When you are ready to shop for a loan, you can work directly with a lender or with a mortgage broker representing many individual lenders.
Direct lenders are lending their own money, have in-house programs, and make the final decision on your application. Brokers are intermediaries who represent many lenders and loan programs from which to choose. If you have special financing needs or want to shop the market for the best deal, an experienced broker may be able to find the best loan for you.
Along with shopping the source, you’ll also have to shop the total costs of the loan, including the interest rate, broker fees, points (each point is one percent of the amount you borrow), prepayment penalties, the loan term, application fees, credit report fee, appraisal, and a host of other items
The loan approval process generally begins with an initial interview where you and a mortgage professional discuss the potential loan. You can send information to your mortgage professional before the meeting to verify your income and long term debts.
You may prefer to talk with your mortgage professional before house hunting to determine in advance how much you can afford and the mortgage amount for which you can qualify. This step is called pre-qualification and can save you time and trouble by making certain you are looking in the correct price range.
To complete the 1003 Mortgage Application, you will need to gather:
- A purchase contract for the house (if you have one)
- Your bank account numbers and the address of your bank branch, along with checking and savings account statements for the previous 2-3 months
- Pay stubs, W2 withholding forms, tax returns for two years, or other proof of employment, and income verification
- Credit card bills for the past few billing periods, or canceled checks for rent or utility bill payments, to show payment history and amount of revolving debt
- Information on other consumer debt such as car loans, furniture loans, student loans and retail credit cards
- Balance sheets and tax returns, if you are self-employed
- Any gift letters, if you are using a gift from a parent or relative or other organization to help pay the down payment and/or closing costs. This letter simply states that the money is in fact a gift and will not have to be repaid.
Having these items on hand when you visit the mortgage company will help speed up the application process. Usually, an appraisal fee will have to be paid when you submit the mortgage application. After you speak with us, you should have a general idea if you qualify for the size and type of loan you want. After the mortgage application, we will let you know if you qualify for the loan within a couple of days.
We will begin the work of verifying all the information you’ve provided.
This process can take anywhere from one to four weeks, depending on the type of mortgage you choose, whether you’re buying a home outside your local community, or a host of other factors.
Within three business days after your signed application, we will give you a good faith estimate of your closing costs. You will also receive a statement that shows your estimated monthly payment, the cost of your finance charges, and other facts about your mortgage.
Stay in touch with us to speed up the application process. Some home buyers find the closing process to be one of the most intimidating aspects of buying a home because it’s so unfamiliar. If this is a concern for you as well, ask us what to expect at your closing.
Once you receive your approval, and you’re waiting to close on the sale of the home, don’t go on a shopping spree. The mortgage lender may do a final check of your credit report or bank accounts to make sure you’re not assuming more debt or spending your cash reserves. There are steps you can take if your loan is denied.
Once complete, your application will be given to a processor in the mortgage company who will organize your paperwork and may verify your employment, bank balances, and other information.
Be sure to respond promptly to requests for information while processing is taking place.
Commonly requested items during processing that may not have been collected during the application include:
- The final purchase contract for the house (if applicable).
- If you’re self-employed, the mortgage company may require your personal and business tax returns for the previous two years and your company’s year-to-date Profit and Loss statement.
- Divorce settlement papers, if applicable
- Updated account statements for listed assets in the application that may have changed in value.
- Information about debts or credit report items that may have been delinquent or not accurate.
- Evidence of your mortgage or rental payments, such as canceled checks.
- An irrevocable gift letter if you are receiving a monetary gift from a relative.
The processor is collecting this information before presenting it to an underwriter. An underwriter reviews all the information in your loan file to determine if the application meets the lender guidelines. With approval, a lender should give you a letter of commitment, which is a promise from the lender to make a loan based on specific terms and conditions.
Your monthly mortgage payment typically is made up of four components: principal, interest, taxes, and insurance, together known as PITI. The principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage.
Taxes refer to property taxes your community levies which are generally based on a percentage of the value of your home. The lender usually collects 1/12th of the yearly property tax bill each month. The lender collects taxes in advance and places the money in an escrow fund. Lenders won’t let you close on your home loan if you don’t have hazard insurance to cover your home and your personal property against losses from fire, theft, bad weather and other causes. The insurance amount is collected and paid much like the taxes.
Principal and interest comprise the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period of time. With amortization, your initial monthly payments are largely interest, and as the loan matures, a greater portion of your payment is allocated toward the principal.