Mortgage Articles – For the smart consumer

Applying for a Mortgage – What’s the Process?
Once you have determined how much you can afford to pay monthly and have learned as much as possible about mortgage programs that might work for your situation, it’s time to begin the process of obtaining a mortgage through your lender.

If you have not already looked into buyer assistance programs in your area and those offered by the federal government, now is the time to do so! If you qualify, these programs could save you a lot of money as you buy your home!

There is a Difference Between Pre-Qualification, Pre-Approval and Loan Commitment
Sometimes potential borrowers who receive pre-qualification from a lender are surprised to find out that they cannot qualify for the loan they thought they had been promised, or that they are actually able to borrow a higher loan amount than what was originally stated.  These things can happen because, when a lender performs a pre-qualification for a potential borrower, the lender considers only a few factors and does not generally perform a credit review or gather detailed financial information from the client. Only once a loan commitment is offered is the potential borrower guaranteed a loan from the mortgage provider.

The basic premise of mortgage pre-qualification is to analyze how your income and debts fit into a standard debt-to-income ratio.  The process is simple, and the standard way that a lender performs a pre-qualification is to ask you about your income.  Your housing cost allowance is considered to be 28% of your income.  The lender will then estimate whether your regular recurring debt, when added to your housing allowance, equals less than 36% of your income.

If you fit this standard pre-qualification calculation, then you can generally assume that you will be approved for a mortgage loan.  Even if you do not fit the standard pre-qualification debt-to-income ratio, you may still be eligible to borrow from certain lender programs.

Pre-approval is the process whereby a lender will thoroughly evaluate the borrower’s credit history, income information and other factors to determine loan eligibility.  The lender will most likely ask you to provide whatever information you may have about the home you are considering for purchase. Once this process is completed, the lender will provide a pre-approval statement indicating that the buyer is eligible to borrow from a specific lender.

Neither pre-qualification nor pre-approval is a promise to lend.  A borrower who would like a statement from their lender guaranteeing that a loan will be issued should request a loan commitment.  A loan commitment is the lender’s way of stating that it agrees to issue a loan to the borrower for a certain amount of funding.

Knowing the difference between these types of investigation processes and statements can mean a world of difference for the borrower and seller. When you complete the process of getting pre-approved, you are showing the seller that you are a serious buyer with the credentials necessary to take out a loan with which you can purchase the home.

Completing the Actual Mortgage Application
Here are the basic steps required by any lender when you apply for a mortgage. Keep in mind that every lender may have a different application process and different borrower requirements.  Review the application instructions carefully before beginning the application process, and always contact the lender if you have a question about the application.

1. Contact your lender and request a mortgage application. This can almost always be done by visiting the lender’s office and may even be completed electronically and submitted online through a form or via email.  Have the following items at hand while you are completing the application:

   1. Demographic information about each borrower, co-borrower or co-signer including name, date of birth, social security number, address, etc.

   2. Employment data for each person listed on the application

   3. Income information (gross monthly income), as well as information about bonuses, child support, etc.

   4. Details about the property you are interested in purchasing, if available

   5. A complete list of your assets and current debts

2. You will probably need to submit copies of your bank statements, tax returns, wage and tax reporting statements, and other financial documents to the lender in order to verify the information provided on the actual application.

3. Once you have completed the application and submitted the required additional paperwork to the lender, you will need to wait for the lender to issue a decision regarding your mortgage approval.

4. Upon approval, you will be provided with legally required disclosure statements that tell you about the fees that are associated with your mortgage.

5. The lender will then request an appraisal through a company of its choice to verify the value of the home you intend to purchase.

6. Once the lender has issued the disclosure statement and the appraisal has been completed, the lender will contact you to reuqest any additional information that may be needed prior to issuing an interest rate for your loan. At this point, you select the specific mortgage program through which you will borrow and the loan is officially prepared for payment at the time of the closing.

These steps are a mere overview of the actual mortgage loan application process, and each individual step may be more or less complicated than it appears above, depending on the lender you have selected and your specific circumstances.  By cooperating with the lender’s requests throughout the application process, you will receive a loan commitment and approval much more quickly.

Generally, when you work with trustworthy realtors who have experience in the housing industry, they will know the facts that lenders do not always share with potential borrowers.

Applying for a mortgage is a time-consuming and frustrating experience for many new buyers because they do not know what to expect or what information will be required by the lender during the application process.  The home-buying process is stressful enough, and therefore you need to know in advance what to anticipate from the mortgage application process.

If you don’t know what type of mortgage program is right for you, be sure to take enough time to research your options. This is important for your financial future, because you can choose among many different loan programs.  Lenders, programs, and loans have different requirements, benefits and disadvantages.  As a wise consumer, you must make an educated decision based upon what best fits your specific circumstances.

A good realtor will give you information about different lenders, loan programs and assistance programs.  A good realtor will also assist you in completing your mortgage pre-approval paperwork or in obtaining lender quotes.  Generally, when you work with trustworthy realtors who have experience in the housing industry, they will know the facts that lenders do not always share with potential borrowers.

Being an educated consumer allows you to make educated decisions that help you understand the mortgage process.  Since you are making one of the largest investments of your life when you buy a home, you want to make sure that you are making a wise investment.  Your mortgage is a part of that investment, so choose wisely and always do your research ahead of time.