Understanding the Loan Process
Home Buyers Information and Advice
Being
a first time home buyer can be a very intimidating process.
Much of the stress comes from not understanding the process
and how it all works. We hope that our information on the
home loan process can help.
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 and credit score.
Choose a loan that's right for you
The
type of loan you choose really depends on what is the best
program for you, your situation, and your goals. If you are
planning on living the rest of your life in your home a very
traditional 30 year mortgage may be the best fit. If your
goal is to buy the home, live in it for a few years, and then
take the equity and planned increase in value and apply it
to another home, than it might make more sense to take advantage
of the better rates that an adjustable rate mortgage may offer.
By the time the rate adjusts, you are planning on no longer
being in the home. There are various other programs as well
and determining what is best for your situation is the key.
Apply for a loan
Depending
on the loan you choose, you may complete an application online,
over the phone
or in a local bank or mortage broker's office. The bank will
run a credit report and evaluate the information and give
you a very loose "pre-qualification" indicating
what amount you can most likely borrow.
I
strongly recommend shopping the loan and applying with more
than one company or bank. Certain banks and lenders have stronger
loans and rates than others for specific loan types, while
their rates may not be as good for other loan types. If you
have a credit union this is another good place to start the
process as they often will pay costs associated with buying
a home that banks will often not pay.
Begin loan processing
Once
you have applied for a loan,
the lender will go through a series of steps. Being familiar
with the
process will help better understand what happens on their
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 Home
Loan Counselor 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.
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.
- Ask
for any additional documentation required by the underwriter.
This differs with every loan and every lender.
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.
What
happens at closing?
The actual closing process varies, but usually
includes the following steps:
-
A closing agent (usually escrow officer) reviews the settlement
sheet with you. This document
includes all the final costs for the purchase transaction
or refinance loan.
- You
sign loan documents such as the mortgage or deed of trust,
note and Truth-in-Lending statement.
- For
a purchase loan, you provide a certified check or cashier's
check to escrow to
cover the down payment and closing costs.
- For
a purchase loan, your lender gives a check for the home
loan amount to escrow.
- If
the monthly payments will include amounts paid toward the
payment of property taxes and
insurance, an escrow account is set up.
- You
receive the keys to your new home, along with copies of
all the closing documents.
See also Key Things to Know about the Loan Process
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