The most important step in obtaining a first
time home loan is to find a mortgage provider who will lend you the
money you need for your dream home and match that with your credit.
We have also listed many other steps that may help you being a first
time homeowner or someone that forgot all the chains of command to
get that loan you want.
Step One: The Loan Application
Filling out a loan application
is the first step in obtaining a mortgage. This usually takes place
over the phone with the loan officer. Sometimes you can even aply
over the internet. You'll be asked for information about employment,
earnings, savings, and so forth. You'll be asked to provide documentation,
such as W-2's, recent pay stubs, and perhaps even copies of your income
tax return. The loan officer will also check your credit report. It's
important to make sure your application is complete and accurate.
Missing or incorrect information can delay the loan or can even cause
you to be turned down for a loan. A good loan officer will take time
with you and not rush through the process.
Step Two: Loan Processing
Once your loan application has
been completed, the loan officer passes the application to the processor.
The processor's job is to organize the paperwork and make sure all
the documentation is complete. It's her job to make sure that the
loan officer hasn't missed anything. It's common for the processor
to give the borrower a phone call to verify facts or request additional
documentation. The processor will analyze the numbers. She'll evaluate
your income and how much cash you are bringing to the deal. She may
also update your credit report if there's anything that needs to be
updated in your favor.
Step Three: Underwriting
When the processor has gotten
all the paperwork in order, she turns the file over to the underwriter.
The underwriter's job is, essentially, to check the work of the processor.
The underwriter will compare the facts in the applicant's file to
the guidelines of the loan type being offered, and make sure that
all the conditions are met favorably. As long as you can meet all
the guidelines of the loan, your loan will be approved. Sometimes
there's still some missing information at this point that will delay
your loan approval. For instance, if an appraisal of the property
is required, the appraisal may not have been completed yet. In cases
like these, the underwriter will approve the loan, conditional upon
meeting certain critieria. Then he will send the loan back to the
processor, who will make sure the conditions get met – such
as making sure the appraisal comes in at a high enough value.
Step Four: Closing and Funding
Once the loan is approved by
the underwriting department, it goes to closing. Closing is the process
where the lender's office communicates with the title company to get
all the paperwork in order for settlement. At this stage, the money
is made available for the loan. Banks and many mortgage companies
use their own money to fund the loan, so no wire transfers from other
entities are needed. But in many cases, especially with mortgage brokers,
another entity actually funds the loan. The money is wired electronically
a day or two ahead of time to make sure it's available for settlement.
At the Settlement Table
The paperwork is done. The conditions
of the loan have been met at every stage of the way. The funds are
available. Before you get to the settlement table, however, your lender
should give you a Good Faith Estimate of Settlement Costs. You should
review this document and make sure you understand it before proceeding
to settlement. It all comes together at the settlement table. At settlement,
several parties are represented. The buyer and the buyer's real estate
agent will be there, as will the seller and his agent. A settlement
attorney, who acts on behalf of both the buyer and the seller, conducts
the final transaction. If every person has done his job along the
way, the settlement will be smooth, with no last-minute problems.
Buyers and sellers will each be given a settlement sheet and asked
to review the numbers to make sure they are correct. Since the numbers
are often confusing, the agents and attorneys are available to answer
any questions that may arise.
Closing Costs: What to Expect
There are many costs associated with closing on a mortgage. In addition
to your down payment and the settlement attorney's fees, here's what
else you should expect to pay in closing costs for your first time
home loan.
Loan origination fee and discount points
Based on a percentage of the total mortgage cost, this is how lenders
are compensated for their services.
Appraisal fee
$300 to $450. A professional appraiser visits the sale property to
determine its value and condition.
Credit report fee
$50, to determine the borrower's credit worthiness.
Title company fee
$250 - $350. This is how the title company is compensated for their
services of researching the title and preparing the deed.
Title insurance
Usually 1/2 to 1% of the total mortgage cost. Title insurance ensures
that if there is ever a problem with clear title to the property,
the lender's money will not be at risk.
Underwriting fees
Document preparation fees, and processing
fees
These are costs incurred during the loan application process.
Recording fees and state and transfer
taxes
Taxes and fees paid to the locality where the property is located.
Private mortgage insurance
Often required by a lender if your down payment is less than 20% of
the property’s value.
Mortgage interest for the current month
Homeowner's insurance
You will probably need to show proof of this at settlement.
Property taxes
Homeowner Association Fees
After settlement
Most mortgage lenders will sell your loan to another company, who
will then take over the servicing of that loan. This is the norm rather
than the exception. You may want to ask at settlement what you can
expect in this regard.
