Lender's Guidelines for Loan Approval
A mortgage loan is a loan used to buy a home or refinance. Lenders want to feel secure in loaning you money. They might consider the following factors in the approval process of your mortgage application:
Home as Collateral
When you ask for a home loan, you're putting the home itself up as collateral that guarantees the repayment of a loan. The home is the collateral for the loan and acts as a guarantee that the loan will be repaid. The borrower risks losing the home if the loan is not repaid according to the terms of the loan contract. Naturally, the lender will want to know that the home is worth at least as much as the loan amount. A professional appraisal is done to determine the value of the home. An appraisal is based on the home's condition and selling prices of comparable properties in the area and confirms that the property is worth the purchase price you're offering for the home.
Capacity to Pay
A lender will weigh your housing expenses and total debt against your monthly income to determine your ability to repay a loan. They'll also want proof that you have the cash necessary for the down payment and closing costs.
Employment - Lenders usually prefer to lend money to people whose incomes have grown steadily over the past several years and who have worked consistently in the same or related occupations. If you are self-employed or work on a commission, lenders will require more financial documentation. 
Note: Lender guidelines are designed to be flexible. Even, if you don't meet all of the lender requirements, you may still qualify for financing.
Housing Expenses - This is your total monthly mortgage payment (principal and interest) you'll have with the new loan, and the monthly cost of insurances, property taxes and any homeowner's dues or other costs. Your monthly PITI payment (Principal, 
Interest, Taxes and Insurance) should be usually no more than 28% to 33% of your monthly gross income.
Monthly Income - Lenders usually use your gross income to determine the monthly mortgage payment you can afford. Gross income may also include the average of overtime pay and commissions, and child support or alimony, if you wish to have them considered.
Total debt - In general, lenders require that the total of all your monthly expenses (excluding basics like utilities and groceries) not exceed 38% of your gross monthly income. This monthly expenses include all your long-term debt (any current mortgages, credit card balances, child support or alimony payments, tuition, car loans or other installment loans that will take longer than 10 months to pay off) and is your total debt.
Monthly Income - Lenders usually use your gross income to determine the monthly mortgage payment you can afford. Gross income may also include the average of overtime pay and commissions, and child support or alimony, if you wish to have them considered.
Credit History
A satisfactory record of paying your bills on time is an important part of getting a home loan. Lenders will investigate your credit report which contains information about:
Installment debt, Mortgage/Rent payment history
Credit accounts and payment history
Public records, such as tax liens, judgments, or bankruptcies
Personal information
Your credit score (FICO) - Many lenders use it to decide whether you are creditworthy. Three credit reporting agencies - Experian (formerly TRW), Trans-Union, and Equifax  maintain credit reports. If you take responsibility for your debts by paying your bills regularly and on-time, you will appear to have the integrity they're looking for in a borrower.
Some Examples of Compensating Factors
Many factors can sway a lender in your favor. Some examples of compensating factors that will make an underwriter more lenient toward negative credit report can be a larger down payment, low debt-to-income ratios, an excellent history of saving 
money, and others. [Go to Top]

FICO Score
FICO stands for Fair Isaac & Company and is the name for the most well known credit scoring system, used by the Experian (formerly TRW). Trans-Union and Equifax are two other credit bureaus who also provide credit scores. Each scoring system evaluates one's complete credit profile and assigns a score. Scores can range from 300 to over 900. The score is used to help predict whether you'll repay a loan and can also influence the interest rate you pay. You should have your credit reviewed BEFORE you look for a home, and work with a PROFESSIONAL loan officer to make sure your loan is based on the most accurate information. [Go to Top]

Mortgage Brokers
Some companies, known as ¡§mortgage brokers¡¨ offer to find borrowers a mortgage lender willing to make borrower a loan. A mortgage may counsels them on the loans available from different lenders, any problems involved in qualifying for a loan, including credit problems, take the borrower's application, and usually process the loan. Processing includes compiling the file of information about the transaction, including the credit report, appraisal, verification of employment and assets, and so on. When the file is complete, it is handed off to the lender, who funds the loan. A mortgage broker may operate as an independent business and may not be operating as your ¡§agent¡¨ or representative. Mortgage brokers may be paid by the lender, borrowers, or both. You may wish to ask about the fees that the mortgage broker will receive for its services. [Go to Top]

