General Information - Application / Finance Process

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The Application Process
  1. Pre-Qualification
  2. IjaraTM Programs and Rates 
  3. The Application
  4. Processing
  5. Required Documents
  6. Credit Reports
  7. Appraisal Basics
  8. Underwriting
  9. Closing
  10. Summation

 

Pre-Qualification

Pre-qualification starts the IjaraTM process. Once a lender has gathered information about a lessee's income and debts, a determination can be made as to how much the lessee can pay for a house. Since different IjaraTM programs can cause different valuations a lessee should get pre-qualified for each IjaraTM type the lessee may qualify for.
In attempting to approve homebuyers for the type and amount of IjaraTM they want, investors look at two key factors. First, the lessee's ability to repay the lease and, second, the lessee's willingness to repay the IjaraTM.
Ability to repay the IjaraTM is verified by your current employment and total income. Generally speaking, to qualify for IjaraTM, investors prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years.
The lessee's willingness to repay is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Willingness is also closely related to how you have fulfilled previous financial commitments, thus the emphasis on the Credit Report and/or your rental payment history.
It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, your stronger point could make up for the weak one.
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IjaraTM Programs and Rates
To properly analyze IjaraTM Program, the lessee needs to think about how long they plan to keep the lease. If you plan to sell the house in a few years, an adjustable lease may make more sense. If you plan to keep the house for a longer period, a fixed lease may be more suitable.
Shopping for a loan is very time consuming and frustrating. With so many programs to choose from, each with different rates, points and fees, an experienced IjaraTM professional can evaluate a lessee's situation and recommend the most suitable IjaraTM Program. Thus allowing the lessee to make an informed decision.

The Application
The application is the true start of the IjaraTM process. The lessee completes, with the aid of a IjaraTM professional, the application and provides all Required Documentation.
The various fees and closing cost estimates will have been discussed while examining the IjaraTM Programs and these costs will be verified by the Good Faith Estimate (GFE) and a Truth-In-Lending Statement (TIL) which the lessee will receive within three days of the submission of the application to the lender. These are standard government required forms.

Processing
Once the application has been submitted, the processing of the IjaraTM begins. The Processor orders the Credit Report, Appraisal and Title Report. The information on the application, such as bank deposits and payment histories, are then verified. Any credit derogatories, such as late payments, collections and/or judgments require a written explanation. The processor examines the Appraisal and Title Report checking for property issues that may require further investigation. The entire IjaraTM package is then put together for submission to the lender.

Required Documents
If you are acquiring  your home, and you are salaried you will need to provide the past two-years W-2s and one month of pay-stubs: OR, if you are self-employed you will need to provide the past two-years tax returns. If you own rental property you will need to provide Rental Agreements and the past two-years tax returns. If you wish to speed up the approval process, you should also provide the past three-months bank, stock and mutual fund account statements. Provide the most recent copies of any stock brokerage or IRA/401k accounts that you might have.
If you are requesting cash-out you will need a "Use of Proceeds" letter of explanation. Provide a copy of the divorce decree if applicable. If you are not a US citizen, provide a copy of your green card (front and back), or if you are NOT a permanent resident provide your H-1 or L-1 visa.
If you are applying to replace your existing mortgage you will need to, in addition to the above documents, provide a copy of your first mortgage note and deed of trust. These items will normally be found in your loan closing documents.

