1. Pre-approval - First, we recommend that you find a mortgage professional that you trust and have them complete the pre-approval process before you begin shopping for a home. This way you will know exactly what price range you should be shopping for, and it will also greatly improve your negotiating position with the seller.
2. Loan Search - Work with your mortgage professional to determine which loan program will best fit your needs based on your credit profile, your age and income growth potential, and a number of other factors. He or she will provide you with a Good Faith Estimate (GFE) which details the closing costs required for the mortgage, and which estimates your “cash needed for closing.”
3. Loan Application - Once you have determined the loan amount and product, it’s time to get all of your asset, income, and debt information to your mortgage professional so that they have a completed application package ready for when your offer is accepted.
4. The Hunt - Now you can begin the house shopping process. When you find your dream home, you and your Realtor will work on negotiating the terms of the sale.
5. Lock the Rate - Now that you have a binding contract on your new home, you will talk to your mortgage professional about locking in the rate. He or she will review the loan options with you again, and finalize the rate and terms for your mortgage. Rates are generally locked for 30 days, however can be locked for longer time periods if needed.
6. Documentation - At this time, you will need to gather supporting documentation (paychecks, bank statements, etc) to back up the numbers on the loan application, and provide them to your mortgage professional. In addition, you’ll sign and return the loan application and other disclosures that describe your new mortgage.
7. Appraisal - An appraiser will compare the sales price that you negotiated with the lender to recent “comparable” properties in the immediate area of your prospective home. This protects you from overpaying for the home and it protects the lender from having insufficient collateral to guarantee the loan.
8. Title Search - Your attorney or title company will then check for liens against the property by searching through title records. All liens have to be cleared prior to closing the sale of the property in order to protect you and the lender from other parties laying claim to the property in the future. As an added measure of protection, you will also buy a title insurance policy which will protect you in the event that the person doing the title search missed something.
9. Processor’s Review - All pertinent information will be packaged by your mortgage professional and sent to the lending underwriter, including any explanations that may be needed, such as reasons for derogatory credit.
10. Underwriter’s Review - The underwriter makes the final approval decision on your loan. This decision is based on the overall picture that is painted by your application. Specifically, the underwriter will review the 4 C’s: Credit (credit score and history), Collateral (the appraisal), Capital (your assets including down payment and funds in reserve), and Capacity (your income and job stability).
11. Mortgage Insurance - If you put down less than 20% of the purchase price, then you will often be required to add mortgage insurance to the loan. This is handled by the lender and you will pay a separate amount each month to cover the insurance which will cover the lender in the event you default on the loan.
12. Approval, Denial or Counter Offer - Normally, your loan will be approved or denied outright. Occasionally the lender may require changes to the terms of the loan in order to get an approval — a counter offer. They could require a larger down payment in order to reduce your debt to to income, for example. Note that if you are working with an experienced mortgage professional, a loan denial or counter offer should be unlikely, as the work has already been done during the pre-approval stage (step 1) to make sure you were qualified for the loan.
13. Insurance - The lender will require that you get hazard (homeowners) insurance to cover the replacement value of the structure of the home. If your property is in a flood plain, flood insurance may be required as well.
14. Closing - In general, you will be required to attend the closing of the transaction to sign the documents and provide the down payment funds. Generally, the closing is at an attorney’s office. The lender will wire funds (your mortgage) to the attorney in order to pay the seller and close the transaction. You will bring a certified check for the amount due from you (or have your bank wire the funds in advance), as well as photo ID and personal check book (just in case.) Expert the closing to take approximately 1 1/2 hours. After the closing, the attorney will file documents with the county to record the transfer of the title from the former owner to you.
15. Congratulations, you are now a homeowner!
