Mortgage And Home Buying Process

Home Buying Process
The complete process of qualifying for a mortgage to purchase a home has a few important steps that can be overwhelming if this is your first time buying a property. If you obtained your last mortgage before 2010, you should expect to see a number of changes from what you may be use to as a result of enhanced government regulations.

We will cover each of the following steps involved in purchasing a residential property using a mortgage in detail on this page:

Pre-Approval vs Pre-Qualified
Choosing a Loan Program
Working With a Real Estate Agent
Submitting a Loan Package to Underwriting
Signing Closing Documents
Congrats!!! Getting Your Keys

STEP ONE: Pre-Approval vs Pre-Qualification

While it is obviously more exciting to start looking at properties before addressing the financing topic, the most important first step is to meet with a mortgage professional to get an idea of what type of loan program and loan amount you qualify for.

When you meet with a lender for the first time, they will take a full application that will include a residence and employment history, a list of your bank accounts and balances, income and all liabilities that may or may not show up on your credit report.

Based on your down payment and monthly budget goals, your lender will be able to give you a quick outlook of what loan programs are available for your unique scenario based on the information you provided.

At this point, your lender may provide you with a “Pre-Qualification” letter that your real estate agent will use as a benchmark for the price range and type of properties you’ll be placing offers on. The pre-qualification letter will also be presented to the seller as proof that you have the financial ability to purchase their property.

A “Pre-Approval” letter may be required by the seller if they choose to accept your offer. the pre-approval letter is also referred to as an underwriter’s approval, which means your loan application, credit report, bank statements, proof of income and any other supporting documentation has actually been previewed by the bank’s underwriting department and they have given a formal approval.

As a result of tightened qualifying guidelines and new government regulations, many lenders only issue Pre-Approval letters vs. the Pre-Qualification to avoid any complications that may arise for a number of reasons, such as a discrepancy on a credit report, gap in employment history, debt-to-income ratios off due to the way income is reported or a complication with how assets are sourced or seasoned.

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STEP TWO: Choosing A Loan Program

Whether you are a first-time homebuyer, an eligible veteran or service member, purchasing a property 12 months out of a short sale, foreclosure or bankruptcy, need extra funds for renovation expenses or are buying a home with zero down payment in a rural area, there are many loan programs that are tailored to meet most lending scenarios.

Each loan program has its own set of appraisal, property type and underwriting guidelines, which is why it is necessary to meet with a mortgage professional ahead of time. For example, VA Loans have strict condo requirements and USDA Rural Loans follow zoning and income limits.

Here is a list of the top Mortgage Loan Programs with a link to more details:

STEP THREE: Working With a Real Estate Agent

Many buyers enjoy browsing the web for available properties before contacting a real estate agent while they get a feel for the market. However, a major mistake buyers make when searching for homes on their own is when they contact the listing agent for more information without having their own representation in the form of what’s called a buyer’s agent.

The listing agent represents the sellers, and has a duty to negotiate the best deal for the seller. On the other hand, a buyer’s agent represents the buyer and has the same duty to fight for their best deal.

Many lenders have a list of real estate agents that they trust and respect, which is why we like to recommend starting with the lender and asking for a referral to a qualified real estate agent.

Your real estate agent will be able to give you insight on the local housing market, neighborhood comps and equity trends, as well as handling the negotiations between the seller to get your offer accepted.

The best part is that the cost of hiring a real estate agent is typically paid for by the seller. A common myth buyers are tricked into believing is that the seller’s agent will cut them some slack on price if they don’t bring their own representation, but in many cases the listing agent accepts a double commission for doing double the work.

Bottom line, it adds peace-of-mind having your own real estate agent on your side for the final walk-through, home inspections and on the closing day.

STEP FOUR: Final Underwriting Process

As soon as your purchase offer has been accepted by the seller, the clock starts ticking on a number of tasks that have to be completed within a certain timeline detailed in the purchase contract called the “due-diligence” period.

A full underwritten approval by the bank, an appraisal and home inspections (depending on the loan type and contract), are the first three major timelines that need to be met when purchasing a home.

Appraisals are ordered through a third-party appraisal management company with extremely strict guidelines on who is allowed to have contact with the appraiser. Since property values in many parts of the country are rapidly moving in both directions during any given season, the appraisal can be one of the major snags that can hold up a full bank approval.

Obtaining updated title, escrow, loan payoffs, additional property liens, taxes, HOA paperwork and other paperwork outside of the buyer’s control can pose a waiting game as well.

With all of these functions happening within a 20 – 60 day timeline, it is important that the buyer has all of their updated paperwork ready to go as soon as possible. This might also mean providing updated pay-stubs and bank statements the moment they become available throughout the underwriting process.

Bank underwriters will evaluate the property, title and the borrower once the final loan package has been submitted, and can take anywhere from a few days to several weeks to come back with a final approval and conditions list.

Remaining conditions may include a final letter of explanation for findings on a credit report, an official verification of employment done by the bank and an updated hazard insurance policy provided by the buyer’s home insurance agent.

DO NOT:

Apply for new credit while your loan is in underwriting
Make any major movement in your bank accounts
Miss any payments that would reflect on your credit report
Finance new furniture or appliances
Quit your job or change employment status

STEP FIVE: The Final Closing Process

With 99% of the paperwork and underwriting process complete, the bank will send the final loan documents to an escrow company or attorney, depending on your state.

Buyers and sellers meet separately to sign their stacks of documents and disclosures, which can take up to an hour or two.

This is the point where a buyer will bring a certified check to closing if there is a required down payment. Most purchase contracts require an “Earnest Money Deposit” as part of the offer that is held in an escrow account and used as leverage by the seller to ensure the purchase contract is followed and the due-diligence timelines are met. Another reason why it is a good idea to have a buyer’s agent working in your corner to negotiate the most favorable terms.

The earnest money deposit can be applied towards the down payment and closing costs, with any remaining money refunded back to the buyer in the form of a check after a successful closing.

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STEP FIVE: Congrats!!! You Are A Homeowner

As soon as the final loan documents are sent back to the underwriter, and any additional loan conditions are signed off, your loan funds and the title is recorded at the county assessor’s office.

Many buyers want to know if they can get the keys at closing, but it generally takes a couple of extra days to process the final paperwork.

Finish

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