The Process of Acquiring a Mortgage
The process of buying a home can be complicated as it is probably the single, biggest purchase you will make in your life. Most likely you will have to borrow the money from a bank or other financial institution by getting a mortgage-a long-term loan secured by the property you purchase.
The process of buying a home can be manageable & successful if you know what to look for at each stage. Once you have selected your lender and type of mortgage, it is time to submit your application and get your loan approved. An important step to becoming a homeowner is completing your mortgage loan application (officially referred to as the Uniform Residential Loan application). This is a lengthy application that documents your personal information (Social Security Number, date of birth, etc.), employment information, assets and liabilities, mortgage terms and much more. You’ll want to work with your lender to complete all fields, especially as they relate to the type of mortgage and terms.
1. Pull your credit report and score from all three major agencies to verify your credit history. Make sure you know what they find.
2. Evaluate the four C’s to determine if you are creditworthy:
- Capacity-Current and future ability to make payments
- Capital or cash reserves-Money, savings and investments you have that could be sold quickly for cash
- Collateral-The property that you will purchase
- Credit-Your history of paying bills and other debts on time
At this point, your lender can provide you with a pre-approval letter that outlines how much you qualify to borrow and the specific terms of the loan. Now, you can begin looking for your new home with greater confidence.
3. Once you have found the home you want to buy and have signed a Purchase agreement for the property, you are ready to complete the application process by providing your lender with the address and property details. Your lender will then:
- Get an appraisal to determine the market value of the property, because it will be used as collateral for your loan. You have a legal right to get a copy of this and will want a copy for your records.
- Issue a Commitment Letter detailing the terms of your loan approval.
The Commitment Letter serves as final approval of your mortgage loan and states the terms of the approval. Once you receive and accept this, you are assured the financing needed to complete the purchase of your home and can now focus on completing the details required for closing the mortgage.
Your lender is required by law to provide you with several important documents that help you determine-and understand-costs associated with obtaining your mortgage. Make sure you know your overall costs and rights upfront.
Closing or “settlement” is when you will sign the final mortgage documents and the property will be legally transferred to you. it typically involves you and any co-borrowers, a closing agent and your real estate agent, although closing practices may vary in your local area.
When preparing for the loan closing, you should contact your closing agent to determine how much money you will need to bring to closing and any other steps for completing the purchase of your home.
You will sign many documents at closing and it is important that you read the documents carefully and ask as many questions as necessary. These documents include:
- The Mortgage Note. A legal document that provides evidence of your debt and your formal promise to repay the mortgage loan.
- The Mortgage or Deed of Trust. The security instrument that you give to the lender protects the lender’s interest in your property. When you sign the deed of trust, you are giving the lender the right to take the property back by foreclosure if you fail to pay the mortgage according to the set terms.
- The final Truth-in-Lending Disclosure. This document reflects any changes to the terms of your mortgage loan since your application date.
- Affidavits and Declarations. Statements declaring something to be true, such as the property will be your principal place of residence.
- The HUD-1 Statement. Discloses the final details of your mortgage loan including, the actual settlement charges you will be paying, a comparison of the costs disclosed on your GFe to the costs being charged at closing and Your final loan terms.
Closing on a home involves a number of important steps. Make sure to pay the same level of attention to these steps as you did when you were house hunting.