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Very few people have the
luxury of paying cash for a
new home. When purchasing a
home, most buyers must take
out a mortgage. A mortgage
is an instrument that
secures a loan against a
house. It may also be
referred to as a Deed of
Trust.
When you secure a loan to
pay for a home, you will
sign a promissory note and a
mortgage at the closing
proceedings.
Below are some helpful hints
to aid you in the process of
applying for a home loan:
The First Step:
Before you even begin
looking at homes to
purchase, you should contact
a mortgage specialist to get
pre-qualified or
pre-approved. By doing this,
it increases your chances of
having your Offer to
Purchase accepted by the
seller. A seller is more
likely to accept an offer
from a buyer who already has
funding versus one who still
needs to get a loan.
In addition, it is a good
idea to obtain a copy of
your credit report prior to
contacting a mortgage
specialist, so that you can
clear up any errors that may
appear on your report.
Pre-Qualification:
This is an informal way to
see how much you may be able
to borrow. Pre-qualifying
can usually be done over the
phone by providing the
mortgage specialist with
your income, your long-term
debts, and the amount of
down payment you can afford.
Pre-Approval:
This is a mortgage lender’s
commitment to loan money to
you. When getting
pre-approved, you provide
your loan specialist with
all of the necessary
financial records needed to
apply for a loan. Getting
pre-approved will provide
you with the exact amount
that you can afford and it
shows sellers that you are
serious about buying a home.
Applying for a Loan:
There are several financial
records that your mortgage
specialist will need in
order to process your loan
application:
·
W-2s or tax returns for
the past 2 years.
·
Proof of gross monthly
income for the past 30
days.
·
Proof of investment
income, including rental
incomes.
·
A list of creditors,
including account
numbers, balances, and
monthly payments.
·
Two months worth of
banking statements.
Your lender will also need a
copy of the sales contract
for the property you wish to
purchase. In addition, if
you are selling a home, you
must also provide its sales
contract to your lender.
During the processing of the
application, you can expect
the lender to verify all of
the information you have
provided. They will also run
a credit report to see your
past payment history as well
as to verify outstanding
credit balances. Be careful
not to apply with too many
lenders, in that numerous
checks against your name
within a recent period can
throw up a red flag and
cause your credit worthiness
to go downward. Your lender
will also check your FICO
score, which is a points
system that indicates your
credit worthiness.
Types of Loans:
There are several different
types of loans available
when applying for a
mortgage:
Conventional:
These loans can be broken
down into two types:
Fixed-Rate loans and
Variable-Rate loans. A
Fixed-Rate loan is generally
a 15-year or 30-year loan.
The interest rate of this
type of loan does not change
during the life of the loan;
therefore, your principal
and interest mortgage
payment will stay the same
until the loan is paid off.
A Variable-Rate loan is one
in which the interest rate
will change over the life of
the loan period. These types
of loans are commonly
referred to as Adjustable
Rate Mortgages, or ARMs.
Hybrid Loans:
These loans will generally
have a fixed rate for the
early life of the loan, such
as the first 3, 5, or 7
years, and then roll over to
a variable rate loan once
the fixed period ends.
Government Program Loans:
These loans are insured
loans through either the
Federal Housing
Administration (FHA) or the
Department of Veterans
Affairs (VA). A government
program loan generally
requires a smaller down
payment than a conventional
loan. In addition, the
interest rates on these
loans are commonly below the
current market rates. FHA
loans have special programs
for first-time home buyers
and low-income home buyers.
Bridge Loans:
This type of loan is for
buyers who plan to close on
their new home before they
can sell their current one.
A bridge loan can be set up
to completely pay off the
old home’s mortgage, or it
can be set up by adding the
financial obligation of the
new home to the existing
amount of debt. A bridge
loan is a short-term loan,
usually one year, and
includes large, prepaid
interest.
Loan Approval:
Once your application for a
loan has been processed, the
lender will make a decision
concerning making a
commitment on the loan. If
the lender decides to
approve the loan, you will
receive a Commitment Letter
from the lender notifying
you of their decision. The
Commitment Letter may
include certain conditions,
such as repairs to the home,
before the final approval is
made. Also included in the
Commitment Letter is the
"lock-in" rate. This is the
lender’s promise to make the
loan to you at a specified
interest rate and number of
points. A lock-in rate is
generally honored for a
certain period of time, such
as 30 days. If the lock-in
period expires before your
closing date, you may have
to pay additional fees to
extend your lock-in period.
If the lender decides to
reject your application for
a loan, you will be sent a
rejection letter notifying
you of their decision. If
you receive a rejection
letter, you may present this
to the seller to reclaim
your earnest money you
offered with the Contract of
Sale. This letter is proof
that you complied with the
purchase agreement, and have
been formally rejected for a
loan.
The Closing:
Once your loan has been
approved and you have
decided on a closing date,
you will want to do a final
walkthrough of the home to
ensure that the home is in
"as-was" condition. In other
words, you want to ensure
that the home appears as it
did when you offered the
Contract of Sale. In
addition, this is your
opportunity to determine if
requested repairs have been
made to the property and
meet your approval.
The closing procedure will
be conducted by a lawyer,
generally at the closing
attorney’s office. The day
before, you will be told the
total dollar amount you will
need to bring to closing by
the closing attorney. They
will also provide you with
any additional information
you may need to prepare
yourself for the
proceedings.
On the day of closing,
remember to bring:
·
A certified check for
the total amount of your
closing costs.
·
A picture ID, such as a
driver’s license.
·
Your personal checkbook.
·
Evidence of mortgage
insurance (if this
information has not
already been requested).
Closing Costs Include:
·
Attorney’s fees
·
Property taxes (to cover the
tax period up to that date)
·
Loan origination fees (this
covers the lenders expenses)
·
Recording fees
·
Interest (paid from the date
of closing to the 30 days
before first payment)
·
First premium of mortgage
insurance
·
Title insurance
·
Survey fees
·
First payment to the escrow
account for future taxes and
insurance
·
Loan points (a "point" is a
fee that equals 1% of the
loan amount. They enable you
to secure a lower interest
rate for the mortgage.)
·
Home inspection fees (if you
choose to have an
inspection)
·
Any additional preparation
fees.
During the closing, details
of the sales contract will
be explained to you. If
everything meets your
approval, you will sign all
of the contracts to finalize
the deal. |
