The Mortgage Process

 

Maybe you came to this site to see my photos, (if you did, thank you) but you might also be here because you are in the market for a mortgage. I want to help and I want to decode some mortgage industry jargon. I can help you understand how much you can borrow for your new home purchase and walk you through the process of obtaining a mortgage. If you are considering a refinance, skip all the way to the end where you can find my contact information.

Great intro, now lets look at the steps. For most people buying a new home, the steps will be as follows:

  1. Pre-approval
  2. Application
  3. Underwriting/Approval
  4. Conditions
  5. Closing

Pre-Approval

The pre-approval process is a way of getting you a few steps closer to the actual purchase. It puts you in command of the bidding process, and helps you figure out how much you can comfortably borrow. When you walk into an Open House and the Realtor says “you should talk to a lender about pre-approval,” this is what they are talking about.

Some people refer to Pre-qualification, while others use the term Pre-approval. They are similar, but not interchangeable and there are important differences. Pre-qualification is typically based on unsupported information. When we speak, I will ask for your income and asset information and for permission to pull your credit. Armed with that information, I can give you a rough idea of the amount you can borrow taking into account your income, credit, your other monthly obligations, your assets available for down payment, and lender guidelines and current rates. Why do I call it “unsupported information, you may ask? Simply, when we speak, I may say to you “”If what you tell me is true, then what I am telling you is true.”” By this, I mean that once you document the amount of income and assets you share with me by email or phone, then the amount my preliminary calculations show you can borrow will likely be the amount you CAN borrow. Simple.

Pre-approval is a slightly different animal (aren’t metaphors fun?). It may reduce processing times (when you find a property and are ready to move forward with a mortgage) and gets the mortgage paperwork out of your hands and into ours, letting you focus on finding your dream home and moving into it sooner.

To allow your pre-approval to go as smoothly as it can, here is a list of the information we will need:

1) Complete tax returns for two years (plus a copy of your extension if you haven’t yet filed), all schedules
2) W-2 forms for previous two years and/or Schedules K-1
2) Two most recent pay stubs (covering 30 days)
3) Bank statements for the previous two months — all pages
4) Most recent brokerage or money market statement — all pages
5) A copy of the purchase contract for the new home
6) A copy of a photo ID

When we discuss your mortgage, we may discuss the answers to these questions:

How long do you plan to stay in your new home?
Your answer may determine if you a’re better suited for a Fixed Rate Mortgage or an Adjustable Rate Mortgage (ARM). If you plan to stay in your home for less than 7 years, you may wish to take advantage of lower ARM rates. For a longer stay– and payment stability – a Fixed Rate Mortgage may be a better fit.

When do you need to close?
If you’re on a tight schedule, we can close your loan in as few as 10 days. Your closing timeline will determine your lock period (typically between 30-90 days). If you’re on a long-term schedule, we can offer rate locks for extended terms.

What are your payment goals?
Looking to pay the least amount possible? An ARM or Interest-Only loan (where you only pay monthly interest on a loan, and repay the principal when you’re able, if you qualify) might be best. To gain equity in a short period of time, consider a fixed rate mortgage carrying a higher monthly payment and faster equity accumulation.

Application

Once you are pre-approved, your next step is to find a property, write a contract and set dates for your mortgage contingency (the date by which you must communicate to the seller that you are approved for a mortgage) and closing date. When you get a contract, contact me via phone, email, text, twitter, smoke signals, or, if you like, stop by the office and we can talk. Together, we will select the best product for you and I will set up your loan application and send it out to you for signature. You will return the application along with any documents we need (see the list above and, depending on how much time has passed, you may need to update the application).

Underwriting/Approval

Once we receive your application, your supporting documents, and an appraisal of the property from an independent appraiser, we will submit your file to an underwriter. The underwriter will review all your information to make sure you qualify under the guidelines of the product you selected. If we have done a good job on your pre-approval, this should be a formality.

Conditions

As part of the underwriting process, the underwriter will have some approval conditions. This is a list of additional information that the underwriter may need from you to complete the underwriting and get you to final approval. This can be as simple as one additional paystub or bank statement or more in depth, including, for instance, a request that you explain a larger than normal deposit in your checking account. Don’t worry, we will see you through this part of the process and help you collect any additional information so you can get to the next heading and stop reading this lengthy post.

Closing

Can you feel the excitement building? You just received an email, phone call or text (or, well, you get it) from me saying you are CLEAR TO CLOSE. Clear to close is mortgage-speak for final approval, or, as you may view, the end of requests for additional information. I love telling someone they are clear to close/have final approval. Your lawyer and realtor will also be thrilled for you. This will allow your closing to be scheduled.

Prior to closing, your lawyer (or perhaps we) will tell you how much money you will owe at closing. You will be instructed to go to your bank and get a cashier’s check payable to the title company. You will bring this check to closing. In some cases, a wire transfer may be required. Closing will take place in a lawyer’s office or at a title company. You will be seated at a large table along with your lawyer, your realtor and someone called a Closer (I may be there too). You will be given a several inch stack of documents to sign. These documents include the Note and Mortgage. Once you sign the documents, you will hand your check over to the closer. She (or he) will put everything in the blender with ice and margarita mix and pour out your new name: HOMEOWNER..

Refinance

This is the shortest section of the discussion. Think of this as the Repeat in rinse, lather, repeat. You’’ve closed, some time has gone by and rates have dropped. You should call me or I will likely call you first and then we will start the process over at the Application stage above.