The Mortgage Process
You’re ready to shop for a new home. In fact, you may have already found it! The next step is to get the mortgage process started. Here’s an overview of how a typical mortgage process works:
Select your mortgage lender: Be sure to look beyond interest rates alone, because the lowest rate may not always be the best value. Instead, consider the total cost of the loan, which includes points, fees for loan processing, appraisal, legal, closing and so on. An “apples-to-apples” way to compare total loan costs among lenders is to look at the Annual Percentage Rate (APR).
Just as important, be sure your lender can provide the best customer experience. The mortgage process can be complex, and your mortgage lender should guide you through it every step of the way.
Apply for your mortgage: With the help of your lender, you’ll need to complete your mortgage application. You’ll provide a lot of personal information, such as your Social Security Number, date of birth and so on. Your mortgage application will also ask for employment information, the amount of savings and investments you have and any loans that you currently have outstanding (such as another mortgage, car loan and credit card debt). You’ll provide this information for yourself and any co-borrowers if applicable, such as your spouse.
Check your credit scores: Your lender will obtain your credit score from the three major reporting agencies. Your credit score will give your lender a clear picture of how you have managed credit in the past. This way, your lender will have a better understanding of how you would handle a new mortgage obligation.
In particular, your lender will consider your “creditworthiness” based on four C’s:
· Capacity: your ability to make a new mortgage payment, in light of your other debt obligations.
· Capital: your savings and investments.
· Collateral: the home you want to purchase.
· Credit: how you have handled your debts in the past, such as making payments on time.
Obtain a “pre-approval” loan amount: Once your credit has been reviewed, your lender should be able to give you a good idea of the maximum loan you can qualify for. This will help you shop with greater confidence and will signal to home sellers that you’re a serious buyer.
Receive your Good Faith Estimate (GFE) and Truth in Lending (TIL) disclosures: Both detail the terms of the mortgage you’re applying for. The GFE will estimate your loan costs, so that you’ll have a good idea of how much cash you’ll need at closing.
Lock-in your interest rate: You may also take the opportunity to “lock-in” your interest rate for a specific time period. You’ll want to confirm with your lender that the rate lock period will be long enough to allow for the mortgage process to conclude and for you to close the loan. If there’s a possibility that your rate lock may expire before you’re able to close, you may need to discuss getting a rate lock extension.
Appraise your home’s value: Your mortgage lender will order an appraisal to determine the market value of the home you’d like to buy. You’ll want to ask your lender in advance, “What happens if the appraisal comes in lower than expected?”
Loan approval and closing: Once you have a satisfactory appraisal and loan approval, it will be time to schedule the closing. In advance of the closing date, your lender should give you the opportunity to review all the costs listed on the closing documents and compare them with those in your Good Faith Estimate.