Pre-Approval vs. Pre-Qualification
Loan Pre-Qualification
Getting pre-qualified for a loan is a pretty casual once-over of your financial
situation. Your mortgage broker or lender give you a non-binding letter indicating how much you could possibly borrow without actually verifying the information you provide them. Pre-qualification provides an informal means to find out how much you may be able to borrow.
Loan Pre-Approval
Sellers like to know you're already approved for a loan. Pre-approval may give you the edge over a competing buyer. A loan Pre-Approval is a firm lender commitment based on your credit reports and your incomes, debts, employment, assets, etc. Pre-approval is an official agreement by the lender specifying the exact amount for which you're been approved. [Go to Top]

Conventional Mortgage
A mortgage securing a loan made by investors without governmental underwriting, i.e., which is not FHA insured or VA guaranteed. A mortgage that is not insured or guaranteed by the federal government. [Go to Top]

Conforming Loan
A mortgage loan eligible for purchase by the two Federally sponsored housing agencies, Fannie Mae and Freddie Mac. The current conforming loan limit is $359,650 and below. Conforming loan limits change annually. [Go to Top]

Government-Backed Loans
VA Loan
Administered by the Department of Veterans Affairs, these special loans make housing affordable for U.S. veterans. For more detail information and to check on eligibility, please click on here. To qualify, in general, you must be a veteran, reservist, on active duty, or a surviving spouse of a veteran with 100% entitlement.
Some of the benefits of a VA home loan are:
No mortgage insurance premiums.
An assumable mortgage.
Right to prepay without penalty.
No down payment (unless required by the lender or the purchase price is more than the reasonable value of the property)
Negotiable Interest rate.
FHA Loan
The Federal Housing Administration, generally referred as FHA, loans are designed to make housing more affordable for first-time homebuyers and those with low to moderate income. FHA provides mortgage insurance on FHA loans protecting lenders against losses as the result of homeowners defaulting on their mortgage loans. FHA-insured loans require very little cash investment to close a loan. There is more flexibility in calculating household income and payment ratios. Eligible borrow can put down as little as 3% of the FHA appraisal value or the purchase price, whichever is lower. [Go to Top]

Fixed Rate Mortgage
This mortgage have a stated interest rate that does not change over the life of the loan ¡V usually 15, 20 or 30 years. With a fixed-rate mortgage the loan is amortized and be repaid by a series of regular payments, that are equal or nearly equal to cover the interest and principal, without any special balloon payment prior to maturity. This provides maximum stability as far as your monthly loan payment is concerned. Fixed-rate mortgages are best if you plan on being in your home for a while. If rates are low, you can lock in for as long as 30 years and protect yourself against rising rates. However, if rates fall you can't change your rate without refinancing the loan, and that could cost money. [Go to Top]

Adjustable Rate Mortgage (ARM) 
A mortgage whose interest rate changes periodically based on the changes in a specified index, such as CDs, T-Bills or LIBOR rates. The index is a gauge of interest rates which fluctuates with current market conditions. A fixed amount, the margin, is added to the index to calculate the interest for a loan. The adjustment period is simply how often the rate changes. As the rate changes, your monthly payment changes. ARM loans feature an adjustment "cap" which limits how much the interest rate can go up. This helps protect you from large increases in your monthly payment. ARMs often provide a much lower initial interest rate at the inception of the loan. If you plan on being in your home for a shorter period of time, or expect your income to increase over the years, an ARM loan may be right for you. If you apply for ARM, a disclosure and booklet required by the Truth in Lending Act will further describe the ARM. [Go to Top]

Convertible Rate Loans
A convertible rate loan is a hybrid one. Some start as an adjustable-rate mortgages but contains the option to switch to a fixed rate at some later dates. This mitigates some of the risk of fluctuating interest rates, but there will be a substantial fee to do it. And your new fixed rate may be higher than the present ARM low rate. Or it may be the reverse: the loan starts as a fixed rate and later can be switch to ARM. They may come with labels like 1/1 ARM, 3/1 ARM, 5/1 ARM, and so on. The loan offers a fixed rate for the first three, or five years, then switches to a one ARM that fluctuates with the market. [Go to Top]

