Your Mortgage Application: Explaining the Process
Buying a new home is an exciting time. It could be the most importnant purchase you will ever make. You may require financing to make your dream home a reality. So you begin the process of applying for your mortgage.
Your lending institution will assign you a loan officer. The loan officer will be your guide through the mortgage process, from application to the final funding of the loan. The officer will answer questions you may have, keep you advised of your loan's status, and help you organize any final information required by the lender. You can expect the mortgage process to take about four to six weeks from start to finish.
Four basic steps define the mortgage process. They are interviewing and qualification; processing; underwriting; and closing.
Step 1: Interviewing and Qualification
Your loan officer will lead you through the preliminary qualification questions. Your answers will help the officer determine your loan needs and recommend which of the many loan programs available would best suit your purposes. Two ratios provide the information necessay for this analysis
Housing-to-income ratio compares all monthly debt payments such as car payments, housing debts, and credit cards, in relation to the monthly income available.
Total debt-to-income ratio compares all monthly debt payments such as car payments, housing debts, and credit cards, in relation to monthly income.
Once the preliminary qualification is completed, you can start the actual application. Very comprehensive information is required about yourself and the subject property for the application. It may seem a little strange disclosing such personal information about your financial position but rest assured, mortgage professionals deal with highly confidential information everyday. It is imperative that you give truthful and complete answers to ensure that your loan application and processing goes as smoothly as possible.
You will probably be asked to provide supporting documentation such as bank statements, W-2s, paystubs, etc. You will also need to sign documents for verifications that will be needed during processing.
The loan officer will give you a Good Faith Estimate of the settlement charges for closing your loan, a Truth-In-Lending disclosure that provides the APR (cost of the mortgage as an annual rate) and estimated payments, and a settlement booklet. The settlement booklet explains in great detail the fees invloved with a mortgage loan.
Step 2: Loan Processing
Your loan file will then go to a loan processor who will make sure all the information is accurate, complete and meets certain marketing requirements. The loan processor will order credit reports, appraisals, and verifications. When the file is complete the processor will send it on to underwriting.
Step 3: Underwriting
The underwriting process determines whether or not your loan will be approved. An underwriter will review all your documents for completeness, accuracy, and legibility. The loan file is then analyzed for four important factors: collateral, capacity, charcter, and capital.
Collateral is an estimate of the property's value and physical condition. This amount allows the lender to determine the maximum loan amount for the property.
Capacity is the financial resources available to you and your ability to make monthly house payments.The qualifying ratios are also analyzed.
Character is determined by your credit report. Your history of credit serves as a measure of your desire to make your house payments. A history of bad credit does not mean automatic denial. Be honest with your loan officer and he/she can help advise you.
Capital is the amount of liquid assets you have available for the downpayment and closing costs that may be associated with your loan.
After the underwriter reviews all the factors, he/she will make the decision to approve, approve with conditions or deny the loan request. If the loan is approved, the loan package is signed, dated, and sent off for closing. You will receive a conformation of the approval with a written loan commitment. If the loan is denied, you will receive a written notice of denial.
Step 4: Closing
In the final step of abtaining a mortgage, closing documents are prepared for the final transaction, signatures and recording. Your mortgage is now official and the title of property passes to the buyer. You now are the legal owner of the property and have a legal obligation to repay the mortgage debt.
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