Mortgage Process: Making a Little Less Confusing

Mortgage Process Steps

The mortgage process can be one of the most challenging.  Especially if you don’t understand the all that goes into making a loan. Yet, with a little research, diligence and the right mortgage broker, you can take back a feeling of control.  Control over the process of acquiring one of your most important purchases.    

Step 1 - Preparation

Before you start the house hunting journey become familiar with the different types of loans, rates, and terminology.

Step 2 - Financial Self-Assessment

During this stage of the mortgage process, you will have to determine how much extra you can pay each month.  You should do so based on your current income and debt situation. Get certain financial documents in order as they will be required for your mortgage application.  Such documents include identification, W-2 forms, tax returns, pay stubs, bank statements, 401k statements as well as other asset documentation. Decide on the type of mortgage you will pursue to finance your property transaction. If you can afford to pay a 20% down payment, then conventional loans will offer NO private mortgage insurance (PMI). Don’t despair if you don’t have enough savings to cover the standard down payment. Home buyers with little money for a down payment are finding several mortgages available for a low-down payment or even no down payment.

Step 3: Work with a Mortgage Broker to Select Your Loan

Mortgage brokers have a wide range of competitively priced loan programs. You will probably have lots of questions when you are purchasing a home.  Therefore working with an experienced mortgage broker can make the process much easier.  

Step 4: Get Prequalified and Preapproved for credit for Your Mortgage

Before you start looking for a home, you will need to know how much you can actually spend. The best way to do that is to get prequalified for a mortgage. The loan pre-approval process usually takes only a day or two. The mortgage broker or lender is only saying that it looks favorable that the borrower will be approved. To become pre-approved, you just need to provide some financial information to your mortgage broker, such as your income and the amount of savings and investments you have & allow them to run your credit report. After reviewing your completed loan application, the mortgage lender can give you a preapproval letter.  This is a written letter that confirms the price of a home you can purchase. This will give you the maximum price of the homes you should be looking at.

Step 5: Shop for Your Home and Make an Offer

Start checking out houses in your price range. Make sure to let your Realtor know your priorities, such as price, location, size, number of bedrooms. Make a checklist to easily compare all the properties you visit as you will most likely see multiple houses! Prepare an Offer  Once you find the house of your dreams you will have to provide your Realtor a number. He/she will submit an offer with your conditions such as seller paid closing costs and closing date. You will need to include a small deposit with your offer.  This deposit, also known as the Earnest Money Deposit, is kept in good faith to hold the home.  The escrow company you chose in the contract holds these funds for safekeeping.  

Step 6- Mortgage Origination and Processing

Usually, the loan processing starts right after you have found a house and made an offer to buy it. You will have to go back to your mortgage lender with the signed purchase agreement. This document shows how much you're offering for the property. Next, your mortgage lender will have the house appraised to make sure it's worth the amount you offered to pay.  

Step 7: Have the Home Appraised

Mortgage lenders will arrange for an appraiser to provide an independent estimate of the value of the property. The appraiser is a member of a third party company who will assess the home's market value and ensure that the amount of money you are offering is appropriate.

Step 8 - The Underwriting Process

Underwriting is the next stage of the mortgage process. During this stage, the mortgage lender will send your application file to an underwriter.  The underwriter's job is to determine if you represent an acceptable level of risk for the lender. During the underwriting stage, you will most likely be asked to provide additional documents & updated materials. Later on, once you've located the home, the mortgage lender will be rendering a credit decision. This process involves providing updates in the form of what the underwriting calls conditions.  This includes your financial documents such as W-2 statements, paycheck stubs, bank account statements.  This is needed in order for your lender to investigate your financial status and credit.

Step 9: Close the Sale

Three business days prior to closing your mortgage lender will provide you a Closing Disclosure form.  The CD outlines the final costs of your loan and funds needed to close. After final approval, all that remains is the closing also known as the settlement; when you will sign all of the paperwork required to complete the purchase. The full process usually takes around 30 days.  This is from entering into a contract to buy a home until the end when you are receiving keys.
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