In a mortgage loan process, there are six phases: pre-approval, shopping for house, the mortgage application, processing the loan, underwriting and then the closing. Here’s an in-depth explanation for each step.
Pre-approval of Mortgage
To have a smooth process of buying a new house, a mortgage pre-approval is a must. For purchasing, real estate agents will want to know if you are eligible for a loan. This will involve your credit report that has your credit score and history. Before approaching a real estate agent, make sure to have a loan pre-approved from a lender.
Based on your credit report, the lender will be able to give you an estimate of the loan amount that you’re qualified for. Having this pre-approval will save you time as you can focus more on houses in your price range. Another advantage of getting pre-approved also gives the seller the impression that you are serious in buying a house.
A mortgage pre-qualification is a measure of a person’s ability to get a mortgage. It’s a less meaningful process compared to the pre-approval stage. It’s a light glance at a person’s credit and capability to repay a loan. This is determined by loan officers as they ask you questions about your credit.
Prepare in Advance
During this stage, it will be helpful if you organize every document you will need in this process. Prepare all the documents for the loan pre-approval to avoid stress and hassle.
The fun of going house shopping begins now.
Look at houses online
Online shopping is very convenient and you can even shop for houses here. There are a few things you need to know first. Know that none of the prices posted are final. Most of the prices posted are starting points, every smart home shoppers should know this. The second thing you should know is that the listings on even the biggest real estate portals aren’t always updated. Lastly, the portals do not show the availability of the property most of the time. It would be better if you have an agent to help you out.
Make your offer
When you’ve already found the house you want, make an offer. Let the agent help you as they know how to structure this process. It will have conditions and contingencies that must be satisfied before the deal is closed. A few common ones include:
- Appraisals should be close to the loan amount and not lower
- There should be no major issues with the property when inspected
- Borrowers being approved on their loan
Contingencies are made to protect you and your money. Deposits are usually 1-2% of the sale price. With both parties agreeing to the terms, the purchase agreement is signed by both. This is when you can finish your loan.
Applying for a Mortgage Loan
To get a loan, a few documents are required. Some information will be gathered either online or over a phone call. The loan officer will tell you which documents are a priority and which are not needed. Here’s a list to guide you:
- Name of current employer, office address and contact details
- Length of employment at the current employer
- Position in the company
- Salary (including overtime rate, bonuses and/or commissions)
About your Income
- Have filed W-2s for two years
- If self-employed, Profit & Loss statement is needed
- Social Security and pensions
- Child support and alimony
- Public Assistance
- Bank Accounts Statements
- Real Estate Property
- Proceeds from the sale of your current home
- Funds gifted to you from relatives
- Current mortgage
- Child support
- Car loan
- Credit card balances
- Real property
Information on your Property
- Property address
- Property worth
- Type of property owned
- Annual estate taxes
- HOA (Homeowner’s Association Dues)
- Estimated closing date
If you have blemishes in your finances, be prepared to have explanations.
- Any bankruptcies
Types of Mortgages
There are several types of mortgage loans you can apply for. Here’s a list:
- Fixed or adjustable loan
- Forward or reverse loan
- Conventional loan
- Government-insured loan: VA, FHA, USDA
- Jumbo loan
If a VA loan is what you are applying for, one requirement you’ll have to produce is proof of your military service. Get a Certificate of Eligibility from the VA, your lender can help you out with this.
The documents mentioned above are needed to get a Loan Estimate. This estimate will include closing costs, interest rate, and monthly payments. You’ll receive this within three days of your application. Having received a loan estimate doesn’t mean that you’re approved or denied a mortgage loan. This is a statement of terms and the estimated fees.
Processing of the Loan
Documents from the borrower will be gathered by the loan processors. This information will be reviewed and assembled to be forwarded to the underwriter. The borrower’s files will be opened and then processed.
The decision-maker in this process in the underwriter. They are responsible for the evaluation of all the borrower’s documents from the loan processor. A cross-check will also be done to see if the borrower and the property match the eligibility requirements. Underwriters will review the credit report and history of the borrower. Information is verified and double checked. Underwriters will try to determine any potential fraud.
It’s in the underwriter’s hand if the loan is either approved or rejected. For some who had a bad credit history, underwriters will ask for a written explanation. Some loans are approved with conditions. Also, when the loan is approved, the interest rate for the loan is locked before it’s closed.
Before closing the meeting, title insurance is discussed. You will get the keys to your new home and will be able to move right in. Make sure that all the contingency conditions were satisfied.
Loan documents are drawn during the closing meeting. A Closing Disclosure is a document that confirms the cost from the estimated amount from the Loan Estimate document. These two should match.
You’re given the right to review the Closing Disclosure for three days before the day of the closing meeting. Three days will be enough time for you to review all the terms of the loan. Small things like typos can be changed immediately but if there are bigger changes, the 3-day period will be reset. The big changes can be the change of the APR on the loan for more than 1/8th or 1/4th of a percent, a prepayment penalty is added, or there is a change of loan products.
The final walk-through
24 hours before the closing meeting, you’ll have the final walk-through of the house you chose. This is to make sure that the place is vacated and that the repairs are completed.
The Closing Meeting
This is the time you’ve been waiting for. This is the time to sign documents and complete the purchase. Remember to bring two valid IDs, a driver’s license can be one and the second can be a passport. Closing costs should also be included in the loan amount. This includes settlement fees and any prepaid expenses like the homeowner’s insurance, mortgage insurances, and the taxes.
- A Closing Disclosure – this is a summary of the loan terms, monthly payments, and closing costs.
- A Promissory Note – this note says that you promise to pay the loan. This shows the amount of the loan and terms. It also includes the lender’s terms if you fail to make the payments.
- Deed of Trust – this will give the lender the right to claim your home if you fail to meet the terms of the loan.
- Certificate of Occupancy – this is the legal document you need to move into a house that’s new construction.
In a mortgage loan process, make sure to read all the documents and ask questions for clarification. Last tip: don’t sign forms that have blank lines or space.
After the documents have been signed, the closing meeting will come to an end. You now have a new home, congratulations!
And that’s it, the six phases of a mortgage loan process explained one-by-one. Hopefully, all these information have educated you more about each step. If you are looking for a mortgage loan, please visit Calcite Credit Union.