Credit Reports
Most people applying for a home loan need not worry about the effects of their credit history during the IjaraTM process. However, you can be better prepared if you get a copy of your Credit Report before you apply for your home loan. That way, you can take steps to correct any negatives before making your application.
A Credit Profile refers to a consumer credit file, which is made up of various consumer credit reporting agencies. It is a picture of how you paid back the companies you have borrowed money from, or how you have met other financial obligations. There are five categories of information on a credit profile:
  • Identifying Information
  • Employment Information
  • Credit Information
  • Public Record Information
  • Inquiries
NOT included on your credit profile is race, religion, health, driving record, criminal record, political preference, or income.
If you have had credit problems, be prepared to discuss them honestly with a IjaraTM professional who will assist you in writing your "Letter of Explanation." Knowledgeable IjaraTM professionals know there can be legitimate reasons for credit problems, such as unemployment, illness or other financial difficulties. If you had problems that have been corrected (reestablishment of credit), and your payments have been on time for a year or more, your credit may be considered satisfactory.
The mortgage industry tends to create its own language and credit rating is no different. BC mortgage lending gets its name from the grading of one's credit based on such things as payment history, amount of debt payments, bankruptcies, equity position, credit scores, etc. Credit scoring is a statistical method of assessing the credit risk of a loan application. The score looks at the following items: past delinquencies, derogatory payment behavior, current debt levels, length of credit history, types of credit and number of inquires.
By now, most people have heard of credit scoring. The most common score (now the most common terminology for credit scoring) is called the FICO score. This score was developed by Fair, Isaac & Company, Inc. for the three main credit Bureaus; Equifax (Beacon), Experian (formerly TRW), and Empirica (TransUnion).
FICO scores are simply repository scores meaning they ONLY consider the information contained in a person's credit file. They DO NOT consider a persons income, savings or down payment amount. Credit scores are based on five factors: 35% of the score is based on payment history, 30% on the amount owed, 15% on how long you've had credit, 10% percent on new credit being sought and 10% on the types of credit you have. The scores are useful in directing applications to specific loan programs and to set levels of underwriting such as Streamline, Traditional or Second Review, but are not the final word regarding the type of program you will qualify for or your interest rate.
Many people in the mortgage business are skeptical about the accuracy of FICO scores. Scoring has only been an integral part of the loan process for the past few years (since 1999); however, the FICO scores have been used since the late 1950's by retail merchants, credit card companies, insurance companies and banks for consumer lending. The data from large scoring projects, such as large mortgage portfolios, demonstrate their predictive quality and that the scores do work.
The following items are some of the ways that you can improve your credit score:
  • Pay your bills on time.
  • Keep Balances low on credit cards.
  • Limit your credit accounts to what you really need. Accounts that are no longer needed should be formally cancelled since zero balance accounts can still count against you.
  • Check that your credit report information is accurate.
  • Be conservative in applying for credit and make sure that your credit is only checked when necessary.
A lessee with a score of 680 and above is considered an A+ lessee. A loan with this score will be put through an "automated basic computerized underwriting" system and be completed within minutes. Lessees in this category qualify for the lowest profit rates and their loan can close in a couple of days.
A score below 680 but above 640 may indicate underwriters will take a closer look in determining potential risk. Supplemental documentation may be required before final approval. Lessees with this credit score may still obtain "A" pricing, but the loan may take several days longer to close.
Lessees with credit scores below 640 are normally locked into the best rate and terms available. This loan type usually goes to "sub-prime" lenders. The loan terms and conditions are less attractive with these loan types and more time is needed to find the lessee the best rates.
All things being equal, when you have derogatory credit, all of the other aspects of the loan need to be in order. Equity, stability, income, documentation, assets, etc. play a larger role in the approval decision. Various combinations are allowed when determining your grade, but the worst-case scenario will push your grade to a lower credit grade. Late loan payments and Bankruptcies/Foreclosures are the most important. Credit patterns, such as a high number of recent inquiries or more than a few outstanding loans, may signal a problem. Since an indication of a "willingness to pay" is important, several late payments in the same time period is better than random lates, at least that is what most people in the industry think.

Appraisal Basics
An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights to be appraised. The appraiser does not create value, the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. Considerable research and collection of data must be completed prior to the appraiser arriving at a final opinion of value.
Using three common approaches, which are all derived from the market, derives the opinion, or estimate of value. The first approach to value is the COST APPROACH. This method derives what it would cost to replace the existing improvements as of the date of the appraisal, less any physical deterioration, functional obsolescence and economic obsolescence. The second method is the COMPARISON APPROACH, which uses other "bench mark" properties (comps) of similar size, quality and location that have recently sold to determine value. The INCOME APPROACH is used in the appraisal of rental properties and has little use in the valuation of single family dwellings. This approach provides an objective estimate of what a prudent investor would pay based on the net income the property produces.

Underwriting
Once the processor has put together a complete package with all verifications and documentation, the file is sent to the lender. The underwriter is responsible for determining whether the package is deemed an acceptable loan. If more information is needed the loan is put into "suspense" and the lessee is contacted to supply more information and/or documentation. If the loan is acceptable as submitted, the loan is put into an "approved" status.
  

Closing
Once the loan is approved, the file is transferred to the closing and funding department. The funding department notifies the broker and closing attorney of the approval and verifies broker and closing fees. The closing attorney then schedules a time for the lessee to sign the loan documentation.
At the closing the lessee should:
  • Bring a cashiers check for your down payment and closing costs if required. Personal checks are normally not accepted and if they are they will delay the closing until the check clears your bank.
  • Review the final loan documents. Make sure that the profit rate and loan terms are what you agreed upon. Also, verify that the names and address on the loan documents are accurate.
  • Sign the loan documents.
  • Bring identification and proof of insurance.
After the documents are signed, the closing attorney returns the documents to the lender who examines them and, if everything is in order, arranges for the funding of the loan. Once the loan has funded, the closing attorney arranges for the IjaraTM Lease, Option/Promise to Purchase, mortgage note and deed of trust to be recorded at the county recorders office. Once the IjaraTM has been recorded, the closing attorney then prints the final settlement costs on the HUD-1 Settlement Form. Final disbursements are then made.
  

Summation
A typical "A" IjaraTM transaction takes between 14-21 business days to complete. With new automated underwriting, this process speeds up greatly. Contact one of our experienced Marketing Agents today to discuss your particular IjaraTM needs or fill out the Pre-Qualification Form and a licensed broker or representative  will promptly get back to you.