When you apply for a car loan, new credit card or special financing through some other entity, approval or denial is usually granted in a matter of minutes. Simple enough, right?
But if you’ve ever purchased a home before, you know that this is hardly the case when it comes to a mortgage loan. In fact, “simple” is probably the last term that many people would use to describe the process.
Yes, home loans are the exception to a lot of the credit approval norms. There’s pay stubs, bank statements, credit reports and more involved in the home buying process, so much so that it’s not uncommon for 30-45 days (depending on what type of mortgage you’re applying for) to pass before getting approved or denied for the loan. In large part, you can thank the baby boomers generation for the tedious process that is getting a home loan these days, as the much more relaxed process from year’s past resulted in the housing fallout and economic recession in the mid to late 2000s.
Anyway, there’s now hope for a smoother mortgage process thanks to the Consumer Financial Protection Bureau (CFPB) and some new disclosures that have recently been instituted. Here’s a look at the new rules and how they may offer hope for a better mortgage process moving forward:
New CFPB Disclosure
The new CFPB disclosures took effect on October 3 and aim to smooth the mortgage process in two ways:
It cuts the number of disclosure forms in half: Instead of having to take out four forms, many of which just present the same information over and over again, borrowers will only have to take out two – the Loan Estimate and Closing Disclosure. This is intended to present information to borrowers in a more simple, easy-to-understand manner than before.
Extended review time: Previously, borrowers only had 24 hours to review mortgage documents. This timeline now increases to three days. This enables borrowers to get more thorough answers to any questions they may have about the mortgage process and make changes if necessary. The only disadvantage to this new part of the disclosure is that any last-minute changes will slow down the process. For instance, if there’s a change in any of the documents on the day of closing, the clock will reset and the home won’t be able to close for another 72 hours, not only delaying the sale of the home, but potentially jeopardizing any interest rate locks.
While the new disclosures are intended to make the mortgage process smoother and easier to understand, experts warn that it may take time for real estate professionals to get up to speed on these new rules and regulations, so be patient at first. But in the long run, it’s likely to make the process a lot more transparent and streamlined for borrowers.
Mortgage Underwriter – What You Need to Know
One of the most important debt management credit tips that anyone in finance will tell you is the importance of protecting your credit score. This is particularly true for anyone looking to make a big purchase involving credit, such as a mortgage for a home. If you want to apply for a mortgage and are not sure whether or not you need to repair your credit in order to do so, it is important to understand the types of items that can cause red flags on your credit report and take care of them as soon as possible.
Some of the Most Important ECOA Credit Report Codes
ECOA codes, or Equal Credit Opportunity Act codes, are used by mortgage underwriters to analyze a credit report and make a decision on whether or not a particular application should be approved. If you are currently working on credit repair so you can qualify for a mortgage, it is very useful to know and understand exactly which codes a mortgage underwriter is going to look at. Here are some of the most important ones:
Types of accounts
These codes refer to the type of an account, or to the relationship of the user on the account:
A – authorized user on a shared account
C – account with at least two liable parties (joint contractual liability)
I – individual account with no other parties involved
M – account with liable party, with a backup liable party if the original party defaults
P – member of a shared account that cannot be classified as an authorized user or sole account holder
S – account in which the secondary signer (also known as a co-signer) is liable if the maker defaults
T – user no longer linked to the account in question
U – blanket term for undesignated status on an account
X – deceased
The Mortgage Underwriting Process
All of the codes listed above are used to categorize a mortgage applicant during the underwriting process. It is worth noting that this process is significantly stricter than it was during the early 2000s. In fact, the Consumer Financial Protection Bureau recently enacted even stricter underwriting requirements for certain types or mortgages. In effect, this means that mortgage underwriters must do a more extensive background check, including an in-depth look at a criminal background check, deeper checks into bank account and other assets, and a spending and employment history. Ultimately, a mortgage underwriter assigns you a credit risk, then combines that risk with the percentage of your pretax monthly income that would be accounted for with the projected mortgage payment you are applying for.
For additional information on what specific ECOA codes mean, and how you can remove the negative ones from your credit report, feel free to contact us at 617-265-7900, or schedule a free consultation below.