ADM All Dominion Mortgage Blog

The Mortgage Approval Process

Many times after we meet with the loan officer we really do not understand the mortgage process. The loan officer does not fully explain things and we have in our own mind what is supposed to happen and when it should happen. Unfortunately this is a recipe for frustration. Rarely do things go the way we expect them, even if they go the way they are designed to, that may not be our expectation. If the loan officer sets the expectation and fully explains the mortgage approval process up front then we all will be happier. The process will change slightly from lender to lender and program to program, so as I lay out the general mortgage approval process. Be sure to confirm this with your loan officer.

Loan Officer

Pre-Qualification: This preliminary step happens when the loan officer talks to the client, gets their income and asset information, takes an application and pulls the credit report. Since the pre-qualification is nothing more than the loan officer expressing whether or not they think you will qualify the amount of verification they varies. This is only a loan officer opinion. This is not a mortgage approval.

Pre-Approval: The pre approval is more than the loan officer opinion. Generally the loan officer will take a complete application and submit it to an automated underwriting system for an automated mortgage approval. The credit is pulled but their is no verification or validation. Many times this pre approval is misinterpreted as an approval. Either at pre qualification or pre approval a complete and formal application is submitted. The loan officer collects the documentation they believe is necessary to process the loan then submits it to processing and underwriting for complete mortgage approval.

Processing and Underwriting

The loan processor takes control of the credit application now. They will verify and validate the informtion on the application. They will order the appraisal, title commitment, verification of employment, verification of deposits, and confirm all information on the application. Once the processor has verified the necessary information and the documentation they have ordered has returned she can submit it to underwriting for mortgage approval. Once the underwriter reviews the file most often the underwriter has questions and the file goes back to the processor to clear conditions. If the processor needs to contact the customer to clear those conditions they will. Sometimes we feel that we provided the information and it seems that the same things are asked for over and over again. That happens when the information does not properly answer the question or is incomplete. It is necessary that complete and most recent information is submitted initially to make the mortgage approval process as smooth as possible. It is the loan officers responsibility to know the general items needed and what is complete. On occasion we have unique circumstances or information comes up during  validation and verification that requires further information. By us working with the loan officer and processors we help make the process go quicker and easier. Only the underwriter approves or denies a loan. It is our job to present the loan in its best possible light with complete documentation to enhance the possibility of a quick clean mortgage approval.

Closing

Once the underwriter approves the loan ther may be conditions that the processor works to clear. When those conditions are cleared the file often goes back to the underwriter to issue a clear to close commitment. Sometimes the conditions are within the processors authority to clear the final conditions. Once a Clear to Close approval is issued the file goes to the closing department and a closing is scheduled. Generally, the attorneys schedule the closing. There are always conditions that must be cleared at the closing. Most often they only closing conditions that the escrow closer can clear. Sometimes there may be conditions that require the processor or underwriter to review before the funds are dispursed. This depends on the state the property is in and the lender, whether they will allow in underwriter to clear conditions to go to closing. Sometimes it is necessary.

Escrow Company

The final piece of the mortgage puzzle is the escrow company. They are a third party company, ussualy chosen by the seller for a purchase or the lender for a refinance. They represent the lender, title company, buyer, and seller ensuring that all interest are covered before they release the lenders funds. Of course the lender is the key because they issue the money, but if there is not agreement with other parties then there is no deal and the escrow company makes sure all parties complete the necessary lender, governmental and buyer seller aggrement forms.

This is the general flow of the mortgage process from pre application to funding. The time it takes to move from one stage to the next varies by program, borrower circumstances, and lender capacity. Communication is important. You should always ask your loan officer to give you a reasonable expectation of what time frame of every step as well as the process in total. If there are hurdles or snags along the way it is your loan officer who is responsible to keep you informed.

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When it comes to raising private money for your apartment deals, you are only limited by the scope of your imagination and creativity.  The amazing thing is that there is a simple, four-part formula that you can use to raise private money for multifamily real estate investing.  Most people, however, don’t know about this magic formula much less that there are four parts and what those four parts are.  Let us examine each of these four parts for raising private cash.

Keep in mind that all four of these need to be done simultaneously for the formula to work in real estate investing.

Predisposed:  You don’t want to make this a difficult process.  So to make it easy, you need to target people who are already predisposed to investing in real estate such as apartments.  They have already shown some affinity, some familiarity, and some willingness to invest in real estate.  They don’t need persuading that real estate is a good investment vehicle.  All they need to be persuaded on is you and your deal.

Control :  Preservation of capital is the primary concern before a private investor releases his or her funds.   Control is described best as when you are putting together an investment vehicle, how does the investor feel that they are retaining control over the transaction if something goes wrong?  If the borrower does not perform, how does the investor get control of the situation?

