Time to Refinance Your Private Hard Money EDC Loan: The Process Explained
The refinance process begins with an initial consultation between the borrower and the loan officer. During the first conversation, it is extremely important for the borrower to discuss what they hope to accomplish with their new investment in real estate. It is then the duty of the loan officer to best determine how to accomplish that goal, with the current qualifications of the borrower. Unfortunately, borrowers often end up in the wrong mortgage product because their lack of communicating what they truly intend to do. Borrowers also must remember to be upfront and truthful with their loan officer from the start. Remember, the loan officer acts as the borrower’s representative and structures the loan for presentation to underwriting. They will help their borrower around any weaknesses they may not want to disclose to underwriting. From the conversation the loan officer will take a written loan application. Your loan officer will ask you a number of questions at application time. Your answers, credit report information, and the loan program you’ve applied for will help determine if you qualify for an instant mortgage approval using an automated underwriting system. These systems are often referred to as DU and LP. They stand for Desktop Underwriting and Loan Prospector.
Documentation requirements vary, depending on the loan program, credit profile and various other requirements of the lending institution. In some cases only minimal documentation is required. In other cases more detailed documentation may be required.
An appraisal will be ordered at application to determine the fair market value of the property you are refinancing. An appraisal will be ordered as to support the value of the property. The loan is based off the overall value of the property and is crucial to get the appraisal done right away. EDC will provide your loan officer with your subject to repair appraisal as a guide to the value and rehab work completed on the property. Typical time for appraisal vary from area to area depending on demand and market conditions. Make sure to stay in touch with your appraiser to get this completed ASAP.
You can either lock in your interest rate (rate lock) or float your interest rate. It is important to discuss these options with your loan officer. At application or shortly after, you will receive a Good Faith Estimate and a Truth-in-Lending Statement, which will show your annual percentage rate (APR). These documents are required by federal law and disclose the credit terms of your loan and approximate closing costs.
After submitting your application to an automated underwriting system such as DU or LP, you will be given a conditional approval letter. This conditional approval will outline all the required documents needed to accompany your application. The applicant must supply the necessary income and assets documents (W2's, paystubs, bank statements, etc.) as required by the chosen loan program. Because these documents are essential to the underwriting process, the application package cannot be submitted without them. Therefore, it is important that the applicant present them without delay.
Your application along with the required documents will be submitted to an underwriter. An underwriter is a trained credit-risk analyst who will do everything possible to help you receive loan approval. It is the responsibility of the underwriter to ensure all documents supplied with the application meet the lender’s requirements.
Soon after your application is approved you will receive a commitment letter that explains the terms of your loan, including any loan conditions that need to be met prior to closing. Read your commitment letter carefully, and be sure to follow the instructions to ensure a timely closing.
In the case that your application is not approved, your loan officer can help you determine what actions need to be taken to obtain financing. EDC will also be in constant contact with the loan officer on your file. If the loan officer can’t get an approval and doesn’t have any actions that can change the denied loan to an approved loan, EDC will set you up with another lender that they feel can get an approval.
It’s important to gather all of the remaining conditions quickly as the lender may still need a few days to review them. After all conditions are met your loan will be "cleared to close". Generally at this time the settlement agent or title attorney will take over and prepare for closing. EDC will “hold your hand” through this entire process, but ultimately it is up to you to stay in constant contact with your loan officer and get them everything they ask for.
It’s not uncommon for someone refinancing an investment property to be overwhelmed by the amount of information and supporting documentation that is needed. While it can be frustrating trying to remember what you did with that pay stub from 2 months ago, there are very good reasons that lenders require so much information prior to giving you a loan.
The more information that you can provide to your loan officer will help to attain you the best rate and best financing that you are capable of receiving. There are many programs out there too for people who do not want to or can't locate all of their information too. Keep in mind though you will most likely pay a higher interest rate for these types of programs.
The information that you provide is generally used to check credit and find out if you can afford to repay the mortgage you are applying for. The documentation that is gathered is used to verify that the information you provided initially is accurate. Even though once you get a mortgage the lender will have a lien for your property it is costly for them to foreclose on your property and they still might recuperate the loan amount and costs. That is why banks require so much information; they are lending you potentially hundreds of thousands of dollars.
Loan officers who request large amount of information do so to protect the loan applicant and the loan application. The more information you provide to your loan officer, the less likelihood that your home financing would have mishaps. Uncovering undisclosed information later in the process often proves to be costly and time consuming for the borrower.
If there is any information which the loan officer should know about you, be up-front with your loan officer. It is his or her job to help determine what might cause a glitch during the process, and chances are it will come up at some point anyway.
Banks require all of the above information to make an educated decision on overall risk of the loan. Remember it’s not you who owns the home, it is the bank. The bank is holding the house as collateral with the promise of repayment by the borrower. Therefore some banks are going to want information regarding the overall capability of the borrower to make the monthly mortgage payment.
If you have any questions about any part of the refinance process, call Ryan Lawrence at EDC to discuss. You can visit their website at by clicking here for additional information.
EDC services several markets from the East Coast to the Midwest. You can view a map of our coverage areas and get to know your EDC Territory Director by clicking here.
To apply for a loan with EDC today, please complete our easy, online loan application.
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