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The process of making a mortgage loan has five distinct steps called the loan cycle.

The loan cycle is comprised of the steps taken to make and maintain a loan. The mortgage loan cycle begins when a prospective Borrower inquires about a residential mortgage loan, and it ends when the Borrower pays off the loan. AHMCC will take you through the first four steps as we don't "service" the loans. The loan cycle involves five major stages: I. Application II. Processing III. Underwriting IV. Closing V. Servicing Each of these functions involves many activities. I. Application The application process has several purposes:

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Obtaining the basic information from the Applicant/Borrower that the lender needs to underwrite the loan according to its standards and to reach a decision on whether to grant the loan Assisting the applicant in selecting the appropriate loan programs Informing the applicant of the details of the mortgage loan program, including a full disclosure of all costs and expenses - (see Understanding Your Good Faith Estimate ) Pre-qualify applicant for ability to repay a loan Explain how a Purchase Contract works and how to fill in the appropriate information. You can fill-out the loan application by going to the bottom of this page and click on the appropriate hyperlink.

II. Loan Processing Loan processing includes the collection and verification of detailed information on the Borrower and on the real estate transaction itself. The Lender is primarily interested in two things: the subject property, and your financial situation (which includes your credit history.) The process gathers the information to help determine your ability and your desire to replay the loan.

Gather, organize and verify all the information the underwriter will need in order to underwrite the loan. o Entering Information into computer from Loan Application o Deposits (i.e. credit report fee, appraisal fee)

Disclosure Forms sent to Borrower Verifications--Employment history, Credit history (the credit bureau will show how you have handled past debt and credit accounts. You may have to provide a written explanation of any problems that appear on your credit report., Assets o Review Verification Responses o Ratio Analysis o Appraisal is performed and reviewed for accuracy and completeness (a service for which you may be charged). A professional appraiser will estimate the market value of the house. This information is required because the lender will loan you not more than a given percentage of the value of the property (LTV). o Suitability of loan terms for which Borrower has applied is reviewed o Pre-Underwriting o Customer Communication via the Loan Tracker and or phone calls. Submission to Underwriter o Copying and Stacking o Proofing o Delivery/Courier o Loan Locks
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III . Loan Underwriting The mortgage loan file next enters the underwriting stage. Loan underwriting is a process that determines whether the loan is a good risk for the lender.
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The main task during the underwriting stage is to avoid as many undue risks as possible The loan application is evaluated in terms of the guidelines o Borrower Review o Property Review o Conditions o Follow-up o Re-review of Conditions Deciding whether to grant a Borrower's request for a loan is perhaps the most difficult stage of making a loan. o Approval o Commitment Letter

IV . Loan Closing If the loan is approved, the final stage in creating the mortgage loan is the funding and loan closing. In loan closing, the final details of the loan transaction are completed and the loan funds are disbursed. Most frequently, closing is handled by a title company or closing attorney.

Loan closer obtains a title company/attorney's opinion as the condition of the title to the property--its ownership. This opinion of title is reviewed very carefully to verify that the seller owns the property and that there are no unknown claims outstanding against it. Also, the Borrower must provide adequate hazard (and in some cases flood) insurance for the property.

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Next the loan closer prepares the loan's legal documents and makes certain other legal requirements are met, such as up-to-date payments of real estate taxes. The mortgage loan file and legal documents are double-checked for completeness and accuracy. Some federally mandated disclosures are usually provided to the Borrower. Finally, the loan amount must be properly disbursed so the Borrower will be liable for repayment. The appropriate parties must receive the correct amounts in order for the legal conditions for the best to be met. The mortgage is recorded on the public record, and the lender makes a final review of the loan file for quality control purposes At this point, the closing of the loan is complete. Post-Funding Audit

V. Loan Servicing Loan Servicing includes all activities that occur from the time a loan is closed until the time it is repaid. Servicing activities help ensure that the loan is repaid in a timely manner and that the lenders' legal claim to repayment of the funds is maintained.
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See that loans are paid as agreed Identifying and following up promptly on any delinquent payments by sending reminder notices, making telephone calls, or visiting the home of the delinquent Borrower If efforts fail, foreclosure is the legal action that bars a defaulted Borrower's right to reclaim the mortgaged property. This action is taken to satisfy the outstanding balance on the mortgage; usually results in property being sold at public or private sale. Paying taxes and insurance Servicer wants to make sure that these taxes are paid because government tax claims can take precedence over the lender's claim on a property If property is destroyed or damaged by fire, wind, etc. without insurance the loan is no longer adequately protected. When a Servicing company services loans for lenders, it collects a fee ranging from .25 to .50 percent. For example, when a loan is closed at an eight percent interest rate, the Servicer passes through principal and interest of approximately 7 5/8 percent to the Bank, Insurance Co., etc. The Servicer keeps the difference as a servicing fee. Advising Borrowers of changes in rate for ARMs Transferring the loan to a new owner or Servicer Payment Processing Pay-offs Recordings