Two-Step Mortgage
Following the initial fixed rate period, this mortgage may be converted to another fixed rate at the then prevailing rate. It could be adjustable but with a lifetime interest ceiling set at the time of the loan. Borrowers will benefit from a lower 
rate for the first few years and are not forced to pay off or refinance-they simply endure a one-time adjustment to the interest rate. [Go to Top]

Interest Only Mortgage - Straight Note
The straight note usually calls for the minimum payment required covers interest only. It allows the borrower to pay only the interest charged and how much or how little of the principal to repay each month for a particular period. With these loans, the unpaid balance of the principal is repaid in a lump sum at maturity. [Go to Top]

Combination Loan
A combination loan combines a first and second mortgage for up to 100% of the property's value in a single loan application, avoiding the additional costs of private mortgage insurance (PMI), the higher rates of a jumbo loan or both. With this type 
of loan, you putdown some down payments, receive a first mortgage for 80 percent of the loan amount, and a second mortgage at the same time for the remainder of the balance.
 [Go to Top]

First Deed of Trust or Mortgage
A legal document pledging collateral for a loan that has first priority over all other claims against the property except taxes and bonded indebtedness. That mortgage superior to any other. Also called senior or primary lien. [Go to Top]

Home Equity Loan and Home Equity Line of Credit
Home Equity Loan
A junior mortgage secured by the equity in the home. All funds for this loan are disbursed at closing.
Home Equity Line of Credit
A form of revolving credit in which your home is used as collateral. Borrowers can borrow against at any time within a set time limit and up to a maximum amount. Home equity lines of credit feature a variable interest rate and a draw period. [Go to Top]

Graduated Payment Mortgage (GPM)
Fixed interest rate loan on which the scheduled monthly payments start low, but raise later, than level off. Lower payments can make it possible for you to afford a bigger home, but if the monthly payment is insufficient to pay the interest accruing on the principal, so the shortfall is added to principal, with consequent negative amortization. [Go to Top]

Bridge Loan
A bridge loan is a short-term loan, a form of second trust that is collateralized by the borrower's present home in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."  allows a buyer to take over ("assume") responsibility and liability for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property. [Go to Top]

Amortized Mortgage
An amortized loan calls for installment payments that included both principal and interest. Two main types are:
Fully Amortized Note - A Mortgage that is completely paid off without any special balloon payment prior to maturity, interest and principal, by a series of regular payments that are equal or nearly equal. Also called a Level-payment Loan.
Partially Amortized Note, Balloon mortgage - In a balloon mortgage, the amortization period is a state years but the entire unpaid balance is due at the end of a earlier specified term. The final lump sum payment (balloon) for discharging the debt is at least twice larger than the other installment payments provided under the terms of the promissory note. Unless the note calls for a rollover, there is no assurance that the loan will be rewritten with a new rate at maturity. It can be risky if you do not have enough cash or cannot refinance in time to repay the debt. [Go to Top]

Biweekly Payment Mortgage
Traditionally, amortized real estate loans have been paid on a monthly basis. However, some lenders offer borrowers the option of biweekly, instead of monthly, loan payments. The 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard fixed-rate mortgage. [Go to Top]

Cash Out Refinance
A refinance transaction in which the borrower receives additional cash that can be used for any purpose. The refinance amount from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, and any outstanding subordinate mortgage liens. [Go to Top]

Down Payments, First Time Homebuyer and Financial Assistance
When you borrow money for a home, you may be required to contribute some of your own money toward the purchase of the home. This money is called your down payment.
Down payment assistance programs are available that either lower the deposit dramatically or eliminate it altogether. Before making your down payment, you'll want to investigate these programs to see if you qualify. 
For information about first time home buyer programs and a variety of other home loan assistance programs in California, check out
the California Housing Finance Agency
the California Department of Housing and Community Development
To learn more about the home purchase, loan process, and Community Homebuyer Program loans, check out
Freddie Mac
Fannie Mae
You may be eligible for a loan insured through the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs
For information about the home purchase, loan process, and FHA Loans, check out
U. S. Department of Housing and Urban Development
For information on home loan assistance available to eligible veterans, check out
the California Department of Veterans Affairs
the Department of Veterans Affairs Loans   [Go to Top]

