Having a home to your name is the best thing you can have but getting from the homeownership dream to actually owning a home is a tough journey. With financial trouble right in the middle of home ownership and the fact that home ownership isn’t cheap or getting cheaper, you have to work harder and cough up a lot of money. Since it is tough to pay for a house upfront and even impossible, just about everyone, even billionaires, are finding themselves financing mortgages.
With home mortgage as the standard form of home financing, every first-time homeowner, subsequent homeowners too, find themselves in a complex situation full of calculations that aren’t just confusing but also stressful and exhausting. With this in mind, we prepared this article specifically for you, not to simplify the process but also to cover all the grounds in home financing through loans.
Steps for obtaining a mortgage
This is the first and the most important step in home ownership. It refers to the application for credit which you place, and the lender's commitment informing you the amount of money they will let you borrow.
You need preapproval at the beginning of the house hunting because it guides your shopping by giving you a budget to work with.
During the preapproval stage, the lenders will ask for information about your credit score, credit history, the down payment history, your employment history, any existing debt and your income and assets. These factors determine the amount of money the lender can commit to.
A real estate agent prepares an offer once you find the house you want, within your price range. The offer outlines the details of the price range, the closing date, and the duration in which the offer is good for. The seller can accept, reject, or counter the offer.
If the offer gets accepted, you can arrange for a home inspection. It is important to note that you should hire an independent professional home inspector – you can always ask for recommendations from your real estate agent.
Make sure your offer includes contingencies which should be satisfied to close the deal. Some of the conditions which you should meet include an appraisal which comes close the pre-approved loan amount, it shouldn’t go lower. Also, the home inspection should ensure that there are no issues with the house. Lastly, you must get approval for the loan.
Note that contingencies are essential as they protect you as well as your earnest money. The contingency is that thing that informs a seller of your seriousness. The binding offer also called the purchase agreement only gets approved once both parties have a deal. If there is no binding offer, you cannot make a move to finalize your loan.
This is the long part, and you will have to go through several documents which you have to file through underwriting. Note that some of the information will be gathered online, and also through the phones.
Some of the most important details include your employment information, income, debts, assets, financial blemishes, and other property information.
At this stage, you’ll also have to choose the right of mortgage where fixed, adjustable, forward, reverse, conventional, or government issued. You have to meet the eligibility criteria for every mortgage like having served in the military for a VA loan.
Once the documentation with all the details above is complete, it will be used to determine your loan estimate while describing the terms and also predicting the costs associated with the loan.
This has everything to do with the interest rates. For this, you need to make sure you chose the lowest possible rate unless your credit history doesn’t allow it. You have to actually lock the rate, not just the mention it because the rates can shoot at any time during the processing of the loan. Rate locking should last for up to two months, time which should allow you, the seller, as well as the lender to have an agreement.
You have three steps to follow through here: appraisal, title and escrow, and underwriting.
The house gets appraised, and the title company holds all the necessary documents and the funds until the mortgage gets approved under title and escrow.
Lastly, there is underwriting where the lender reviews your application, the supporting documents, sales contracts, the financial information provided, and the appraisal and title to ensure that you meet every criteria and home ownership regulations.
Also, under loan processing, there is verification of the credit report, employment, property inspection and title search.
Underwriting determines the fate of every mortgage loan application and the underwriter can approve or reject the application. Your loan’s approval may come with conditions though.
Before the closing meeting, there is the order for the title insurance which lets you walk into your new home with the keys in hand.
To close the deal, your mortgage documents are sent to the title company for signing by you and the seller. You can have a title company or a closing attorney to manage this process. Your ID is necessary, as well as funds to close the costs and for placement of the down payment. Some companies allow closing electronically.
You will get a closing disclosure after this process to confirm all the costs; the costs should vary too much from the loan estimate. Note that you can review the document for a few days before signing the final document.