The Loan Process
Five Steps to Get a Mortgage
Purchasing a home can be exciting as well as frightening. Below are the steps it takes to find and get a mortgage. Step by step, it is as easy as one, two, three, four, five!
The Pre-Qualification Process
This is an excellent time to begin the pre-qualification process. Pre-qualifying can mean several things depending on the lender that you choose, but generally it involves knowing the following points- the area you want to live, the type of home you want, and the loan that best fits your financial needs.
Many lenders will pre-qualify you for free. A simple call, with no obligation will allow you to know the type of loan that is best for you.
There are hundreds of loans available, so you should know your best options. The lender will also ask if they can pull your credit report. This report will alert the lender to any credit/financial problems. If you’ve experienced any financial difficulties (many of us have), you should explain that to the lender so they can provide the best alternatives for you. Next, the lender will most likely ask you a number of questions regarding other things about your life such as employment history, saving habits, marital status, ownership of additional properties, and many other questions to help them determine your ability to repay the loan. This is standard procedure in the mortgage process, so please don’t be alarmed.
The following are some additional questions a lender might ask:
Are you a first time homebuyer?
A first time homebuyer has not owned a home in the last three years or is a recently divorced homemaker. Why is this important? Because there are many programs that require a lower down payment, provide a lower interest rate, or even provide down payment and closing cost assistance to new homebuyers.
Are you a Veteran?
Many Veterans qualify for a special VA loan that requires no down payment! In most cases, it is easier to qualify for a VA loan. So, why not use this special benefit?
Becoming pre-qualified is an important step in the mortgage process to enable you to get into the right house with the right terms and conditions. Furthermore, getting pre-qualified helps you strengthen your position when negotiating with the seller as they now know that they have a qualified borrower.
Make The Offer To Purchase
Now you have found the property you want and you are ready to make an offer. You must consider what sales price to offer, terms, seller concessions, earnest money, option fee, as well as closing and possession dates.
Keep in mind that a very low initial offer may anger the seller and can lead to no compromise or a refusal to work it out.
This is a process that can be best accomplished with the help of a competent and trusted REALTOR®. The REALTOR® is also very important because they should always have your best interests in mind when negotiating with the seller. This allows them to stay objective throughout the process even when you become emotionally involved.
Acceptance Of The Offer
Acceptance occurs when all parties agree to the price and terms of the contract. At that time, the clock starts ticking to adhere to all details that are outlined in your transaction. You should be sure that all changes are initialed, no matter how insignificant you feel the change is. Absolute agreement and clarity is the key to protecting your rights and expectations for your purchase.
This process is stipulated in your contract. It is important that this process moves along quickly. Once acceptance occurs, the next days are filled with inspections, appraisals, and many other deadlines that you will need to meet to ensure a smooth closing.
Meeting All Deadlines
At this stage of the loan process, you may experience the stress of deadlines. Remember that you have chosen competent and capable people who are working for you to ensure that this will be a smooth process. If at any time you don’t feel 100% comfortable with anyone in the loan process, you should ask another party for consultation. Remember that you are spending a large amount of money and should feel completely comfortable with the entire process. Below is list of some of the things that will happen during this time period.
After all parties have agreed to the terms of the contract and the executed date is filled in, a copy of the contract and the earnest money must be delivered to the title company. The title company, a disinterested third party, must remain neutral throughout the transaction. They will carry out all the instructions of your contract and provide the title insurance. The address of the title company chosen will be on your contract, so you can communicate freely with them. Generally, your real estate agent will contact the title company for all key factors and they will review your final figures before closing. A good real estate agent can review the HUD-1 (closing statement) and make sure you have not been incorrectly charged.
You have the right to do inspections any time prior to closing. Most buyers choose to get the property inspected during the option period. In case there are problems found, the buyer can terminate the contract. The option period begins on the executed date of the contract.
If you feel there is a major item that must be addressed after the general inspection is done, you can:
- Terminate the contract within the option period.
- Propose a lower sales price.
- Request the seller do the named repairs.
- Split the cost of repairs with the seller.
If you are getting a loan, a wood destroying insect report may be required before closing. This report is filled out by a specially licensed inspector and is often done at the time of the general inspection to keep inspection costs down. If you order the general inspection with the termite inspection at the same time, you’ll most likely save yourself a trip charge. This inspection report states if there is a current infestation, there has been infestation, there are conducive conditions (areas that might attract), or the property has been treated. Please keep in mind that infestation in general is easily treatable.
The appraisal is required by the lender to insure the property’s market value and to certify the property meets required standards. Two important areas to focus on are the appraiser’s value and the lender-required repairs. Although the appraisal belongs to the lender, you typically pay the cost as required by the lender. Federal law entitles you to a copy of the appraisal.