Loan Application
A form, commonly referred to as a 1003 form, used to apply for a mortgage and to provide information regarding a prospective borrower and the proposed property. The form requests the applicant's personal information, financial condition, including 
the amount and consistency of income, along with outstanding debts and expenses, and description of the property that is to be mortgaged, including location, age, size of lot, and improvements.
When preparing a loan, the lender will ask for substantial documentation. Information you may need to provide to apply for a mortgage:
Personal Information
Name, address, age, marital status, Social Security number, and phone numbers of each borrower 
Age of dependent(s)
Amount of time at current address 
Previous address(es) over the last seven years
Name and address of landlord(s) or lender(s) for the past two years and proof of payment
Current housing expense details (rent, mortgage payments, taxes, insurance)
Employment/Income
Names, addresses and telephone numbers of all your employers for the last two years.
Pay stubs for the past 30 days, W-2 forms, the forms you get from your employer every year to file your income tax returns, for the past two years
A written explanation of any employment gaps
Other Income
You may also provide other income information:
If you are self-employed, or more than 25% of your income comes from commission, overtime or bonuses, you may need to provide:
Complete, signed Federal Income Tax Returns for the past two years (personal and corporate)
Year-to-date Profit and Loss Statement and Balance Sheet
If you receive Social Security, a pension, disability or VA benefits you'll need:
A copy of your awards letter (or tax returns for the past two years)
A copy of your most recent check
Child Support or alimony, if you choose to have them considered:
A copy of the divorce or separation agreement
Evidence of payment for the last 6-12 months (cancelled checks of pay history from the courts)
If you receive rental income you'll need:
A copy of the lease
Evidence of Funds for Down Payment and Closing Costs
You may need to provide statements from all your accounts (checking, savings, mutual funds, money markets, certificates of deposits, 401(k) or other retirement accounts) for the last two months to verify the exact amount of cash you have available for your down payment and other costs associated with your home purchase. For certain mortgage loans, a portion of the down payment may come from a gift from a family member or a grant from a local down payment assistance program.
If the down payment is a gift you'll need a signed gift letter, the giver's bank statement showing sufficient funds, a copy of the check and a deposit slip
If you have any recent large deposits or new accounts you'll need to show documentation
Debt Disclosure - Credit Cards, Loans and/or Current Mortgages
Name and address of each creditor
Account number, minimum monthly payment and outstanding balance for each
Proof of recent payment or current statement for each
Documentation of alimony or child support you are required to pay
Written explanation of any past credit problems
Other
If your loan is for new construction the lender will need to see plans and specifications
If there's a bankruptcy in your financial history you'll need complete documentation [Go to Top]

Lock-ins
Secure the interest rate you want. Interest rates fluctuate daily, so the rates available when you apply may be different than the rates available when you decide to lock your interest rate. Locking in¡¨ your rate or points at the time of application or during the processing of your loan will protect your selected rate and/or points for a stated period, usually from 30 to 90 days regardless of market fluctuation. Ask your lender if there is a fee to lock-in the rate and whether the fee reduces the amount you have to pay for points. Find out how long the lock-in is good, what happens if it expires, and whether the lock-in fee is refundable if your application is rejected. Once your rate is locked, you will receive a lock confirmation stating the rate and terms that you have protected. [Go to Top]

