Guidelines in a Mortgage Loan Process
Guidelines in a Mortgage Loan Process
In the past few years, the mortgage loan process and procedural policies have been much more rigid, which is clearly brought about by the foreclosure crisis. A borrower’s financial records are thoroughly inspected to make sure the borrower is qualified in terms of credit score and that the procedures for various loan products are followed.
For products such as FHA and VA, the loan approval process involves sourcing the borrower’s funds. This means accounting for the borrower’s cash on hand and where it came from, including money for deposit requirements. For instance, FHA loans ask for at least 3.5 percent of the overall purchase price as a deposit.
While there are a few FHA loan products that do not have this requirement (i.e. purchasing a HUD-owned home), the majority of FHA loan products require at least 3.5 percent down payment.
The down payment can be in terms of “gift funds” from a friend or family member. In either case, affidavits must be signed by the borrower and the benefactor. The affidavits must state that the funds are not a loan, but indeed a gift.
In conjunction with the affidavit, a proof of funds or “gift letter” is also required by the lender from the benefactor. This is typically a bank statement that shows the money was from the benefactor’s account before making the gift and ensures it was not lent by another source. Moreover, the borrower’s bank statement must show a deposit entry for the same amount of the gift.
The borrower must always be aware of the requirements of the loan product that is appropriate for the purchase. Ask the lender to give comprehensive details about every guideline, and make sure to ask questions if there is anything you are not able to understand. More importantly, properly validate the source of your funds so that your transaction will be closed.
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