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PROCESSING YOUR LOAN APPLICATION
The lender's loan processor reviews the credit reports and documentation that you supplied as part of your loan application to verify your income, assets, employment, debts, and payment histories. The processor will contact your employer and bank directly to verify your relationship with them. If the credit report indicates unacceptable late payments, collections or judgments or other credit history issues, then the processor will request a written explanation from you. If there are incorrect entries on your credit report, the loan processor will work with you to get them removed.
The processor will also order and review a title company commitment to issue a title policy on the property insuring your ownership and the lender’s lien, a property survey in some cases, a tax certificate to be sure that the property taxes are current, and a flood certificate to ascertain whether the property is in a federal flood zone. If the property is in a flood zone, then the lender may still be able to make the loan as long as you obtain flood insurance on the property (see the explanation of flood insurance below).
The processor will also order and review the property appraisal. The appraised value of the property is essential, since the property serves as the sole security for the loan. The appraised value, as part of the loan-to-value (LTV) calculation, will also determine how large a loan the lender can make based on that security. The loan product for which the borrower applied will have specific guidelines for a maximum LTV ratio. The appraised value from the appraisal and the maximum LTV ratio from the guidelines will yield the maximum amount that the lender can lend to stay within the loan product guidelines. Maximum LTV guidelines vary widely among loan products. For example, most conventional loans allow maximum LTV ratios of seventy-five to eighty percent of appraised value, although they may be higher for loans with private mortgage insurance (PMI). In addition, depending on the type of loan program, maximum loan amounts may also be limited by local, state or federal law.
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