Till now, we have covered many aspects of buying a home. We have covered how to shop for the best mortgage possible and what it takes to qualify for that mortgage. You now know what lenders are looking at when they determine just how much of a loan you can afford and what paper work they are going to require. We reviewed why your credit report will make a difference on your monthly payment too.
It’s not time to pick your house or call the moving company and start packing just yet. There are a few more things need to be covered first.
Simply because your lender has told you how much house you can afford, doesn’t mean they’ve even pre-approved you for the loan yet. So that is the first thing you’ll need to do. You’ll have to supply that documentation and information that we discussed earlier, such as list all your income and this is where they check your credit. This part takes approximately an hour or so.
This step doesn’t hold you, or the lender, to anything and is good up to usually 90 days. Your lender will advise you when the pre-approval is done and you both sign the document. Now does the pre-approval lock in your interest rate? Not necessarily, your lender should advise as to when to lock in your interest rate. Depending on how long it takes you to get to closing, your interest rate could drop or it could rise. Unless you are a financial speculator, it’s generally best to lock your rate as soon as you have the option.
Submit Completed Application:
You’ve worked with a realtor, or not, and found the house you want to make yours. Your realtor will draw up a contract pending to buy between you and the seller. This is when you’ll have a certain amount of time to get your loan funded and set a closing date. Some sellers are in a hurry, some are not.
You then notify your lender that you have a house under contract and are ready to move the pre-approval to a formal application. This is called the Uniform Residential Loan Application, or better known in the industry as a 1003, which is what all lenders use. In street lingo, it’s called a mortgage application.
This can be completed with your lender over the phone, in person or on line. You can do it yourself or let your lender or other real estate expert help you. At this time, you and your lender will determine the best loan model for you and in many cases; you can lock in your interest rate now. Some buyers play the game and wait to lock in at closing, hoping the rates will drop. Sometimes they do, sometimes they rise.
Formal Paper Work:
Now comes the paper work (we warned you earlier). Your lender will give you a check list of everything you’ll need to get your mortgage application started. Besides the mortgage application, your lender must send you, by law, the following 2 documents:
- Good Faith Estimate – states your terms; monthly payment; any fees for closing such as Lender fees, title fees, estimated taxes, recording fees or any other possible costs.
- Truth In Lending Disclosure – states your total mortgaged amount, the APR you’ll be charged, finance charges for the length of your mortgage and your payment schedule.
Many lenders require a home inspection, which you will pay for. This is to assure that the lender isn’t funding a loan for an empty shell of a house. The inspector will make sure everything such as the air conditioning, heater, and hot water heater are all in good working order. They check all the electrical parts as well as all the plumbing. This is really a good thing for you as well for 2 reasons:
- If there is something in need of repair, you can often negotiate a better price with the seller or have it stated in the contract it will be repaired before you take occupancy.
- If there is something in need or repair now or could in the future, you can be aware of it now and prepare for the expense if step 1 above doesn’t happen.
All of this will be put in report form and submitted to your lender and copied to you. The underwriting department will review this along with all the other documentation you have provided.
Appraisal and Underwriting:
Now is when you submit all your documentation to your lender. The mortgage application and everything on the check list your lender sent you earlier. Your lender will have an underwriting department that that will review all this documentation and makes the final decision if you are approved for the mortgage loan.
During this time while you’re waiting on the decision, a lot is going on that you’ll be a part of and some of you won’t be. Your lender will arrange an appraisal of the house you’re buying from a pool of professional appraisers. They will spend some time in the house inspecting all aspects of the house itself, the property and the neighborhood. They will review recent sales in the neighborhood and the tax roll.
You may be asked to supply more documentation. This isn’t anything to worry about; the underwriting department is making sure this property is worth what you’re willing to pay and that you’re able to make the payment. You will then receive an approval or denial.
Clear To Close:
When buying a house, those are the 3 best words you can hear. The underwriting department has done their due diligence and approved you for closing. While that may sound easy and simple, it can be complicated, depending how many people are involved. First there is you and your agent, the seller and their agent, maybe an attorney, all have to agree on a date and time. The closing is usually held at a title office.
No less than the day before your closing, your lender should provide with you with HUD-1 Settlement Statement. This breaks down all those costs and fees and tells you exactly what you need to come prepared to pay, or receive, at the time of closing. This statement will show you what you were given in the Good Faith Estimate versus the actual charges. For the most part, they should be pretty much the same.
Close The Deal:
Here is more paper work. Take your time and look it over. Ask questions if something isn’t clear or doesn’t look right. This is the largest financial commitment you’ll ever make. So make sure it is all what you were told and expected. Anything that is wrong now is the time to speak up and get it taken care of.
Time to Go Home: