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Cover story: Applying for loan is ‘like a second job’

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Media reports of the difficulty of obtaining a mortgage may have left a lot of consumers wary of lenders, but mortgage brokers and bankers say they have money to lend and can help most borrowers obtain a loan.

They also say, however, that consumers should anticipate a much more rigorous experience when applying for a mortgage than in the past.

Beyond expecting a somewhat more arduous process, mortgage loan applicants should be realistic in their attitude about what a lender can and cannot do for them. They also should be prepared to meet their lender's expectations so the transaction can proceed as smoothly as possible.

"So many people are unrealistic about the loan process," says Douglas Benner, a senior loan officer with Embrace Home Loans in Rockville. "It goes both ways. Some people think they cannot get a loan when they can, and others still think they can get a loan without providing any documentation. People need to realize that they will need to jump through a lot of hoops to get a loan now, especially compared to five years ago, when all you needed was a heartbeat to qualify."

Mortgage applicants should anticipate having a detailed conversation over the phone or in person when they first contact a lender for loan information. This initial consultation is free. In fact, if a mortgage broker or banker attempts to collect a fee, that should be a red flag to stay away. Collecting an upfront fee for a loan consultation is illegal.

"The most important expectation that should be met on both sides of a mortgage transaction is honesty," says Marv Stanger, a senior loan officer at Primary Residential Mortgage Inc. in Springfield, Va. "The lender needs to be completely honest about whether they can help someone qualify for a loan, and the borrower needs to be completely honest and open about everything."

Brent Mendelson, a senior loan officer with Monarch Mortgage in Rockville, Md., agrees that honesty should be the No. 1 priority for both borrower and lender.

"Lenders need to educate the borrowers about what it takes to get a loan these days in terms of credit and debt-to-income ratios and realistically describe the timeline from application to settlement," Mr. Mendelson says. "On the borrowers' side, it is vital not to hide anything.

"Sometimes people don't bother to mention some extra income from a side business or the fact that they declared bankruptcy a few years ago. No matter what it is, we will find out, because everything needs to be documented now. It is better to be open from the beginning because a preliminary disclosure can go a long way toward saving everyone time."

Borrowers should expect a seemingly endless stream of questions from the lender. The better prepared the borrowers are from the beginning, with items such as recent pay stubs, bank statements and tax returns, the easier the loan application process will be. Some lenders quote a minimum of 30 days to process a loan, but many take 60 to 90 days to reach closing because of the volume of loan applications and the depth of documentation required.

"The lender needs to ask enough questions at that first meeting to find out if the borrower has the ability to repay their obligations and good enough credit to qualify for a loan," says Peg Partlow, a loan officer assistant with Embrace Home Loans in Rockville. "After that initial fact-finding discussion, borrowers should be educated on the fact that the loan approval depends on a variety of factors, including property type, debt-to-income ratios, the credit score and documentation of everything. A lot of borrowers are unprepared for the level of documentation they will need to provide."

Borrowers also need to realize that sometimes they will not qualify for a mortgage.

"Sometimes a loan simply will not fit into the guidelines for a particular program, and it can be frustrating for people," Mr. Stanger says. "For example, even if someone has good credit and good income, if they own too many investment properties, they might not be able to get another mortgage for a new one. Sometimes the appraisal will not show enough value in a property to allow the loan to go through. This can be frustrating for consumers, but the lenders have to stick to the guidelines."

Mr. Stanger says some borrowers think lenders are being intrusive when they ask for information about things like alimony or child support, but they need to be prepared to answer all these questions, even if they seem personal.

"Borrowers need to to jump in and make a commitment when they apply for a loan," Ms. Partlow says. "They should really treat the application process almost like a second job because if they are not timely in their responses to the lender they can delay the loan.

"Consumers need to commit to timeliness and they need a sense of humor, too. It helps everyone if we recognize that there is a lot of paperwork required, so loan applicants should not get offended by the loan officer's requests."

Mr. Benner says borrowers today need to keep careful track of their funds as they go through the loan process.

"Everyone needs to show a 30-to-60-day paper trail of where the money is coming from when they apply for a loan," Mr. Benner says. "A lot of people do all their transactions online now and may move money around in order to prepare for their down payment and closing costs, but they need to be able to give us printed statements that show where the assets are coming from."

While borrowers must provide most of the documentation in the loan transaction, lenders are required to provide borrowers with a good-faith estimate within three days of the loan application. The estimate details anticipated closing costs along with the loan details so borrowers can compare loans with what other potential lenders offer.

Once borrowers understand they will need to be responsive to lender requests for documents and information, they also should be comfortable enough to ask for financial advice from their lender.

"We definitely provide advice to our borrowers, but not all lenders do that," Mr. Stanger says. "We think it's important that we are not just qualifying someone for a loan, but we also discuss the borrowers' overall comfort level with their mortgage payment.

"I think lenders have a valuable role to play in terms of discussing the pros and cons of various loan options. For instance, if someone calls to check on interest rates for refinancing, it is better to discuss their overall financial goals and their current loan before focusing solely on rates. People need to understand the implications of their loan choices."

Mr. Mendelson explains to his customers the option of wrapping closing costs into the loan or of paying a slightly higher interest rate to eliminate closing costs. He says his job is to educate borrowers on the pros and cons of different loan products.

"I can also help people with credit problems improve their score," Mr. Mendelson says. "Not all lenders have this expertise, but some can help their customers by giving them advice about fixing errors, settling debt or shifting debt in order to improve their score. We have a computer program we can use that can help us evaluate what will improve someone's score the fastest."

Ms. Partlow says the credit bureaus have software that lenders can use to anticipate potential improvements in the score depending on various steps a consumer takes.

"We can't physically take over and fix someone's credit, but we can give them advice on things like paying down their credit card balance to keep it under 50 percent [of the credit limit]," Ms. Partlow says.

Communication is key to a smooth mortgage transaction, and borrowers should establish how they want to communicate - by phone or e-mail, for example - as soon as they choose a lender.

"If you are not hearing from your lender for a little while, you should definitely get in touch and make sure everything is going smoothly," Ms. Partlow says. "There are some lulls in the process sometimes, but you should expect to hear frequently from your lender about what is happening."

Mr. Mendelson and Mr. Stanger say they send e-mails about once per week during the loan process and are immediately responsive if a client has a question.

"Keeping people in the loop is an important part of good customer service," Mr. Mendelson says. "Customers should feel comfortable enough to ask questions or to discuss potential issues. I've had people quit their job just before settlement, which, of course, derailed the whole loan process. If they had just talked to me about it first, I would have told them to wait until after settlement."

Mr. Mendelson says borrowers should be careful while waiting on their loan not to buy a new car, apply for new credit cards, overspend on their current credit cards or co-sign a loan for someone else, because each of these situations could cause the loan approval to be rescinded because of a lower credit score or a higher debt-to-income ratio.

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