UNDERSTANDING THE MORTGAGE PROCESS – FIVE STEPS AND YOU ARE HOME
July 20th, 2008 categories: Buyer Strategies, Mortgage & Finance
Let’s get into it then. I promised in my initial posting that by the time I was through, you would understand the mortgage loan process (whether you are a home buyer or a seller) from beginning to end. I think I also mentioned something about an exciting ride. I will do my best to attempt a perfect two for two, but sometimes batting .500 is not so bad. I’ll let you be the judge.
So, first things first.
The questions most people ask first include: “How much can I afford? How much will it cost? How soon can I close?” The answer to all of those is, “Well, it depends.” Our lifestyles are so focused on the here and now that we overlook the fact that sometimes things are not so simple. The mortgage process takes time. All roads do not lead to Rome. If we do not concentrate on how things are done and be careful with those steps, sure, some roads will lead to a successful closing, but others might lead to a loan being unnecessarily declined, and even worse, some might lead to that “foreclosure” word that CNN cannot seem to get enough of. So be patient. Make sure you and your loan officer walk down the right road. If you do, everything should wind up great. I will go through each of these more in depth in later posts, but I am laying a roadmap here so we can follow along later in the process. I’m sure you are salivating at this point so without further ado:
Step 1: (Week 1)
Let me say first, the whole process can take a month or more. I have closed loans in a week or less, but these are extreme circumstances that I try to avoid. The average time for one of my loans is about three to four weeks.
OK, for real now, the first move is to call your loan officer and get pre-approved. Discuss your income and asset situation with him or her. Everything is done on a monthly basis in our industry, so if you have your income broken down monthly, that will help. Be ready to show income and asset documentation from the get-go. Expect to get your credit pulled. This is normal and is something that needs to be done. If you are shopping multiple lenders (which many people are surprised I encourage) you really should not need it pulled multiple times. The credit score (or FICO, as it is called) is what most lenders can use to quote you a rate.
Be sure to have an accurate assessment of your monthly obligations as well. Most loans and credit cards will be tied to your credit report, but often these computer-generated reports display wrong numbers, inaccurate figures, and can even show blank payments. After assessing your financial situation, your loan officer should be able to pre-approve you for a particular loan amount. Once underwritten, they should give you an approval letter that will serve as your golden ticket to the crazy factory that is the real estate market. Be careful what you touch!
Step 2: (Week 2 and beyond if necessary)
At this point you will probably already have your Realtor® lined up. (See Kathy’s objective guidelines on making a great agent choice). I usually ask my clients to have their Realtor® call me so that there is a clear understanding to the terms of the pre-approval letter. Any confusion can result in a not-so-positive result, particularly when it’s your earnest money deposit check on the line. While searching for properties, you will probably need your loan officer to be readily available to help you with what the payments are on certain properties you are seeing. A good loan officer will be happy to help at any time of day. It should only take him or her five minutes or so to crank out some numbers from the time they get the listing information. So hold them to that. If simple numbers are not enough, they should prepare a Good Faith Estimate (GFE if you want to sound cool) so that you can see not only the payments, but the costs involved with the transaction itself.
Step 3: (Week 2 or 3, in an ideal world!)
You have made an offer on a house and it got accepted! Like a roller coaster that has climbed the chains to the top of the first hill, put your hands up, you are finally making your way down. Everything at this point will happen at once. If they have not already asked for it, your loan officer will need a copy of your contract. With that, they can finally lock your rate, order your appraisal, and get the ball rolling on a title insurance policy for your home. Again, I will go more in depth on all of these steps, but I feel like I am already getting carpal tunnel syndrome and we still have a bit to go. For staying with me this long, you are a trooper. Perhaps a cup of coffee might do you well!
Step 4: (Week 3 or 4)
The appraisal is in, the title shows up clear and your loan is almost ready to close. At this point, to be safe, always expect something else to be added to the list of things that are required to be in your file. Lenders are always changing disclosure forms mid-process, so if your loan officer needs a new form signed or an extra bank statement, do not hesitate. They are just trying to conform to government, lender, investor, and all other red tape guidelines that govern their job. At this point though, your lender should be able to offer you a full commitment letter guaranteeing your financing on that specific property you picked out of the inventory. Trust me, you are almost home.
Step 5: (Week 4)
A few days before closing, your lender should send all of the paperwork they require you sign to whatever settlement company you have chosen. Note, in the DC area, this will be the same company that issued you your title insurance. Once you have signed everything, the lender will wire the funds to the settlement company who will see to it that the seller and all other third parties get their appropriate share. Once the seller has signed over the deed, you are now a home owner!
Step 6: (Next 15, 20, 30, or 40 years)
Pay that mortgage on time for the life of your loan! Did I really need to outline this step?
Now that I have laid out the basics, I will go back through each step in depth so that you know the pitfalls, potential questions you need to ask, and how to make the process as streamlined as possible. I do not want to flog a dead horse here, but believe it or not, there is a lot I had to skip over to keep this to a readable length. So, in my next post we will jump back to step number one: just how are you getting qualified? By the time we get through this series, I hope you will have enough information to ensure that you never get close to some of the problems many people are experiencing now.
[This post by Robert Martinson. You can contact Robert at Robert.a.martinson@bankofamerica.com]
