Even the most experienced homebuyer can find the home mortgage process hard to understand. However, since you, wise homebuyer, have been learning from our Dreamcatcher website and doing your homework which includes finding a competent Mortgage Loan Consultant, you will most likely pass this test with flying colors! It is the responsibility of your Loan Consultant to make sure you understand everything you need to know about this important transaction. Don’t be afraid to ask questions, and if you don’t understand the answer, don’t be afraid to ask for it in simpler terms. As any professional, such as a doctor, Loan Consultants often forget that most people don’t speak their language of ratios, accrued interest & escrows.
Here are some guidelines as to what to expect in your mortgage process:
Step 1: Pre-Qualification
As mentioned in our “Steps to Facilitate your Home Buying”, this should be done before your house hunt begins. Information is gathered about your income and debts in order to figure out how much you can afford to borrow. Sometimes different loan programs can result in different pre-qualification loan amounts. Your new “best friend” your Loan Consultant, can help you pick the ones that best fit your situation.
Step 2: Loan Application
This is often the most overwhelming point of your home loan process, because it involves excavating lots of documents that are most likely tucked securely away in someplace you have yet to remember, or requiring excruciating hold times to get replacement copies. For this formal loan application you will need employment verification, income verification, bank deposits, and any other documents lurking in some storage box, all needed for processing.
Step 3: Processing
Your new and improved credit reports (see Steps to Facilitate your Home Buying) will verify your debts and payment histories. Sometimes a written explanation will be required if there are late payments, collections for judgments or other concerns.
At this point, an appraisal is ordered to ascertain that the home is not overvalued. In other words, it is some insurance to you the homebuyer that the real estate market supports the price that you are paying for the home by comparing it to other homes of similar nature and location that have sold in the recent past. If your appraisal does come in at a price lower that what you have contracted, it will allow you and your Realtor to renegotiate the purchase price of the home.
Title insurance (see our section on Title Insurance) and homeowner's insurance is ordered. A complete package is put together for final approval and underwriting.
Step 4: Underwriting
“Underwriting” is the process that happens after your friendly Mortgage Loan Consultant submits all your 2 tons of paperwork to the lender. The lender conducts a thorough investigation into your credit and employment history to ascertain whether you are a suitable borrower. This investigation, called mortgage underwriting, may take several days or longer to complete before you receive a decision from the lender about your financing. In these days of strict guidelines by lenders, don’t be alarmed if you are asked to submit additional information. Just smile and say….”as you wish”. Your fast action will help you keep to the timelines that are addressed in your Purchase Agreement for your new home.
Mortgage Insurance Underwriting
If your down payment is less than 20%, all lenders, including FHA require Private Mortgage Insurance (PMI) to insure the loan in case of default. PMI is typically paid monthly but can sometimes be financed in with your loan or paid upfront at closing. After a few years, you may be able to eliminate PMI if your home goes up in value resulting in 20% equity, but your lender will require a new property appraisal and most likely other documentation.
Step 5: Closing
Hooray!!!! Your home loan has been approved! You have jumped thru all the hoops and soon the keys to your future will be in your hands. Closing date and time are scheduled. The closing typically takes place at the local title company from which your title insurance came. You will be accompanied by your friendly Loan Consultant and helpful Dreamcatcher Realtor. Start doing your finger stretches, because you will sign “ oodles “of papers with your complimentary title company pen! Congratulations!!!
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