The lender will order a credit report, which shows your history of meeting financial obligations. Problems may occur if you have defaulted on loans and credit agreements in the past, or if you have yet to establish a credit record. The lender will also verify information you have provided on income, employment, and bank accounts. This information is needed to see if you qualify for the loan (see Key 8).

The lender also orders an appraisal of the property. This is used to verify that the property is worth at least as much as you agreed to pay for it. The loan-to-value ratio is applied to the lesser of the contract price or market value. If you are buying a house, the loan will be a percentage of its appraised value or its cost, whichever is less.

In addition to the lender’s work, it must be approved if the loan is for more than 80% of value by FHA, VA,or a private insurer. This may add some time to the approval process.

When all intonation is in, the application is presented to the loan approval committee. This committee meets periodically to endorse or reject the recommenda­tions of the loan officer. If your application is approved, you can proceed with the closing. If not, you must start over with another lender.

Recently, some lenders have been trying to gain a competitive edge by offering quick loan approval through less documentation than has been required in the past. Traditional requirements and newly devised ones are compared below. Some lenders will use the method more suitable for you.

Traditional - New Alternatives

Verify employment * Two years’ W-2 statements, and current paycheck stub with year-to-date earnings Three months’ savings and checking account deposits Credit report reference for last six months, or six months’ mortgage payment history, or canceled checks for last year.

Technology continues to transform the ways in which loan applications are submitted and evaluated. Today, you can start the loan application process over the Internet or in a real estate broker’s office. Many lenders use automated systems to analyze the risk of making the loan. The major loan purchasing firms, Fannie Mae and Freddie Mac, operate computerized loan underwriting systems with their criteria built in. If the loan passes the test, there is no need for a loan approval committee. As a result of these advances, the time required to approve a loan is shrinking. This is good news for homebuyers waiting for the go-ahead to complete a purchase. Ultimately, this trend will bring down the costs of secur­ing a loan as well.