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  • The Loan Process

  • While finding a new home can be exciting, navigating the mortgage process can be overwhelming for some. Knowing what steps you need to take can help the process go more smoothly. Once you have an accepted offer, here’s what you need to know to make sure your mortgage application stays on track:

      1. Submit your application. Now that you’ve found the home you want to buy and a lender to work with, the mortgage process begins. At this stage, your lender will have you fill out a full application and ask you to supply documentation relating to your income, debts and assets.
      2. Order a home inspection. Schedule a home inspection as soon as you can. Doing so will give you adequate time before your closing date to negotiate with the seller if the inspection reveals any unforeseen issues.

    Why do I need a home inspection?

    A home inspection is an added expense that some first-time homebuyers don’t expect and might feel safe declining, but professional inspectors often notice things most of us don’t. This step is especially important if you’re buying an existing home as opposed to a newly constructed home, which might come with a builder’s warranty. If the home needs big repairs you can’t see, an inspection helps you negotiate with the current homeowner to have the issues fixed before closing or adjust the price accordingly so you have extra funds to address the repairs once you own the home.

    During the inspection, be sure to ask questions and bring a checklist of things you want information on. Note that a comprehensive inspection should not only bring defects and problem areas to your attention, it should also highlight the positive aspects of a home as well. When you receive the final report, prioritize the issues and decide whether you want to negotiate those items with the sellers. Remember: Every deal is different and negotiable.

      1. Be responsive to your lender. If you applied and qualify for a mortgage, you’ll receive conditional approval. At this stage, your lender may require additional documentation. Make sure to respond promptly to keep your application moving forward.
      2. Purchase homeowner’s insurance. Your lender will require proof of insurance before the loan can receive final approval.

    5 things to know about homeowner’s insurance

    1. Know about exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These types of coverage must be bought separately.
    2. Know about dollar limitations on claims. Even if you’re covered for a risk, there may be a limit to how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
    3. Know the replacement cost. If your home is destroyed, you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000.
    4. Know the actual cash value. If you choose not to replace your home when it’s destroyed, you’ll receive the replacement cost, less depreciation. This is called actual cash value.
    5. Know the liability. Your homeowner’s insurance will generally cover you for accidents that happen to other people on your property, including medical care, court costs and awards by the court. However, there’s usually an upper limit to the amount of coverage provided – be sure your coverage is sufficient if you have significant assets.
    1. Let the process play out. Know what’s happening behind the scenes: Your lender will order a home appraisal to ensure that the value of the home you’re buying is in line with the purchase price. The appraiser will visit the home and compare it to other recently sold homes in a similar price range. Your lender will also order a title search to make sure there are no outstanding liens on the property. Learn more about the home appraisal process
    2. Avoid taking on new debt. While your loan is in process, avoid opening new credit cards or making other major financial changes. New loans or other changes that affect your debt-to-income ratio could get in the way of your mortgage approval.
    3. Lock in your rate. If you haven’t already locked in your interest rate with your lender, you’ll want to do so. Your rate must be locked in no later than 10 days prior to your closing date.
    4. Review your documents. Once your loan is approved and your inspection, appraisal and title search are complete, your lender will set a closing date and let you know exactly how much money you’ll need to bring to your closing.
    5. Arrange to pay your down payment and closing costs. You’ll need to get a cashier’s check or arrange to wire money to cover your down payment and closing costs. Estimate your closing costs
    6. Close on your home. At the closing, be sure to read all the documents you receive and ask any questions you may have about the terms of the agreement. Then, after you’ve signed everything, you can unlock the door and celebrate your new home!

     

  • Apply for a loan

    Once you find a home that meets your preferences, needs and budget (and the seller accepts your offer, of course!), it’s time to apply for your loan.

    You’ll need to select a lender and complete an application. Depending on the lender, you may be able to apply in person, by phone or online. All lenders require you to provide information about yourself and anyone else, such as a spouse or partner, who will be listed as a co-borrower on the mortgage.