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Pre-qualification "Prequalification" occurs before the loan process actually begins, and is usually the first step after initial contact is made. In a prequalification, the lender gathers information about the income and debts of the borrower and makes a financial determination about how much house the borrower may be able to afford. Different loan programs may lead to different values, depending on whether you are qualified for them, so be sure to get a prequalification for each type of program you are suited for. Application The "application" is actually the beginning of the loan process and usually occurs between days one and five of the loan. The buyer, now referred to as a "borrower", completes a mortgage application with the loan officer and supplies all of the required documentation for processing. Various fees and down payments are discussed at this time and the borrower will receive a Good Faith Estimate (GFE) and a Truth-In-Lending statement (TIL) which itemizes the rates and associated costs for obtaining the loan. Pre-Approval Once you have made application, your lender will submit your file for automated underwriting. The automated underwriting systems will review your income, assets, liabilities, credit scores, loan-to-value ratios, and your proposed loan details. This system will then give an approval or denial within 1-3 days of submission. Processing Processing occurs between days 3 and 15 of the loan. At this time the lender orders a property appraisal, orders title insurance mails out requests for verifications, if necessary, for employment (VOE) and bank deposits (VOD) and any other documents needed for processing of the loan. All information supplied by the borrower is reviewed at this time and a list of items not yet received is compiled. The "processor" reviews the credit reports and verifies the borrower's debts and payment histories as the VODs and VOEs are returned. If there are unacceptable late payments, collections for judgement, etc., a written explanation is required from the borrower. The processor also reviews the appraisal and survey and checks for property issues that may require further discernment. The processor's job is to put together an entire package that may be underwritten by the lender. Underwriting "Lender underwriting" occurs between days 15 and 25. The underwriter is responsible for determining whether the combined package passed over by the processor is deemed as an acceptable loan. If more information is needed, the loan is put into "suspense" and the borrower is contacted to supply more documentation. "Mortgage insurance underwriting" occurs when the borrower has less than 20% of the loan amount to put towards a down payment. At this time, the loan is submitted to a private mortgage guaranty insurer, who provides extra insurance to the lender in case of default. As above, if more information is needed the loan goes into suspense. Otherwise it is usually returned back to the mortgage company within 48 hours. Closing Closing usually occurs between days 25 and 45 of the loan. At the closing, the lender "funds" the loan with a cashier's check, draft or wire to the selling party in exchange for the title to the property. This is the point at which the borrower finishes the loan process and actually buys the house.

Closings occur at different places in different states. For instance, some states require that the closing take place at a closing attorney's office while others use a title or escrow company


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The first step involved in the process is to find the property which is followed by the verification of property documents, post that the documents are examined and simultaneously you can start searching for the lender who can offer the best Home Loan Deal after checking your eligibility criteria. Know the Home Loan Eligibility: Banks offer the loan amount only after checking your profile & based on various eligibility criterias like age, income & salary banks lend you the money. Also, take into account that the bank will provide the loan in range of 75-85% of the total property cost. Talk about the inclusion of the registry amount with the loan. Also take into account your total income, provide complete details to bank. Select the Best Home Loan after evaluation: Comparing home loan interest rates is the primary feature in the home loan selection, however other fees & charges like Application fees, processing fees, legal charges should not be neglected when comparing various loan offers. Applying for the Loan: After you have selected your lender, you have to fill in the application form wherein the lender requires complete information about your financial assets & liabilities; other personal & professional details together with the property details & its costs. Documentation & Verification Process: You are required to submit the necessary documents to the bank which will be verified together with the details in the application. The verification might include the verification of your residential address and official (place where you are currently employed) address. Credit & default check: Bank checks out the borrowers loan eligibility (through repayment capacity) & the amount of loan is confirmed. The borrowers repayment capacity is reached which is based on the income, salary, age, experience & nature of business etc. Bank also checks credit history through the CIBIL Score which plays a critical role in deciding & approving your loan application. Low Credit Score implies that the bank upfront rejects your application on the basis of earlier credit defaults; on the other hand high credit score gives a green signal to your application. Bank sanctions Loan & Offer letter to the borrower: After the credit appraisal of the borrower bank decides the final amount & sanctions the loan, the bank further sends an offer letter to the borrower which constitutes the details like rate of interest, loan tenure & repayment options etc. Acceptance Copy to the Bank: The borrower needs to send an acceptance copy to the bank after the borrower agrees with the terms & conditions in the offer letter. Bank checks the legal documents: The bank further asks the legal documents of property from the borrower to check its authenticity so as to keep them as a security for the loan amount given. The next step involved is the valuation of the property by the bank which determines the loan amount sanctioned by the bank. Signing of agreement & the loan disbursal: The borrower signs the loan agreement & the bank disburses the loan amount.

Difference between amortization and accrual ?

Amortization is the monthly depreciation of an asset that depreciates over time. Accrual is the sum money either earned or owed due to an monthly interest rate over months or years. So amortization does not deal with fiscal money and accrual is sum of money over time that needs to be paid or received (revenue).
Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved with creating the medical equipment is spread out over the life of the patent, with each portion being recorded as an expense on the company's income statement. Interest Accrual Interest accrual can be an income item or an expense item where there has not yet been a cash transaction. So, if a bank investment or a loan calls for annual interest payments, you would accrue interest each month for one-twelfth of the annual amount.

Accrual: Accrual is one of the accounting concept. Expense or revenue is booked as soon as they incur not when they are realized. Accrual is also a provision of the cost. Accrued Interest. Best example which will clarify the concept from root. Company A has taken a loan of Rs. 6,00,000 of which Rs. 60,000 interest is payable annually. Some book entry as follow. on 31st March 2009. Interest dr. 60,000 Bank cr. 60,000 Above practice is not accrual. Following will explain why Accrual is called provision of cost because? Rs. 60,000 Interest will be reported in all 12 months because amount of loan is utilized in all months. So per

month posting comes to 60,000/12 = 5,000. On 1st April 2008. Interest dr. 5,000 Accrued Interest cr.. 5,000 Same practice is followed upto March 2009. And when interest is paid then accounting entry is like, On March 2009. Accrued Interest dr. Rs. 60,000 Bank cr. Rs. 60,000