Settlement
Settlements may be conducted by lenders, title insurance companies, escrow companies, real estate brokers or attorneys for the buyer or seller. In California, settlement may be conducted by neutral third parties, such as title and escrow companies. All the parties involved in the real estate transaction (buyer, seller, and lender) deliver their instructions, documents, and money to the escrow agent. When all conditions have been met, the escrow is closed. The escrow agent records certain documents such as the grant deed, deed of trust, and deed of reconveyance, prepares closing statements distributes funds. [Go to Top]
Recording
The noting in a public office of the details of a legal document - such as a deed or mortgage - affecting the title to real estate. Usually a public county office known as the County Recorder designates the fact that a document has been presented for recording by placing a recording stamp upon it indicating the time of day and the date when it was officially placed on file. When such an instrument is properly recorded, it is considered to be a matter of public record. Legally, that means that all subsequent purchasers are deemed to have constructive knowledge of that information. This type of notice is called ¡§constructive notice¡¨ or ¡§legal notice". Claims against property usually are given a priority on the basis of the time and the date they are recorded with the most preferred claim going to the earliest one recorded and the next claim going to the next earliest one recorded, and so on.  [Go to Top]

Closing Costs
The miscellaneous expenses buyers and sellers normally incur in the transfer of ownership of real property over and above the cost of the property. For buyers, closing costs can be divided into those that occur only once, at the time of loan, and are therefore labeled non recurring; and those that are ongoing, that is, continuous beyond the close of the loan transaction and are therefore labeled recurring closing costs. These closing costs may include:
Nonrecurring Closing Costs
The following costs are one-time charges that usually pay by buyer at close of escrow. However, it must be stressed that the issue of who pay the costs always be negotiated. 
Origination fees, which are the costs of processing your loan (including property survey and appraisal)
Title insurance charges
Title Insurance
Insurance to protect a real property owner or lender up to a specified amount against certain types of loss, e.g., defective or unmarketable title.
Lender's Policy
Title insurance is usually required by the lender to protect the lender against loss resulting from claims by others against your new home. In some states, attorneys offer title insurance as part of their services in examining title and providing a title opinion. The attorney's fee may include the title insurance premium. In other states, a title insurance company or title agent directly provides the title insurance.
Owner's Policy.
A lender's title insurance policy does not protect you. Similarly, the prior owner's policy does not protect you. If you want to protect yourself from claims by others against your new home, you will need an owner's policy. When a claim does occur, it 
can be financially devastating to an owner who is uninsured. If you buy an owner's policy, it is usually much less expensive if you buy it at the same time and with the same insurer as the lender's policy.
Recording and transfer charges, recording fees, notary fees
Escrow fee. The escrow fee is charged for handling and supervising the escrow.
Recurring Closing Costs
Escrow account, an account held by the lender into which the homebuyer usually pays for city/county property taxes, mortgage insurance, hazard insurance and flood or earthquake insurance, if required
Items paid in advance, including first-year mortgage insurance premium, first-year hazard insurance premium and first-year flood or earthquake insurance premiums, if required 
Pre-paid interest
This amount represents the interest that accrues between the day your loan closes and the last day of that month, and is added to your closing costs. After this one-time prepayment your interest will be included in your regular monthly payments.
Tax proration
Most sales agreements provide for proration taxes between buyer and seller. [Go to Top]

Mortgage Insurance
If your down payment is less than 20% of the home purchase price, you can expect to pay some form of mortgage insurance. Mortgage insurance guarantee the payment of the upper portion of a loan in case the lender forecloses and suffers a loss. Home loans that are insured let you buy a home with a lower down payment than the lender would otherwise require. Two government agencies the Federal Housing Administration (FHA) and the Veterans Administration (VA) provide insurance for certain kinds of mortgage loans. Mortgage insurance is also available from private companies. [Go to Top]

Mortgage Payments
These always include interest and may also include principal. The principal is the remaining balance of your loan, and the interest is the charge or price, expressed as dollars, paid for the use of the money. Depending upon lender or loan, the payments may also include property taxes, mortgage insurance and hazard insurance. Typically, all or most of your interest payments are tax deductible. [Go to Top]

Annual Percentage Rate
The relative cost of credit as determined in accordance with Regulation Z of the Board of Governors of the Federal Reserve System for implementing the Federal Truth in Lending Act. [Go to Top]

Takeover Loans
Assumable Mortgage
A mortgage with assumption clauses and without alienation clauses, allows a buyer to take over ("assume") responsibility and liability for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.
Subject To's
The buyer does not agree to assume primary liability for the loan and the seller continues on the obligation, when property is purchased "subject to" the existing loan. [Go to Top]