    What you’ll need

    You and your co-borrower, if you have one, will need to provide your lender with documentation to verify your employment history, creditworthiness and overall financial situation. Before completing an application, you’ll want to ensure you have these 6 things:

    • W-2s (for the last 2 years)
    • Recent pay stubs (covering the most recent 30 days)
    • Complete bank statements for all financial accounts, including investments (for the last 2 months)
    • Signed personal and business tax returns (all pages and relevant schedules)
    • If self-employed, a copy of most recent quarterly or year-to-date profit/loss statement
    • A copy of the signed Purchase and Sales Agreement

    Your lender may require more documents, depending on your circumstances and the type of mortgage for which you’re applying. You can expect your lender to ask you details about your employment and financial history. With your permission, your lender will also run your credit report as part of the process. See how your credit score can affect your interest rate

    Be sure to take your time and carefully fill out the application as completely and accurately as possible. Not disclosing credit problems up-front or holding back requested documents will only delay the process and potentially prevent mortgage approval, so it’s to your benefit to fully disclose everything about your finances.

    Locking in your interest rate

    Since interest rates fluctuate frequently, things can change between the day you apply for your loan and the day you close. If you want to protect yourself against rising interest rates and ensure that the loan terms you used to build your budget are locked, you might consider locking in your rate with your lender when you fill out your loan application.

    A rate lock, also known as a rate commitment, is your lender’s assurance that the interest rate and discount points are guaranteed until the rate lock expiration date. The lender will provide the terms of the rate lock to you in writing, including the agreed-upon interest rate, the length of the lock and any discount points you choose to pay. 

    Of course, if you believe that interest rates will decrease in the near future, waiting to lock your rate may make sense to you. In the end, it’s a personal choice when to lock your rate. The rate must be locked prior to the lender preparing your closing documents. Talk to your lender about the choice that best suits your needs and your preferences.

  • The credit decision - final approval

    First-time home buyers tend to find the mortgage approval process confusing. We know, because we get their questions via email on a regular basis! So we’ve created this guide to walk you through the different steps in a typical mortgage approval process.

    Note: The lending process can vary from one borrower to the next, due to a variety of factors. So your experience might be slightly different from the one outlined below. These are the six steps that usually take place before a home loan is approved by a lender.

     

  • Funding your loan

    In a mortgage transaction, the term "fund" refers to the process of wiring or releasing money from a mortgage lender to title or escrow prior to closing a real estate transaction. Funding often occurs a day or two before closing, and you can't close until it happens.

    A Final Check

    The process of funding a loan differs from state to state, but it typically doesn't take place until all the loan documents have been signed and all the funding conditions have been satisfied. A homebuyer often signs loan documents a few days before the actual closing, but this can vary by state. In some regions, the closing can sometimes take place the same day a buyer signs the loan documents.

    Expect the lender to do one final check of your credit and employment status at the very end of the process, before any money changes hands. A buyer might think their loan is a sure thing so they run out and buy a house full of furniture—on credit—in the days before funding. This can be a disastrous move if you had a borderline credit score to start.

    Loan Conditions 

    The loan documents might not be drawn up in the first place if loan conditions aren't satisfied. This is referred to as "prior to doc" when conditions must be met before documents are drawn. Many lenders require that the loan conditions be completed just prior to funding.

    Loan conditions might call for an appraisal review or something much simpler, such as receipt of all the pages of a bank account—even the blank pages. A loan for a new home might require all the appliances to be installed and in working order prior to closing. An FHA loan could require that someone physically pick up and dispose of paint chips found lying around the perimeter of the house. There any number of possible loan conditions that could be included.

    What It Takes to Fund a Loan

    A closing disclosure is sent to the buyer a few days prior to signing the loan documents. The buyer is then permitted to sign the mortgage documents. If some of the paperwork seems identical to other documents you've already signed, it is. But it's the final, official statement of your loan terms. Everything must be signed if you want to fund your loan.

    Loan documents also require notarization, which means producing two acceptable forms of identification and placing your signature on certain documents in the presence of a notary public. Many title and escrow company employees are notaries. You can also sign with a mobile notary in the privacy of your home or at your place of business.

    The loan documents are returned to the lender for review after all the parties have completed signing the escrow paperwork. Underwriting is likely to require that all loan conditions be completed by this time as well.

