|
|
Basic Steps to Apply for a Mortgage
A mortgage is a long-term loan on a specific piece of property. Typical payments are made over periods of 15, 20, or 30 years. Banks, savings and loan associates, credit unions, and mortgage companies are the typical forms of home financing.
Applying for a mortgage involves three basic steps:
1. Complete the actual mortgage application. Next, a meeting between the lender and the borrower is scheduled. The borrower presents evidence of employment, income, ownership of assets, and amounts of existing debts. At this point, most lenders charge an application fee between $100 or $300.
2. The lender obtains a credit report and verifies other parts of the borrower's application and financial status.
3. The mortgage will now be approved or denied. The decision is based on the potential borrower's credit and financial history as well as an evaluation of the home (including its location, condition and value). Home buyers who are denied a mortgage may seek assistance under the Equal Credit Opportunity Act of the Fair Credit Reporting Act.
*Important Note: The approval application usually locks in an interest rate for 30-60 days.
To qualify for a mortgage, you must meet criteria similar to those for other loans. The home you buy will serve as security (collateral for the mortgage). The major factors that affect the affordable of your mortgage are; your income, other debts, the current rates.
The 5 Basic Mortgage Qualifying Steps
1. Indicate your monthly income.
2. Multiply your gross income by .28 (or .36 if you have other debt).
3. Subtract the monthly debt payments and estimate monthly cost for property taxes and home owners insurance. You arrive at your affordable monthly mortgage payment (ammp).
4. Divide the ammp buy your mortgage term and rate. Multiply that by $1,000. This is the affordable mortgage amount (ama).
5. To obtain the affordabel home purchasing price, divide ama by the amount being financed.
A key to getting a lower rate on your mortgage is making a large down payment. A large down payment of 20% or more will make it easier to obtain a mortgage.
You need to plan ahead and start aggressively saving money for a down payment. Personal savings, pension plan funds, sales of investments or other assets, and assistance from relatives are common sources of down payment money. Parents may help their children purchase a home by giving a cash gift or a loan, depositing money with the lender to reduce the interest rate on the loan, cosigning, or acting as comortgagors.
The private mortgage insurance is required if the down payment is less than 20 percent. The coverage protects the lender from financial loss due to default. PMI charges, which the borrower pays, vary depending on the amount of the down payment.
These costs may be paid in full at the closing or are sometimes financed over the life of the mortgage, depending on the type of financing. It's important to note that after build up 20 to 30 percent equity in a home the buyer may cancel the private mortgage insurance
Mortgage Application Process
The mortgage application process is where you fill out the application, sign various forms that authorize the lender to process your loan, and deliver your documentation requirements. (Bank statements, pay stubs, W2s, etc…) Obviously if you are doing this through the mail it can take a week or more but if you go into the office it usually only takes an hour or so. You should understand that the next process cannot begin until these documents are completed and or received. (Click here for list of documents that may be requested.)
Mortgage Processing
When all of your documentation is received it then goes to a processor who verifies and validates all of the information to be true and correct. Verification requests may be sent to your employers, mortgage holder/landlord and lending institutions. This is done by fax when possible. It is usually during this time frame that the appraisal and the title policy are ordered. When all the information is collected the processor then verifies that basic lender loan requirements have been met. The file is then packaged in a manner the lender specifies. The completed package (including the appraisal and title report) is then sent to the underwriting department either in house or to a lender-specified location.
The processing of your loan usually takes about one to two weeks but it can often be delayed when third parties do not respond to the validation requests or appraisals are delayed. If your loan qualifies for computer automated systems, the documentation requirements are often cut in half and the process can be completed in three to five days depending on the volume of loans the processor has.
Mortgage Underwriting
The underwriter reviews your loan package to make sure it conforms to all the guidelines required for that loan product. They also review the appraisal and title report and may do additional validation of employment, mortgage payments, and credit. And, anything else they feel is necessary to document your loan. They have ultimate power and decision authority over the approval of your loan. The time required to do this is driven by the volume in the market. If the market is flooded I have seen it take two weeks but under normal conditions it only takes three to five days.
Automated Mortgage Underwriting
Most lenders today use Automated Underwriting (by computer). The advantage is less documentation and it speeds up the process. The computer actually makes the approval decision and the underwriter only reviews the supporting documentation and the appraisal. However, if any documentation is missing, inaccurate, or does not agree with the 1003 (application), the loan will be kicked out of this system until documentation requirements are met or the loan is turned down or resubmitted. This can cause delays but they are usually resolved quickly. Automated Underwriting can be completed in just a matter of hours. But, ..If the market is flooded expect it to take longer.
Conditions To Close
When the underwriter is done reviewing your loan she will send "conditions to close" to your loan officer. These are normally just requirements for further documentation to support your file. When these needs have been satisfied the underwriter will give a final approval and "clear to close".
Clear To Close
When the loan officer gets the clear to close he then schedules and coordinates with all the parties the time and location to sign the final documents to close the loan. This normally only takes an hour to schedule.
Draw Documents
When everything is scheduled the lender then draws the document package and sends it to the closing company. This can be done by overnight delivery, fax, or electronically. It can take one to two days. You meet, sign the papers, and pick up the keys.