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Understanding the mortgage process is critical for home buyers. This is especially true in a competitive market where you might be up against other borrowers with pre-approval letters and cash offers.
While the mortgage loan process can seem daunting, it isn’t impossible to accomplish. The following five steps apply to almost every borrower: pre-approval, underwriting, closing, and homeownership. Call Steve Wilcox W/Primary Residential Mortgage, Inc. experts for more information.
Getting pre-approved for a mortgage is a critical step in the home-buying process. This lets you know how much you can afford to spend on a new house and ensures that you are taken seriously by sellers. The process requires a full mortgage application and verification of your income, financial assets, and debt. You will also need to provide a recent credit report and pay stubs. Some lenders may require additional documentation, such as tax returns and W-2 statements.
The pre-approval process is more thorough than a prequalification, which usually only involves a brief conversation and a soft credit pull. Lenders will review your credit, financial assets, and debt to determine whether you qualify for a loan and for what amount. This process typically takes 10 days to complete and will require a hard credit inquiry that could affect your scores temporarily. The lender will also verify your employment and income by reviewing pay stubs, W-2 statements, and bank statements.
A key factor in the mortgage approval process is your debt-to-income ratio (DTI), which is calculated by dividing your total monthly debt payments by your gross monthly income. The lower the DTI, the better. Lenders consider several factors to determine your DTI, including your credit score, the size of your down payment, and the total cost of your mortgage.
After evaluating your income, assets, and debt, the lender will issue a preapproval letter that states the amount for which you have been approved to borrow, including the mortgage principal, interest rate, and associated fees. The letter will be valid for 60 to 90 days. Lenders put an expiration date on these letters because they want to recheck your credit and financial information before granting you the actual mortgage.
If you discover that you are not approved for a certain amount, you can ask the lender to reconsider your request. However, you should understand that this could delay the home-buying process. The best way to avoid this scenario is to work with a mortgage lender who has a proven track record of approving borrowers and can offer you a variety of loan options.
The mortgage underwriting process is when a lender takes a closer look at your application to determine whether you meet the requirements of your loan. The underwriter will review your credit report, debt-to-income ratio, employment history, and savings. They’ll also perform a title search to ensure that the property you’re purchasing doesn’t have any legal claims, liens, or unpaid taxes against it.
Your lender will ask you for more documentation throughout the underwriting process, so it’s important that you respond quickly. You should avoid taking on any new debt or making major financial changes during this time as well since it could affect your debt-to-income ratio. It’s also a good idea to keep in touch with your Home Lending Advisor, as they can help you stay on track and provide answers when needed.
Different types of mortgages may have varying underwriting requirements. For example, government-backed loans often have stricter guidelines than conventional mortgages. The underwriting process can be longer for these types of mortgages because there’s more that needs to be reviewed by the underwriter.
The state of the housing market can affect how long the underwriting process takes, too. If you apply during the busiest times of the year, your underwriter will likely be reviewing many applications at once and this can add to the overall time it takes to complete the process.
In addition, the underwriter will also take a close look at your income, credit history, assets, and liabilities. They’ll evaluate your debt-to-income ratio and review your checking, savings, 401(k) and IRA accounts to make sure you have sufficient funds to fulfill current financial obligations and pay your mortgage. They’ll also double-check that the property you’re buying doesn’t have any legal claims against it, like liens, unpaid taxes, or restrictive covenants before it can become yours.
If your mortgage underwriting isn’t approved, you may need to provide additional documentation or a higher down payment. Your Home Lending Advisor can recommend ways to increase your chances of a successful underwriting outcome, so be sure to work with them closely.
Closing is the final step in getting a mortgage. On closing day, a borrower pledges their home to the lender as collateral for the loan. They also sign the purchase agreement and all other mortgage documents that finalize the transaction.
Before your closing, the lender will order an appraisal of the property. This step ensures that the sale price of the property aligns with its actual value. The lender will not lend more than the appraised value, which can create an issue called an “appraisal gap.” If you don’t have enough cash to bridge the gap, you may not be able to close on your mortgage.
During this time, you will also need to provide proof of homeowner and title insurance. The cost of these policies may be rolled into the mortgage. The lender will also require a full review of your financials to verify that you can afford the mortgage payments and ongoing expenses.
About three days before your scheduled closing, you will receive a Closing Disclosure document. This document includes all of the final mortgage costs and loan terms. It is important to compare the CD to your initial Loan Estimate (LE).
If there are any changes, contact your lender right away. Some alterations are normal, but major changes can impact the financing of your home.
It is important to avoid any significant changes to your credit or income leading up to the closing date. Your loan approval was based on the information you provided in your application, so any changes could delay the process or even cause the loan to be denied.
At the closing table, the borrower will hand over their down payment and sign all of the final mortgage documents. After closing, they will receive the keys to their new home! Closing takes between 30 and 45 days from filling out the initial mortgage loan application to showing up to sign on closing day. However, the process can be more streamlined and efficient with good communication between all parties involved.
Homeownership is a major life event that comes with both benefits and responsibilities. Mortgages allow buyers to buy homes they couldn’t afford to pay for in cash because they’re backed by a lender that agrees to take on the risk of owning property in exchange for money borrowed upfront. The lender maintains a lien on the property as collateral for the loan until the buyer makes all of the monthly payments and pays off the debt in full.
During the mortgage process, lenders consider a variety of factors to determine whether you can make the monthly payments and meet all other obligations of homeownership, including debts and assets, employment history, savings, and credit. Lenders have minimum standards for loan eligibility, but those standards may vary from one lender to the next.
You should start the mortgage process by applying for a preapproval letter from a mortgage lender. This will tell you how much a lender is willing to lend you, based on your income and other criteria. Most sellers and agents won’t work with buyers who haven’t been preapproved. It’s also important to have enough money saved for a down payment and closing costs.
While the process can feel long and complicated, there are things you can do to speed up the approval process. Provide any documentation requested by the lender as quickly as possible, and stay on top of deadlines. This will help ensure your mortgage closes on time.
Homeownership can be a rewarding experience, but it’s important to remember that buying a home is not for everyone. Many people prefer the flexibility that renting offers. If you are unsure whether mortgage ownership is the right option for you, talk to a local real estate professional to find out more about your options. They can explain the costs and benefits of homeownership to you, as well as how the process works and what steps you should take to get started. They can also recommend lenders with whom they’ve worked in the past. The federal government has created several programs, known as Government Sponsored Enterprises, to foster mortgage lending, construction, and homeownership in the country.