Breaking down the Mortgage Process into Six Easy Steps!

Jan 18, 2011 | No Responses

Purchasing a home, be it your first or your 50th, usually requires going through the mortgage process — unless you plan on paying cash! Because of all the changes in lending over the last few years, I wanted to make sure I gave you the tools and knowldege you need to know before moving forward.

Step 1: Meet with a Lender

Before you begin shopping for a new home, you need to be sure that you qualify for the financing you will need in order to purchase the home. If you take the time to complete this process early in the game, it will help with your negotiating on certain contract items, especially the new “Due Diligence Period” that was introduced in the new 2011 Offer to Purchase Contract.

Talking to a lender does not mean you have to promise them your first born child, or provide DNA samples, it is actually a simple process where you speak with your lender about your income, debts, and credit report as a way to determine whether or not you will qualify for the loan you are seeking. I personally recommend FM Lending Services — our affiliated mortgage company — to help assist you with this process. Don Davidson is a great resource that can help you through this process and answer any lending related questions you may have. If you’d like to get the pre-qualificaiton process started, feel free to visit www.dondavidsonlending.com.

You will need to have the following information for a Pre-Approval:

• A minimum of 2 years residency and employment history for all borrowers, including monthly gross income (prior to deductions for tax, insurance, etc.), bonus, commission and any other income source. If you are self-employed, you will most likely have to include your two most recent years worth of individual tax returns in order to determine your qualifying income.
• You will need to provide your source for down payment, and closing costs, as well as current balances for all of your asset accounts (like checking, savings, stocks and bonds), along with the current vested balances for all retirement accounts owned by all the borrowers.
• Information and the pending disposition for all the real estate owned — this includes value, loan balances, payments, information regarding taxes, insurance, HOA/Condo Dues and any rental income you are currently receiving
• Information on payment of or receipt of any Alimony, Child Support or Separate Maintenance.
• Be prepared to discuss any derogatory information about your credit, such as if  you have filed for Bankruptcy, have had a foreclosure, or short sale within the last 10 years or any other derogatory credit history that could affect your chances for obtaining a loan.

Once this is all taken care of, and you know where you stand, it’s time to move on to Step 2, which is where I come in…

Step 2: Find a Home and Make and Offer

Now that we have a number and a plan, I can take you around to properties that fit into our pre-determined criteria (like square footage, number of bedrooms and bathrooms, etc.). When we find the right home for you and we submit your offer, your lender will provide you with a pre-approval letter to attach with your offer to purchase. If you have followed Step 1 and you have had your pre-approval done, we can more easily navigate through the Due Diligence Period to determine a reasonable time frame for this period. We will use this due diligence time to get all of our inspecitons, appraisals, and paperwork together for your loan approval. The new Due Diligence Period is a crucial aspect of the contract as you can lose any earnest money if the likely approval of your financing is not in place prior to this date — that is why it is better to start this process early.

Step 3: Contract Approved, What’s Next?

The proverbial clock starts ticking! As soon as your offer is accepted, make an appointment as soon as possible with your lender to sign your loan applicaiton documents and disclosures to get your loan into processing so that you can get your loan approval before the end of the Due Diligence Period. Be sure to have the following documents on hand when you meet with your lender to get the application completed:

• Your check for any fees you will be paying up front. This will include payment for the appraisal, credit reports, flood zone certification, and any other required fees.
• Copies of current pay stubs covering the most recent 30 days of earnings from your job
• Copies of W-2 forms for the last 2 years
• If you receive social security or pension income, a copy of the “Award” letter with the amount you receive.
• Complete copies of your last 2 (two) years of Federal tax returns (all schedules and pages)
• Copies of all asset statements (checking, savings, cd’s, market accounts, stocks, bonds, mutual funds, IRA, 401K, etc.) from the past 2 months – all pages are needed!
• If you own real estate, copies of documentation showing current taxes, insurance, and any HOA/Condo dues
• If you are divorced or separated, you will need a copy of your complete divorce decree, and/or marital separation agreement.
• If you are applying for a VA Loan, you will need a copy of  the veteran’s DD214 (Discharge Papers)
• Job Relocations will require a letter from your employer stating your transfer date, job title, as well as salary information. If you telecommute, you will need a letter indicating that this is allowed by the company with no change in your job status.
• Bear in mind that different situations will sometimes require more information than what is listed above, so be sure to stay in communication with your lender at all times.

Step 4: It’s Time to Commit

Once you get an approval on your loan, a formal “Loan Commitment” will be issued. This is the lender’s commitment to lend you money at the agreed upon loan terms. There may be certain conditions that have been given on the loan commitment that you will need to satisfy before closing — you will work with your lender to do this. Some of these items could include additional documentation, appraisal approval, or any documentation that was not provided at the time of initital process (from step 3). Once all conditions are cleared with the underwriter, you are then given a “Clear to Close.”

Step 5: The Closing

You’ve made it to the closing table! Prior to the actual closing, you will receive a copy of your closing statement with detailed information on your fees and charges and the final amount of money you will need to bring to close in the form of certified funds (such as a cashiers check) that will be made payable directly to the Closing Attorney — this can also be done by wire. If by wire, you will need to get wiring instructions and initiate the transfer at least 2 days before closing.

Step 6: CONGRATULATIONS!

You are now a homeowner!