First Time Home Buyer Guide: What You Can Expect: Conventional Loans Part 5

The Conventional Process After Submission

In the last blog post, we spoke about the Uniform Residential Loan Application, or the 1003 Form. In this final post, we will be talking about what happens after the initial submission for the first time home buyer in the Conventional Loan Program. This post will be very similar to the USDA and FHA posts for this same topic, as the process is identical.

After the first time borrower,  along with the Loan Officer, submits the application with all of the required documentation to the lender, the underwriter will review all of the documents. Unless there is a statement of denial right then and there, the lender will reply with what is called a Conditional Approval. This approval outlines all additional documents required by the Loan Officer or Loan Processor, First time borrower, Seller’s and Buyer’s Agents, and Title companies associated with the transaction.

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Documents Required For The Conditional Approval: Borrower and Third Party Documents

Most documents required by the first time borrower at this stage may be any additional pay stubs and bank statements that have since expired. The first time borrower has to remember that pay-stubs expire after thirty days, and Bank Statements after forty five days. Also, if the first time borrower still does not have the needed funds for closing, the underwriter will ask for an updated Bank Statement to show those funds being available. Any funds added to a first time home buyer’s bank account that is not labeled on their statements as payroll will need to be sourced if this is the case. 

The title company will be responsible for sending in accurate title documents. These title documents include a Pre Closing Disclosure, Wiring Instruction, tax Certificate, Title Commitment, Errors and Omissions Insurance, Chain of Title and a Closing Protection Letter. The Pre Closing Disclosure outlines all of the costs of a loan is similar to a Master Statement that is received when a loan closes.  The Wiring Instructions are just instructions for sending money to the title company to pay for title documents. The Title Commitment includes the lender and first time purchaser, outlines any policies that are covered, like an owner’s policy and lender’s policy, and the coverages and exemptions that are covered under each. Additionally, the chain of title may be on the Title Commitment as well. The chain of title shows the the previous deeds transfers, up to a twenty four month period. The Title Commitment may also, in their title search, find judgments for either the seller and buyer. Sometimes, a title company will not go through with a loan until these judgments are addressed and satisfied. The Closing Protection Letter is a letter that forms an insurance contract between the title company and the lender. This contract will basically compensate the lender for any misconduct carried out by a closing agent, and will not hold the lender accountable for damages.

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Responsibilites: Borrower and Third Party Responsibilities

The seller’s and buyer’s agents will be responsible for any purchase contract extensions as well as any inconsistencies that may arise from the submitted purchase contract. For example, if there are any addendums, the underwriter will need these to be signed and dated by all parties to insure that the transaction is legally bound. 

The Loan Processor and first time home buyer will be responsible for procuring homeowner’s insurance for this first home. Buying a home for the first time can cause stress when it comes to searching for homeowner’s insurance, but a good Loan Officer will provide the first time home buyer with a specific number to keep the yearly premium under. The homeowner’s insurance has to be within the required debt-to-income ratio so that it will be affordable. 

Hopefully, this series of blog posts has helped a borrower with their first mortgage using the Conventional Loan Program. Our aim was to hopefully prepare a first time buyer with their first home, and not be intimidated by the process. Next, we will be discussing the VA Loan Type, and outline what the process would be for obtaining a first time home buyer’s first home. 

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First Time Home Buyer Guide: What You Can Expect: Conventional Loans Part 4

In the last section we briefly spoke about the Appraisal Report and additional documents that may be needed by the first time home buyer to receive a clear to close. This section will be about the documents needed for the general application for the Conventional Loan submission process. Just a note, that this section will be very similar to the USDA and FHA posts about this Uniform Residential Loan Application.

The general application for a loan is called the Uniform Residential Loan Application, or the 1003. First time home buyers will hear more mortgage-savvy individuals will refer to this as the “Ten-Oh-Three” form. This form is the form that the first time home buyer will submit along with all of their income, assets and legal documentation to a lender. This information needs to be filled out as completely as possibly by the first time home buyer. The first time home buyer will be assisted by the loan officer when filling this form out for their first home loan.

The first time home buyer’s responsibility is disclosing all of the information for the Loan Officer on this form, and being as accurate as possible. The purchase contract will be there to provide the information in regards to the loan type, amortization period, and the property information. The property information basically indicates what kind of property this will be, whether it’s a regular loan, new build, or refinance. Each section has specific information that will be need to be filled out together with the first time home buyer’s loan officer.

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The next couple sections of the Uniform Residential Loan Application have to deal with borrower information. This information is absolutely crucial and will need to be as accurate as possible. This will be personal information such as date of birth, social security number, and current address. This will also include if there’s a co-borrower on the loan as well. The first time home buyer will also input their work information, including employer and work history. For Conventional Loan guidelines, the underwriter will need the last 2 years of employment, so if there are multiple employers this section has a place for this additional information. The underwriter will require a verification of employment from all of a first time home buyer’s  employers within the last two years of employment.

