Being a first time home buyer can be a very intimidating process. Much of the stress comes from not understanding the process and how it all works. We hope that our information on the home loan process can help.
Finding Out How Much You Can Borrow?
Your maximum loan amount depends on many factors, including:
- How much you can afford for monthly payments.
- The appraised value of the property.
- The amount of equity in your home, if you’re refinancing.
- How much money you have available for closing costs and a down payment (if you’re purchasing).
- Your credit history and credit score.
Choose a loan that’s right for you
The type of loan you choose really depends on what is the best program for you, your situation, and your goals. If you are planning on living the rest of your life in your home a very traditional 30 year mortgage may be the best fit. If your goal is to buy the home, live in it for a few years, and then take the equity and planned increase in value and apply it to another home, than it might make more sense to take advantage of the better rates that an adjustable rate mortgage may offer. By the time the rate adjusts, you are planning on no longer being in the home. There are various other programs as well and determining what is best for your situation is the key.
Apply for a loan
Depending on the loan you choose, you may complete an application online, over the phone or in a local bank or mortage broker’s office. The bank will run a credit report and evaluate the information and give you a very loose “pre-qualification” indicating what amount you can most likely borrow. We strongly recommend shopping the loan and applying with more than one company or bank. Certain banks and lenders have stronger loans and rates than others for specific loan types, while their rates may not be as good for other loan types. If you have a credit union this is another good place to start the process as they often will pay costs associated with buying a home that banks will often not pay.
Begin loan processing
Once you have applied for a loan, the lender will go through a series of steps. Being familiar with the process will help better understand what happens on their side of the table and will make the process far less stressful. After receiving your application, the lender or mortgage
- Review your application to make sure the information is complete and consistent. A Home Loan Counselor may contact you for additional information or clarification.
- Verify the information you provided and confirm that all necessary documents are included.
- Evaluate your loan information in a process known as underwriting. Underwriting is a major step in the approval process because it evaluates your ability to comfortably make your loan payments.
- Order and review an appraisal of the home you are buying or refinancing. The appraisal confirms whether the property’s value is in line with the purchase price and loan amount.
- Ask for any additional documentation required by the underwriter. This differs with every loan and every lender.
Understand that in order to finance or refinance a loan the lender requires documentation to verify and substantiate your employment, credit and financial situation to assure its investors that you have the ability to repay the money. This documentation may consist of tax returns, recent pay stubs, bank statements, verifications of employment, deposit and rent or mortgage, appraisal, purchase agreement, divorce decrees, bankruptcy papers and any other information the lender deems necessary.
What happens at closing?
The actual closing process varies, but usually includes the following steps:
- The escrow company sends you a settlement document or CD to review all costs and credits associated with the purchase and loan. This document includes all the final costs for the purchase transaction or refinance loan.
- You sign loan documents such as the mortgage or deed of trust, note and Truth-in-Lending statement with the escrow officer or notary (usually 4-7 days prior to close of escrow)
- You wire funds, provide a certified check or cashier’s check to escrow to cover the down payment and closing costs. (usually 2 business days or more prior to close of escrow)
- If a loan is involved, the lender wires their loan amount to escrow (usually the day prior to close of escrow)
- If the monthly payments will include amounts paid toward the payment of property taxes and insurance, an escrow account is set up.
- The title company records the various documents and deeds and sends confirmation of recording. You receive the keys to your new home, along with copies of all the closing documents.