After the underwriter has reviewed your file, they will approve and send it to the closing department. Loan approval is the full and final approval to get your property closed. Sometimes the loan approval is conditional and you must provide documented proof that either your previous home has closed or a receipt of a paid account. Either way, the loan approval moves you one step closer to owning your property. One major factor that lenders consider when approving your loan is your credit score. For additional information on credit scores, please see the Frequently Asked Questions section. This is also a good time for you to Compare Your Lender and see if you are getting the best deal.
All repairs are generally done after the loan approval. Sometimes a seller might agree to do them early, but don’t expect this until you have been completely approved for the loan. Repairs include lender-required repairs that must be done prior to the funding of the loan. Lender required repairs take precedence over all repairs, because the loan will not be approved unless they have been completed. Although the required repairs discussed are addressed in the contract, repairs that are needed after you are a homeowner should be a concern to you. Savvy real estate consultants should always recommend a residential contract to protect you in the coming year.
After repairs are done, it is always recommended to re-inspect the property. Often times, the general inspector you originally hired will look over the work for a nominal charge. This re-inspection trip should not be skipped. Allow yourself enough time before closing for the re-inspection of items where repairs had been requested.
Before closing you must obtain homeowners insurance. You will need to provide your insurance agent with the address, square footage, and age of the property. Some insurance companies ask for additional information that can be provided by your real estate agent. Your insurance will not go in effect until your loan has closed and funded. Your insurance premium will be included in your closing costs, so make sure you don’t pay for it up front.
The amount of your insurance premium is determined by the type of coverage needed:
- Replacement versus actual cash value of items in your house
- Replacement versus actual cash value of dwelling coverage
- Deductible amount
- Security system, deadbolts and smoke alarms
- Discounts may be given if you use the same insurer for your auto insurance
Please remember that flood and earthquake damage are not covered by a standard homeowner policy. You may need to buy a separate policy to cover those types of risks and is depended on the likelihood of occurrence in your area.
A survey will provide a graphic account of the property you are purchasing. It will show the structure fence line, boundary lines, encroachments, and easements of the property. The buyer customarily pays for the survey, but the cost can be negotiated if the property includes acreage.
Last Minute Details
During these final days you will need to finish up any last minute details to ensure that you get the keys to your house the day of closing. This is an exciting time, so try to relax and enjoy the process knowing that your new house is just around the corner. Below are a few last minute things that you will encounter.
Closing is the date and time set-aside for you to come in and sign the paperwork. Your real estate agent will coordinate the time and date convenient for you and the title company. As a buyer, you may want to close near the end of the month, so that you will minimize the number of days you must pay pre-paid interest. The other consideration is that most closings are scheduled for the last day of the month. A wiser strategy might be to close three days prior to the end of the month.
Funding occurs when all papers have been signed and all conditions have been met. Funding may occur on the day of the closing or on the next day. Careful planning will ensure that all expectations have been met. You will not receive the keys for the premises until the loan has funded, so plan to close early when there are definite time constraints.
After funding, your real estate consultant will give you the keys to the property and you will officially own your new home. Congratulations!
Do’s and Don’ts Before You Close Your Loan
A Few Reminders of “DO’S & DON’TS” Before You Close on Your Loan
DO bring a cashier’s check made out to the title company for your closing costs. You can bring a personal check to closing for $500 or less.
DO notify us if your salary or other compensation has changed from what has been noted on your loan application.
DO inform us if your address changes from what appears on your original loan application. We will complete rental and mortgage verification for all of your residences within the last two years.
DO obtain homeowner’s insurance with minimum coverage equal to the amount of your total loan or the replacement value of the house. Call our office with your agent’s name and phone number at least 10 days before closing.
DO keep documentation (or a “paper trail”) on any large deposits into your account. A “paper trail” is copies of all paperwork necessary to prove financial transaction: copies of all checks, deposit slips, loan paperwork, forms to liquidate assets, etc.
DO make sure you have a clear termite report on the property. If the termite report is not clear, provide a receipt for treatment that shows the chemicals and the amount used for treatment (upon request).
DON’T acquire any additional credit lines or make any large purchases on existing credit without first consulting us. For example: Purchasing a car or buying appliances for your new home will change your debt to income ratios.
DON’T change jobs without consulting us. A change in compensation may affect your ability to qualify. Borrowers must have a two year history of bonus and/or commissions to be counted as income. Lenders may verify employment on the day of closing as a quality control check.
DON’T co-sign with anyone to obtain a line of credit or make a purchase. The payment will show up on your credit report as an additional debt.
DON’T negotiate your contract with an allowance and expect to get money back at closing. An allowance can be used to pay closing costs and/or prepaids.
Source: Supreme Lending