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The next section will be detailing assets and liabilities. This section will be asking about all of your bank accounts, IRAs and/or 401Ks or any other retirement accounts. The first time home buyer will also notice there’s a “liabilities” section. This section will also be requiring any current bills and monthly payments, such as a personal or car loan. These must all be documented so the loan officer and the underwriter can get an accurate representation of a first time borrower’s debt-to-income ratio, as well as assets that are available for the loan. For any legal related debts, such as child support or spousal support, there is also a section for this information to be added. The loan officer and underwriter will be looking for proof of all of these documents as well.

The other sections are for demographic information and disclosures and instructions about the document itself. The information added here should be as accurate as possible as well.

For the next section, we will be talking about the Conditional Approval and Closing.

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First Time Home Buyer Guide: What You Can Expect: Conventional Loans Part 3

In the last section we spoke a bit more about asset documentation and credit documentation needed by the first time home buyer for Conventional Loans. We also gave a few tips in regards to what the underwriter for lenders will need for these items. For this section, we will be talking about Appraisal Reports for the first home, and what additional documents may be needed because of an Appraisal Report review. 

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The first time home buyer can always expect to have to purchase an Appraisal Report. The Appraisal Report gives the underwriter a lot of information in regards to the home being purchased, including the layout, the year the home was last sold or purchased, and value information in comparison to homes in the immediate area. Unlike FHA and USDA loan programs, Conventional loan program does not have as many guidelines and requirements, unless specifically stated in the purchase contract as being required. The home can be sold as is, with repairs being needed in Conventional, provided the buyer wishes to do so. For example, Conventional Loans do not have rules regarding recent flips like FHA loans and can be purchased less than 90 days after a recent sale. 

Additionally, unlike the USDA program, first time homes through the Conventional Loan Program can have repairs that are needed, but the seller and buyer will only remedy these repairs if the purchase contract indicates so. Most of the time, these Appraisal Reports will be labeled “as is,” with any repairs being the responsibility of the first time home buyer. The appraisal report can cost anywhere between $300 and $600 depending on the Appraisal Management Company used, or AMC. The appraiser that is then tasked to go to a home strictly makes observations. In other words, this should not be confused with a home inspection. The first time home buyer needs to be sure that the home they are looking to purchase, along with any defects, is exactly what they wish to have.  

The Appraisal Report for the first buyer can lead into additional expenses that may be rolled into the cost of the home, but this is typically not the case for Conventional homes unless the purchase contract requests for one. For example, for USDA and FHA, if the first time home buyer has a home that is on private well water, the underwriter will require a water inspection to insure that the water is safe to drink. This is not the case for Conventional Loan Programs. 

Other inspections that can result from a first time home buyer’s Appraisal Report can be roof inspections, septic inspections, mold inspections, and termite inspections. These inspections will need proof that the home does or does not need repairs and must also provide the copy of the invoice. If the first time home buyer purchases these inspections, these may be rolled into the cost of the loan if the purchase contract indicates that this will be the arrangement.

For the next section, we will be talking about loan application documents for the Conventional loan program. 

 

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First Time Home Buyer Guide: What You Can Expect: Conventional Loans Part 1

For this part of the series, we will be discussing what a first time home buyer can expect with applying for a loan as Conventional. Buying a home through a Conventional loan program has several differences from the USDA loan program, but can closer related to the FHA program. The Conventional Loan program is the industry-normalized loan program that most home-owners participate in. This program doesn’t target any potential first time borrower over a repeat borrower, unlike the FHA Program.  If you’d like to learn more about the Conventional program in depth, including reasons why people generally pick this program over others, please check out the Conventional Loan Program update!

Image result for modern living roomSimilar to the USDA and FHA First Time Home Buyer Guide, we will be discussing Assets and Income first. The Conventional program is a bit more lenient in terms of requirements for asset documentation, such as bank statements. The first time home buyer can rest assured that household asset documentation is not required for this program. While large deposits do need to be sourced for this program, the large deposit “threshold” will be much more forgiving than the USDA program.

Non-payroll deposits of 1% or more of the purchase price will need to be sourced for Conventional programs. The underwriter needs to make sure that the first time home buyer’s money is coming from a credible, legal source, and will need to be documented. Non-purchasing spouse can submit their asset documentation only if they wish to. This includes others in the home that are over eighteen years of age. The only difference is if there are transfers going into the first time borrower’s account from another person’s bank account. If this is the case, that Bank Statement will need to be provided so the underwriter can source the transfers. Joint accounts will need to be submitted as long as the first time borrower is listed as an account holder as well. Other than that, submitting of Bank Statements is pretty straight forward.

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Just like for the USDA program, the underwriter will require 30 days of the most recent pay stubs for submission. As mentioned before, pay stubs are used for determining the baseline for income, and can also see if there any deductions for other things, such as child or spousal support. In order to get an accurate reading on debt-to-income, if there are any other additional deductions besides taxes, social security, etc., then there will need to documentation provided to the underwriter to show how long the additional deductions will be affecting the income. If the first time borrower pays or receives child support, a child support order is needed, and if a first time borrower pays or receives spousal support, a divorce decree and separation agreement will be required. Both of these items are required because the first time borrower will need to have debt-to-income recalculated if these items weren’t previously shown. 

For the next section, we will dive into a bit more for the Conventional loan program with Part Two of the series!

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