The Mortgage Loan Process
Friday, June 7, 2019
Read Time: 3 mins
The process of obtaining a mortgage may feel overwhelming and difficult to navigate at times. It can often be filled with terms you may not understand. However, with some help and guidance through the process, you can be on your way to a smooth home buying experience.
The application is the first step in the mortgage process. It assesses your financial situation and determines how much you qualify to borrow. Some information that may be required:
- Contact information and Social Security Number
- Marital status
- Residence history for at least two years
- Income history for at least two years
- Income verification for current job (2 paycheck stubs and W-2s); military (LES); self-employed (2 years of personal and business tax returns)
- Asset information/verification (retirement statements, bank statements may be requested)
- Debt payments and balances for credit cards, student loans, car loans, alimony, child support, and any fixed obligations
Mortgage pre-approval letter.
Once you’ve completed the application process, if approved, you can request a pre-approval letter from the lender. A pre-approval letter is valuable because it means the lender has checked your credit and verified your documentation to approve a specific loan amount. In some cases, a realtor will request a pre-approval letter before showing you properties and the seller will want to see a pre-approval letter with the offer to buy to ensure you are a qualified buyer.
A sales contract is the agreed-upon price and terms of the home. It may also be referred to as a home purchase agreement, agreement of sale, or a purchase contract. The contract may cover home financing issues and specify dates for final approval and the closing on the home.
When you are buying, you will sign a home purchase agreement that outlines the conditions that both you and the seller agree to, including the price. The agreement would outline any repairs the seller is expected to make. The purchase agreement will also outline conditions under which either party can legally back out of the deal.
Realtors often include earnest money from the buyer in the form of a personal or official check along with the sales contract to act as a security deposit to show the seller you are a serious buyer. The earnest money is not given directly to the seller but is put in an escrow account. (An escrow account is an account that holds funds before they are transferred from one party to another.) If everything works out and you end up purchasing the home, the earnest money can be applied towards your closing cost.
Some inspections such as HVAC and termite are required by the lender before they will agree to finance the home. Other inspections like a home inspection are ones you might request to ensure there are no major issues with the home. The realtor can help you work through the inspection process and provide any required documentation to the lender.
A home appraisal is an unbiased report on the value of the home. It is performed by a trained and licensed third-party individual. Appraisals are used to ensure you, your lender, and the seller receive the accurate and true value of the home.
Private Mortgage Insurance (PMI).
Some lenders require private mortgage insurance (PMI) if you put down less than 20% of the home’s purchase price. It protects the lender in the event you stop paying on the loan. PMI will increase your monthly mortgage payment, but it allows you to put less money down when you purchase a home. Depending on the type of loan you chose, it may be possible to cancel PMI after you pay on the loan for a certain amount of time or build additional equity in the home.
Title work is the complete examination of the title and includes a title search to confirm that the seller is the genuine title owner and to determine if there are any liens on the home. It is also necessary for the issuing of the title insurance which protects the insured from a financial loss related to the ownership of a property.
This is when you sign off on the deal and the mortgage is funded. At the end of closing, the deed will be recorded, and the home will be yours. Congratulations!
If you are thinking about applying for a mortgage or want more information on the process, contact our Mortgage Department.