A mortgage is a loan that is essentially taken to buy property or land. The loan is secured against the value of your home pending the time it is cleared. When you can’t keep up your repayments, the lender takes back your home and sells it to get his money back.
Buying a home is intriguing as it is challenging especially if you don’t understand the mortgage process. Many prospective home-buyers find it exhausting because of the amount of paperwork that must be completed.
Getting the facts straight from the very beginning will help you make better decisions about your home purchase. This guide will help you navigate through the mortgage process including the people involved, the costs as well as the forms and documentation to complete.
1. Mortgage Pre-Approval Stage
A loan pre-approval in hand is the easiest way to approach a real estate agent.
Pre-approvals aren’t that difficult. They typically show your credit score and credit history as reported by third-party institutions. The credit report exposes your payment history to the lender and enables him to decide on a loan amount that is fitting.
The pre-approval stage helps you identify which homes you will be able to afford and also proves your seriousness to the seller. Mortgage pre-approval, however, must not be confused with mortgage pre-qualification. Pre-qualification is a less detailed version of the pre-approval.
2. Home Selection Stage
There are a good number of ways to do this. You may shop online using real estate portals. Whether you’re checking for Overland Park mortgages or browsing for homes in Boston, you can complete this stage online. While this isn’t a bad idea considering the convenience and ease, it may not give you accurate home prices and sometimes the listings are not up to date. It’s recommended that you meet with an agent and go around viewing homes.
Once you’ve visited and picked out a home you would like, you need to make an offer. It will include conditions that must be satisfied before the deal can be seen as complete. When the terms of the deal are approved by both parties, the binding offer or purchase agreement is signed by the seller and buyer.
3. Loan Application Stage
You will need to provide certain documents to apply. Some information would be collected online but keep in mind that your loan officer will guide you well on which information to provide. To be fully in the know, information and documentation would be required on areas such as employment, income, assets, debts, property, financial background, mortgage type, VA Certificate of Eligibility (COE) if applying for a VA loan.
After all the documentation is collected and completed, a Loan Estimate is produced. You would normally receive your Loan Estimate within three days of application and it includes the interest rate, closing costs, and monthly payments, notification if interest rates change such as with Adjustable Rate Loans (ARMs) as well as information on pre-payment penalties or negative amortization.
4. Loan Processing Stage
A loan file is opened and loan processors gather all necessary documentation about the borrower and property. All information in the loan file is reviewed and assembled properly for the underwriter.
Each file is checked for the order credit report, verification of employment and bank deposits, order property inspection, order property appraisal, and order title search.
5. Underwriting Stage
It is time for the underwriter to closely examine all the documentation prepared by the loan processor in the loan package. Checking would be done to confirm that the borrower and property match the eligibility criteria of the loan product for which the borrower applied.
The underwriter reviews the borrower’s credit log and his ability to repay the loan. He verifies collateral and other information as well as checks for any inaccuracies.
This makes him a key decision-maker in the whole process.
6. Closing Stage
Now, a larger part of the mortgage process has been completed. The loan documents are printed out and copies are dispatched to the attorney’s office or title company. This is where the closing meeting occurs, and documents such as the Closing Disclosure that is used to confirm the costs as projected by the Loan Estimate document are checked and signed.
Anyway, you don’t just sign the Closing Disclosure right away. This period is especially vital to review all the terms of the loan initially set.
Typographical errors are easily corrected and require no time extension. However, changes such as:
- Adding prepayment penalty to the mortgage.
- APR on loan changing by more than 1/4th of a per cent for adjustable-rate loans or 1/8th of a per cent for fixed loans,
- Changing loan products such as from a fixed rate to an adjustable rate and vice-versa
would require an extension of the three-day review period.
You have finally reviewed all documents and are satisfied. The closing is when you sign all valid documents and finalize the purchase.
It may be a tiring experience but it is worth it.
Ref number: THSI-2227