     

    Wet Closings vs. Dry Closings

    The lender prepares to fund the loan after reviewing the executed loan documents. Funding generally means wiring the loan monies to the title or escrow company. The exact timing depends on whether it's a wet closing or a dry closing.

    Regardless of whether you're the buyer or the seller, you'll want a wet closing, which means the lender wires the funds immediately on the day of closing. The money is present and accounted for at that time, typically in the title company's bank account.

    If you sign everything and then have to wait for the lender to review all the documents one more time, that's a dry closing. This can occur when a lender has not worked with a particular title company before so the lender doesn't have the comfort level necessary to trust the title company with a final review of the paperwork. Some states only allow dry or wet funding.

    The delay associated with a dry closing is usually no more than two to four days.1

    Refinancing and the Right of Rescission

    The process of refinancing is almost always a dry closing because, as the borrower, you typically have a right to rescind or cancel the transaction for 72 hours after closing. You can waive your right to rescission at closing by signing the required document, but your lender still might not release the funds until the rescission period has passed.2

    The Last Steps 

    The file is in a position to record when the closing agent receives the wire. In some counties and states, there might be only one time available to record. The transaction won't actually close until the following day if the fund wire is received too late in the day to make the sole recording time.

    Receipt of the loan funds is crucial to closing the sale of your home and avoiding any delays. You can expedite your home closing by asking in advance when the title or loan closer expects to receive the loan funds and whether same-day closing is possible.

  • The mortgage process

    In a mortgage transaction, the term "fund" refers to the process of wiring or releasing money from a mortgage lender to title or escrow prior to closing a real estate transaction. Funding often occurs a day or two before closing, and you can't close until it happens.

    A Final Check

    The process of funding a loan differs from state to state, but it typically doesn't take place until all the loan documents have been signed and all the funding conditions have been satisfied. A homebuyer often signs loan documents a few days before the actual closing, but this can vary by state. In some regions, the closing can sometimes take place the same day a buyer signs the loan documents.

    Expect the lender to do one final check of your credit and employment status at the very end of the process, before any money changes hands. A buyer might think their loan is a sure thing so they run out and buy a house full of furniture—on credit—in the days before funding. This can be a disastrous move if you had a borderline credit score to start.

    Never make any major purchases, especially on credit, right before closing on a mortgage.

    Loan Conditions 

    The loan documents might not be drawn up in the first place if loan conditions aren't satisfied. This is referred to as "prior to doc" when conditions must be met before documents are drawn. Many lenders require that the loan conditions be completed just prior to funding.

    Loan conditions might call for an appraisal review or something much simpler, such as receipt of all the pages of a bank account—even the blank pages. A loan for a new home might require all the appliances to be installed and in working order prior to closing. An FHA loan could require that someone physically pick up and dispose of paint chips found lying around the perimeter of the house. There any number of possible loan conditions that could be included.

    What It Takes to Fund a Loan

    A closing disclosure is sent to the buyer a few days prior to signing the loan documents. The buyer is then permitted to sign the mortgage documents. If some of the paperwork seems identical to other documents you've already signed, it is. But it's the final, official statement of your loan terms. Everything must be signed if you want to fund your loan.

    Loan documents also require notarization, which means producing two acceptable forms of identification and placing your signature on certain documents in the presence of a notary public. Many title and escrow company employees are notaries. You can also sign with a mobile notary in the privacy of your home or at your place of business.

    The loan documents are returned to the lender for review after all the parties have completed signing the escrow paperwork. Underwriting is likely to require that all loan conditions be completed by this time as well.

    Wet Closings vs. Dry Closings

    The lender prepares to fund the loan after reviewing the executed loan documents. Funding generally means wiring the loan monies to the title or escrow company. The exact timing depends on whether it's a wet closing or a dry closing.

    Regardless of whether you're the buyer or the seller, you'll want a wet closing, which means the lender wires the funds immediately on the day of closing. The money is present and accounted for at that time, typically in the title company's bank account.

    If you sign everything and then have to wait for the lender to review all the documents one more time, that's a dry closing. This can occur when a lender has not worked with a particular title company before so the lender doesn't have the comfort level necessary to trust the title company with a final review of the paperwork. Some states only allow dry or wet funding.