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Loan Packaging: Home & Business FAQ
What is the difference between pre-approved and pre-qualified?
When a homebuyer is pre-qualified, he or she has provided the lender with the basic information to determine which loan program the homebuyer may qualify for. Whereas, when a homebuyer is pre-approved, the lender has collected, verified and presented the information needed for underwriting and approval.
What is the difference between interest rate and APR?
Your interest rate is the monthly cost you pay on the unpaid balance of your home loan. An Annual Percentage Rate (APR) includes both your interest rate and any additional cost or prepaid finance charges such as the origination fee, points, private mortgage insurance, underwriting and processing fees (your actual fees may not include all of these items). While your interest rate is the rate at which you will make your monthly mortgage payments, the APR is a universal measurement that can assist you in comparing the cost of mortgage loans offered by different mortgage lenders.
What are the closing costs?
Closing costs include items like appraisal fees, title insurance fees, attorney fees, pre-paid interest and documentation fees. These items are usually different for each customer due to differences in the type of mortgage, the property location and other factors. You will receive a good faith estimate of your closing costs in advance of your closing date for your review.
What should I expect during a home loan process?
Step 1: Getting pre-qualified for a mortgage
This is an easy way to obtain early assurance that you meet the necessary credit requirements for a specific home loan amount. With the pre-qualification letter in hand, you will know how much you can afford. Not only will this tell you how much you can spend, but getting pre-qualification helps show sellers you are a serious buyer.
Step 2: Deciding on a down payment
Determining the amount of money you plan to use for your down payment can also help you decide how much home you can afford during the mortgage loan process.
Step 3: Locking in a mortgage rate
Mortgage loan rates may change daily. To ensure that you receive the rate you were quoted, you may elect to lock in your rate by paying an upfront authorization fee. Note: There is no upfront fee for locking in a rate unless the lock period is more than 90 days.
Step 4: Applying for a home loan
The mortgage loan application form asks for detailed information about you, the property you wish to buy, and requires documentation about your personal finances. During the application process, the lender will provide a Loan Estimate (LE) outlining the closing costs for the loan. By law, the lender is required to have you review and approve of the LE before they can proceed with your application.
Step 5: Mortgage loan processing and appraisals
During this step in the mortgage process, the lender will collect the information needed to process your loan. Your property will be appraised to determine its value. The appraiser will visit the home and will also consider sale prices of comparable houses in the neighborhood.
Step 6: Receiving a home loan approval
The lender will review the completed application and verify information included to make a credit decision on the application. As part of this process, the lender will review your credit report and other financial details to evaluate the risk of lending money.
Step 7: Preparing escrow and title documents
Also known as pre-closing, at this point a title company, or designated attorney, will hold any funds and documents until all conditions of the mortgage approval are met. Title work will be prepared, including a title exam, to ensure the title to the property is clear. Other documents such as the Mortgage Note and Deed will be prepared.
Step 8: Closing and signing final paperwork
The home loan documents will be sent to a title company or attorney's office for the buyer and seller to sign. Any additional down payment and closing costs will be due at this time. Closing costs normally include appraisal fees, title exam, settlement fees, title insurance, credit report fees and application fees.
Step 9: Title transfer - time for the keys!
When all funds are collected and the contract has been verified, the title is transferred and the purchase price funds are disbursed (given) to the seller. After the title is transferred, you're a homeowner - congratulations! You can take over the keys to your new home.
How do you apply for a small business loan?
These are the major steps you should follow through the loan application process.
1. Reason for and Amount of the Business Loan. ...
2. Visit Your Local SCORE and SBDC Offices. ...
3. Review Your Credit History and Credit Score. ...
4. Start Reviewing Your Borrowing Options. ...
5. Prepare Your Business Plan. ...
6. Plan a Presentation and Make the Appointment.
How do I qualify for a small business loan?
Here are five steps to help you qualify for a small-business loan.
1. Build credit scores.
2. Know the lender's qualifications and requirements.
3. Gather financial and legal documents.
4. Develop a strong business plan.
5. Provide collateral.
What to expect from the business loan process?
1. Choosing The Right Type Of Lender
Your first decision will be the type of lender to approach for a loan - a traditional brick-and-mortar bank, an online lender, or the federal Small Business Administration (SBA). Which type is right for you will depend on the nature of your business and how quickly you need the money.
- A traditional bank is often best for businesses that have been up and running for at least a few years. The reason is that banks will want to see that you have collateral and good credit. These things usually come after several years in the game.
- Online lenders, however, can be a good choice when you want to move fast, have no collateral, and have little or no history in business.
- Finally, an SBA loan offers some of the lowest rates available. This option is the long route, though. There’s plenty of paperwork to complete, and obtaining financing can take months.
2. Getting Your Paperwork In Order
Your lending institution will provide a long list of documents for you to supply. Income statements, balance sheets, and statements of cash flow will all be part of the request. Lenders will ask how long you’ve been in business, how much revenue the company earns, and how you plan to make the payments. These questions will all need to be answered with documentation.
Each lender will have its own list of documents. But here are a few items you can expect almost any lender to request:
Personal Tax Returns
Business Tax Returns
Articles of Incorporation
Business Licenses and Registration
Loan Application History
Profit & Loss Statements
3. Waiting For An Answer
From start to finish, the process will take a minimum of a month.
What is EBITDA?
EBITDA stands for earnings before interest, taxes, depreciation and amortization. EBITDA is one indicator of a company's financial performance and is used as a proxy for the earning potential of a business, although doing so can have drawbacks. EBITDA strips out the cost of debt capital and its tax effects by adding back interest and taxes to earnings.