One thing we highly recommend when looking for a home is talking with a lender early in the process. It will not only give you a better idea of what you can actually afford and what monthly payments will be, but it’s a lot less stressful doing it well before you find the perfect home.
The first step is finding out how much you can borrow?
Your maximum loan amount depends on many factors, including:
- How much you can afford for monthly payments.
- The appraised value of the property.
- The amount of equity in your home, if you’re refinancing.
- How much money you have available for closing costs and a down payment (if you’re purchasing).
- Your credit history.
Choose a loan that’s right for you
Although there are fewer loans out there due to the problems caused by the subprime loan situation years ago, there are still various loan programs that might make more sense for you than the traditional 30 year fixed rate. Again it’s better to look into this before you find the perfect home.
Get Pre-Qualified or better yet get Preapproved
The first step is reaching out to a lender and having them give you and idea of what you can afford, what loan programs might make sense, what monthly costs would be, etc. A prequalification takes some really basic things into account. A preapproval goes a bit deeper into your finances. As you’ll need a preapproval or prequalification letter to submit with an offer, it’s best to be ready and get this done early.
Apply for a loan
Once and offer is accepted, things weill move quickly. Depending on the loan you choose, you may complete an application online, over the phone or in a local branch. No matter how you apply, one key to getting your loan quickly is filling in the application completely and accurately. It’s also very important to attach all the supporting paperwork required.
Begin loan processing
To process a loan, the lender will go through a series of steps. Being familiar with the process will help better understand what happens on our side of the table and will make the process far less stressful. >After receiving your application, the lender or mortgage broker will: Review your application to make sure the information is complete and consistent. A processor may contact you for additional information or clarification. Verify the information you provided and confirm that all necessary documents are included. Evaluate your loan information in a process known as underwriting.
The bank orders and appraiser to confirm that they see the value of the home as the same number you’re paying. Appraisal problems are fairly rare but it does come up….especially if you “chased” the home and paid a premium over what the market said it should be valued at. There are several options if the appraisal comes in low. If the appraisal comes in high it can cause some problems but not really for the buyer (seller may just be less willing to address repair items, be flexible on timing etc. if they think they sold too low.)
Underwriting is a major step in the approval process because it evaluates your ability to comfortably make your loan payments. Order and review an appraisal of the home you are buying or refinancing. The appraisal confirms whether the property’s value is in line with the purchase price and loan amount. Understand that in order to finance or refinance a loan the lender requires documentation to verify and substantiate your employment, credit and financial situation to assure its investors that you have the ability to repay the money. This documentation may consist of tax returns, recent pay stubs, bank statements, verifications of employment, deposit and rent or mortgage, appraisal, purchase agreement, divorce decrees, bankruptcy papers and any other information the lender deems necessary.
There is usually a loan “contingency” period that is agreed upon in the offer (unless changed or negotiated it’s generally 21 days from acceptance of the offer). While the loan process isn’t complete at day 21 (or again whatever is negotiated) the borrower is looking for the lender to provide either formal loan approval or underwriter approval….meaning that the loan will go through unless something drastic happens.
What happens at closing?
The actual closing process varies, but usually includes the following steps:
- A closing agent (usually escrow officer) provides a settlement statement or lenders “closing disclosures” showing you the details, costs, etc. of the loan and escrow process. These documents includes all the final costs for the purchase transaction or refinance loan.
- You sign the closing disclosure (then there is a 72 hour review period)
- You sign loan documents such as the mortgage or deed of trust.
- For a purchase loan, you wire the remaining down payment and closing cost funds to escrow to cover the down payment and closing costs (See who pays for what during escrow).
- For a purchase loan, your lender then wires the loan funds to escrow.
Once the loan and money are all in escrow you wait until the scheduled close of escrow date. At this point the title company brings the various documents to the county recorder to be recorded and once it’s confirm….You receive the keys to your new home, along with copies of all the closing documents.