Step 1: Shop for a Mortgage
Step 2: Pre-Qualify for a Mortgage
Step 3: Get Pre-Approved for a Mortgage
Step 4: Obtain Your Final Loan Approval
Step 5: Close the Loan
"Where can I find the lender with the best rates and service?"
Shopping for a mortgage is the most critical part of the home financing process. By choosing a qualified lender, the remaining four steps of the process will be easier as a result of the lender's expertise.
To find a qualified lender, you have many avenues to explore. You can seek advice and referrals from those who have been through the mortgage process recently. You can look through the many ads in your local newspaper. And with the arrival of the Internet, thousands of mortgage lenders are available to you with the click of a mouse.
As you begin your search, you may notice that some lenders are referred to as "brokers" while others are named "banks." Depending on your situation, it may be prudent to shop among a variety of types of lenders. The average mortgage consumer usually contacts between 4 and 6 lending institutions. The following is a brief explanation of the different types. Mortgage brokers tend to be low cost, local sources of home financing. Most mortgage brokers work with a variety of lending sources so they can offer competitive rates along with a myriad of programs. This is useful if you have a situation that does not fit within the usual guidelines. Banks may be local, regional or national. A bank will usually offer a limited array of mortgage programs and if you do not qualify for these, you may not have additional options.
Your main goals in the shopping process should be to find a mortgage lender with a friendly, knowledgeable staff, competitive interest rates and fees, and verifiable references. To help in your final selection, you should have a list of questions prepared prior to making calls. Be sure to include questions similar to these:
If you follow these basic guidelines when shopping for a mortgage lender, the remaining steps to financing your home should proceed smoothly.
"What Can I Afford?"
Most likely, as you've shopped for a mortgage lender, you've also been shopping for a Realtor. If you have already chosen your Realtor, he or she has probably asked if you have been "pre-qualified" by a lender. If you haven't spoken with a Realtor yet, you can be one step ahead if you have been pre-qualified by a mortgage lender. A Realtor likes for a potential homebuyer to be pre-qualified so as to avoid looking at homes you may not be able to afford.
A pre-qualification is based on a conversation you have with a lender's loan officer, or a form you complete on a lender's website. By answering a few questions, you can find out quickly what size home and loan amount you can afford. You can expect the following questions to be asked:
Based on your answers to these questions, a loan officer will tell you what loan amount a lender would lend to you as long as the information provided can be satisfactorily verified. Please keep in mind, that many times a credit check is not done at this stage, but that you should mention any issues you know of regarding your credit history.
At this point, you can safely shop for a new home with a Realtor knowing that you won't fall in love with a home you may not be able to afford.
"Why do I need to get pre-approved?"
You might be wondering what the difference is between a pre-qualification and a pre-approval. As discussed in step 2 of the financing process, a pre-qualification is a determination of what loan amount you can afford. A pre-approval is one step closer to becoming a homeowner because it is a full verification of the information you provided in the pre-qualification process.
To obtain a pre-approval, an underwriter must review and approve your credit report, your income documentation, and your asset verification. If the information you provide is satisfactory, you will receive a loan commitment letter. A loan commitment letter provides evidence to all interested parties that a mortgage lender has committed to giving you a loan based on the details contained in the letter.
To take the next step and obtain a pre-approval, a mortgage lender requires specific documentation. Items you will need to provide to get pre-approved are listed below. (Documents vary depending on your specific situation. Your loan officer will be able to provide a list relating to your scenario.)
A pre-approved mortgage is a great bargaining tool for any prospective homebuyer. In many markets, a realtor will even require you to be pre-approved prior to submission of an offer to purchase. This commitment can mean the difference between a winning bid and not being considered. And once you find a home and have an offer accepted, the final steps in the financing process can move along smoothly.
"Do I need to do anything else?"
As you take the steps to financing your home, important details need to be taken care of along the way. For example, your lender will require an appraisal on the property that you are purchasing. Completion of these stipulations may occur during the shopping phase, or they might take place right before closing. Each person's situation is unique and it is your loan officer's job to identify these requirements so that you can obtain your final loan approval.
The following list of conditions is for your reference only. Your loan officer will be able to tell you specifically what is needed for your final loan approval. He or she will also be able to assist you in the satisfaction of any conditions.
The time frame for the completion of some of the items listed above is dependent on the sales contract's requirements, or your lender's requirements. It is always recommended, however, to complete any items required as soon as possible so as to avoid any potential last minute problems.
"When can I close?"
If your lender has informed you that you have obtained your final loan approval, then technically, you are ready to close. However, when you are purchasing a home, other parties are involved, and a specific closing date has probably already been scheduled.
Your Realtor will have coordinated the exact closing place and time with the seller, the closing agent, and you, the buyer. Your mortgage lender will be aware of the closing place and time, and will prepare the loan documents for the closing. Keep in mind that these mortgage loan documents may be the most important papers that you sign during your lifetime, so make sure you understand them and they are correct before you sign them.
When you get to the closing, you can expect the following to occur:
Congratulations! You have successfully completed the five easy steps to financing your home. If you have additional questions, be sure to ask your qualified loan officer. He or she is prepared to assist you throughout the process to ensure your experience is a pleasant one.
a Home] [Closing
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