future. It's really unlikely the issues will go away if you ignore them.

For someone looking to refinance an existing mortgage, it may be possible to refinance regardless of your low scores. Talk to your LO about the available options.

How long does the approval process typically take?

It depends on the type of mortgage and the complexity of the situation. It can take as little as two weeks or as long as several months. On average, it should take 30 to 40 days.

Are there any special circumstances that can speed up the approval process, and if so what?

Use the checklists I provided above to be prepared. We spend much of the mortgage process waiting- waiting for the applicant to return documents, waiting on the appraiser, waiting for real estate agents to update contracts, waiting for the underwriter, etc. We cannot eliminate all of the waiting, but if you're prepared, it will speed up the process.

Secondly, be forthcoming with your LO. If you think an issue may affect your ability to qualify, chances are it will. Some issues are easily explained with additional documentation or a letter from the applicant. If you tell your LO about them up front, you eliminate the need for the lender to discover them and issue conditions for approval. Besides, if an issue is going to prevent you from qualifying, isn't it better to know that before you spend money on an appraisal and a credit report?

What is the best way for people to get in contact with you or your company?

You can contact us by phone (512-261-1542) or by email (info@LoneStarLending.com). We're on the Web at www.LoneStarLending.com and www.facebook.com/TexasLoneStarLending. We recommend our daily, one-minute videos posted on both sites to keep you up-to-date on interest rates, loan program changes, and real estate market trends.

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About The Author

Steve joined Texas Lone Star Lending in 2003 to manage the commercial financing...

Phone: (512) 261-1542

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