The Mortgage Loan Process
The Mortgage Loan Process
You walk into the
local bank and ask to see a mortgage specialist. Palms sweating, heart leaping
– you are about to apply for what may be the largest loan in your life. A lot
is riding on an approval: the ability to purchase a home, a new start in life, or
the first steps toward a life that is moving in a new direction.
You probably don't
realize that the lady sitting behind the desk actually wants to help you. Like
your real estate agent, she doesn't get paid until the deal is consummated:
until you take out a mortgage loan. Naturally, then, your first contact in the
mortgage loan process is going to want to put your mortgage application in the
best light possible.
Unfortunately, the
loan officer doesn't have the final word on approval. To get to that great big
"yes" requires work on your part, long before heading out the door to
see a lender. Grab your calculator
and that stack of bills off the kitchen counter - you've got some number
crunching to do.
Your Budget
If you live within a
budget, congratulations – this part of the process will be a cinch for you. If
you don't, it's time to determine how much money you have coming in and how
much goes out. Once you know this, you can determine the amount of money you
can comfortably afford to pay for a house every month. Remember, this amount
needs to cover homeowners insurance, property taxes, and HOA fees if you move
to a managed community.
Your Credit
Lenders pull your
credit reports as part of the loan process, but the wise mortgage loan pursuer
will get out in front of the process and know where he stands with FICO, the
corporation that determines consumers' credit worthiness.
By law, you're
entitled to one free credit report each year, from each of the three major
credit reporting agencies. The Federal Trade Commission recommends
that you order the credit reports fromAnnualCreditReport.com, the only source it authorizes.
Lenders use a score
aggregated from all three credit reports and calculated by the Fair Isaac Corporation (FICO). Known as your FICO
score, it largely determines whether you will be approved for credit and the
interest rate you'll be offered.
Dispute anything on
your credit reports that is questionable. Even removing one negative entry can
move your credit score in a positive direction.
Your credit score plays a big part in what
your interest rate will be!
Piles of Paperwork
Finally, all those
piles of paperwork lying around the house will come in handy. Although you'll
need to ask your lender exactly what she needs to see, lenders typically want
the following:
Copies of tax returns.
Investment
information.
Bank account
statements.
Your landlord's name
and phone number, if you rent. If you currently own a home, bring your mortgage
papers.
Your driver's license
and social security card.
Paperwork, including
the account numbers, pertaining to loans and credit cards.
Pay stubs or other
information that verifies your income.
Court papers verifying
your responsibility for support payments or bankruptcy, if applicable.
The Mortgage Loan
Process
Here's what happens
during the mortgage process:
You fill out the
application.
Your loan package goes
to the processing department where everything is verified.
The underwriter
receives your package from the processing department and decides whether or not
to give you a loan.
If the underwriter
decides in your favor, the lender sends you a commitment letter.
These are the basic
steps in the mortgage loan process, and they may vary depending on your
situation.
While you wait for
word of approval, the lender is required to send you, within three days of
application, a Good Faith Estimate – commonly called the GFE. This form
discloses the costs of the loan.
Expect a Truth in
Lending Disclosure as well, which will let you know your monthly payment, the
annual percentage rate of the loan, and a disclosure of all finance charges.
The loan commitment
letter repeats the information in the GFE and the Truth in Lending Disclosure.
If the terms meet with your approval, sign the letter and return it before the
deadline.
While waiting around
for loan approval is stressful, and there may be delays while the lender
acquires additional paperwork from you, the more you are prepared going into
the process the quicker and easier it will be.
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