Low Risk:  The second complimentary part to Control is low risk.  How do I design a real estate investment vehicle that is as low risk as possible for the investor?  Ideally, it is no risk and if you go to the extreme, it is risk reversal.  The private investor actually makes more money if the borrower defaults.

High Return:  Once you have found someone who is predisposed to real estate and you have convinced him that you have a low risk transaction then the other human condition kicks in.  The investor then wants to know how good a deal he is getting for the low risk investment.  You have to craft an investment for them that yields a high return but doesn’t give away too much of your profits.

The premise of this formula is that you are building an investment product thru apartment investing.  The more you can package up your deal, and quickly and clearly articulate its merits makes all of the difference in the world in raising private monies.  With this formula alone, you probably know more about raising private money than 80% of real estate entrepreneurs out there.  The key is remembering that all four components need to be done at the same time in order for you to be successful.

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You don’t have to “graduate” from single family to multifamily. You can start with multifamily – just like Lance Edwards did.  And besides owning apartments, you can flip them for big cash. Utilizing the multifamily apartment strategies he now teaches and writes about, Lance retired from his job in July, 2005. For more information on how you can achieve financial freedom using other people’s money, visit http://www.ApartmentWealthMachine.com .

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Loan Modification is not just for homes. Apartments, Strip Centers, Commercial Bldgs and other investment properties can now qualify for a loan modification. With our nation in financial crises, and with retail market suffering, tenants on commercial properties are having a difficult time paying their rents and owners are defaulting on their leases at an alarming rate. Because of this, more and more commercial property owners are having a difficult time meeting their financial obligations.

What is a Commercial Loan Modification?

A commercial loan modification is the process of providing for either a permanent or a temporary change in one or more of the terms of a debt obligation or encumbrance because of some type of economic hardship currently affecting the borrower.  Because of the rising number of defaults, banks and commercial lenders, and in attempt to minimize their losses,  are willing to restructure the terms of their defaulted loans, in the hopes of avoiding a costly foreclosure process and having to show huge losses to their investors.

By modifying a commercial loan properly, a property owner can avoid foreclosure, and greatly reduce their monthly payment and in some cases reduce the principal amount of their debt. Examples of these hardships may include, but are not limited to, reduction in the rent roll, because concessions had to be made to tenants in order to keep them viable; loss of tenants due to the current economic conditions, loss of revenue from sales.

What are the types of Commercial properties can you Modify? Most all commercial properties. For Example:

* Strip-mall
* Shopping center
* Apartment building
* Warehouse
* Multi tenant building
* Investment property
* Business Complex
* Office Building
* Restaurant
* Commercial lots
* Other Income producing property

How does a commercial loan modification differ from a residential modification?

The modification of the commercial debt is being accomplished to assist the “viable” business to continue to operate profitably. By modifying some of the current debt terms, the business or investment can remain at a positive cash flow, thus allowing the borrower the motivation to continue to make payments to the bank or lender during this time of economic uncertainty.

With that being said, generally a Commercial loan modification company will do the following:

* Consultation and analysis
* Pre-qualification
* Qualification
* Negotiation
* Final Modification/ Restructuring of Loan

Who qualifies for a commercial loan modification?

The “viable” business owner or property investor who can demonstrate current or expected economic hardship, but at the same time is able to a business plan that can meet the proposed financing/modification will qualify for a loan workout. The bank or lender must become very comfortable that the borrower is not just delaying the obvious- foreclosure – but that the modification will benefit both the borrower and the lender. The borrower will be able to make the monthly payments established through the modification/workout.

How long should a loan modification take?

A typical commercial loan modification should take between one and three months, but it could take longer if the borrower or lender cannot agree on the terms. The time for the modification will depend upon how rapidly the application is processed and how quickly the debt instrument holder responds.

The biggest part of the process is research and analysis. Once all the components are put together to get a precise picture of the borrower’s financial situation, the next step is to review the current loan and come up with options that will work with the borrower’s situation today.

Experience shows that when the borrowers talk openly and honestly with us about their situation, many problems can be avoided in the modification process. This is not a situation where one signs up for a modification and then the modification company take it from there. They will need the borrower’s help. Documents will be requested, forms signed, conversations about the current loan. Once everything is in place and agreed, the modification application is presented to the bank for approval.

Will I or my property qualify for a loan modification?

There are many factors that determine on what basis a lender will modify a loan. Equity, income, payment history, debt ratio and many other factors. Every case is different. If your property is producing income that you can prove, then you probably will be able to come to a resolution.

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How do I know if I qualify for a commercial loan modification? There are many factors that determine on what basis a lender will modify a loan. Equity, income, payment history, debt ratio and many other factors.Find Out If Your Commercial Property Qualifies For A Commercial Loan Modification.  Visit: http://tinyurl.com/mxmef9

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