A Quick Summary of the Mortgage Loan Process
When making the decision to buy a new home, it’s a good idea to first meet with a lender to obtain a mortgage pre-approval. Sellers are much more inclined to make deals with buyers who have a mortgage pre-approval as proof they have access to necessary financing. Most sellers won’t take you seriously without this proof.
Schedule an appointment for pre-approval at a lending institution of your choosing. The lender will look over your credit score and credit history to determine if you qualify for a loan. If the lender is satisfied with your credit report, they will give you a document called a good faith estimate (GFE) that details the terms of your pre-approved loan. It is recommended that you meet with multiple lenders to ensure that you receive the best loan possible.
The pre-approval gives you a better idea of how much money you are working with and allows you to have to focus on homes within your price range. Obtaining mortgage pre-approval will make the home buying process much smoother.
Once you know the price range you are working with, it’s time to shop! Although online resources may seem like an easier option, none of them are always completely accurate in terms of home price estimates or even available inventory. However, these resources can still help you get an idea of what neighborhoods fall within your price range to narrow your search. An experienced real estate agent may have inside knowledge of houses coming on the market that haven’t been publicly listed yet. A realtor with an understanding of the local market should also know which homes have prices that are more negotiable than others. After picking out the home you want, your real estate agent can help you structure your offer to the seller. Once you and the seller sign the purchase agreement, you can now begin finalizing the loan.
Mortgage Underwriting Process
A mortgage underwriter is someone who will assess the risks involved in loaning money. During the mortgage underwriting process, the underwriter will begin by reviewing multiple mortgage documents that provide information on your employment, income, debts, property, assets and financial slip-ups. This information allows the underwriter to make sure you, as the borrower, meet the minimum requirements necessary for a home loan and have the means available to pay the loan off.
An appraisal on your new home is a necessary step in the lending process. Your lender will assess the true market value of the home by comparing sales information of your new home to recent sales of similar properties in your area. The appraisal will also factor in the condition and location of your new home. The purpose of this step is for the lender to make sure that the amount of money you are requesting to borrow is appropriate.
Next, the underwriter will perform a title search to ensure there are no legal claims on your new home so that the property can be legally transferred over to you. The title search will involve looking into the history of the property, including possible zoning ordinances, unpaid taxes, mortgages, and claims. There must not be any legal claims on the property for the underwriter to move forward in approving your loan.
A home survey completes the mortgage underwriting process and provides a record of your new home’s property lines and placement. The lender will not approve your loan if your home’s property boundaries are not verified by a professional home survey.
Upon completion of the underwriting process, if the bank finds evidence that you have the means to pay the loan off, you will move to the final step: closing. In this step, you will sign paperwork and settle closing costs, which average around $1,800 nationwide. The bank will now fund your loan so that you may pay the seller in exchange for the title of your new property.