Mortgage Process

Credit

In most cases, a lender will get authorization from you to pull your credit. Your credit is a major part of the decision that the lender uses to qualify you and determine the interest rate they will give you. The most common credit score issued by all three national credit bureaus is the FICO score. The Fair Isaac Company is the firm that developed the mathematical formula, or scoring module, to produce the credit score. The Fico score is on a scale of 300 – 950. The higher your score indicates lesser risk of default; lower score indicates a greater risk of default. Most lenders take the middle score of all three credit bureaus to come up with the score that you will qualify with.

Example:

 

Trans Union	Equifax	Experian
645	700	690

Your mid score is 690

Majority of lenders will receive your credit information from a credit reporting agency. The information that is released is: The length of your credit, your credit history, how often you have applied for credit, public records, how many accounts you have, type of credit accounts you have, and your past credit history.

Each credit report will include the following information collected from creditors and public records:

• Information to identify you (name, address, employer, and social security number)
• Debt, payment history on any credit you have such as credit cards, student loans, consumer loans, car loans, etc:
• Tax Liens, judgments, and bankruptcies
• Inquiry for new credit

Downloadable Application

Take the time to review this application and get familiar with the information that you will need to provide. Here is some information you will need to have to complete the mortgage application.

• Address/previous address if less than 2 years.
• Present and past employment information (if less than 2 years)
• Your assets: 401k, money market accounts, real estates value, and amounts owed, automobiles.
• All your liabilities should be populated when the loan officer pulls your credit

Along with this application, you will sign the RESPA (The Real Estate Settlement Procedure Act). Within these documents will be a Good Faith Estimate. This is a document you want to pay close attention to. You can download this document to examine it and become familiar with your fees and what the lender will be charging you to do this loan. Pay close attention to the YSP (Yield Spread Premium) on the back of your loan. This affects your interest rate.

* All information you provide for a mortgage loan must be supported by proper documentation.

We are going into this process as if you have chosen your realtor and the home you want to purchase. Once your credit has been pulled and your application is complete; your loan is up for consideration. Home loans are available from several types of lenders such as a mortgage companies, banks, commercial banks, and credit unions. Shop around to different lenders for the best prices. It is up to you to choose the best quote and mortgage terms that fit your financial situation. You can get a home loan through a mortgage broker. A broker has access to several different lenders, which can give you different loan scenarios to evaluate. If you choose to work with a broker you should ask the broker who you are working with how he or she will be compensated and get the answer in dollar amounts, not in the form of points.

Choosing Your Mortgage

At this point, you have selected a lender. Now, it is time to see which mortgage suits your needs.

There are 2 types of mortgages: fixed rate and adjustable rate (ARM). Borrowers who choose fixed rate loans do so because the mortgage payments are steady and predictable.

Borrowers who choose adjustable rate mortgages do so because the mortgage payments are initially lower. A lower initial payment makes the home more affordable at first; but the borrower must be able to accept the risk of their payments going up and being able to afford the increase of their mortgage payments. Click here on mortgage to read more on the different types of mortgages.

While reading over the different mortgage options, keep in mind:

• Your current financial situation and resources
• How you expect your finances to change in the future
• How long you intend to keep the home you are buying
• How quickly you want to build equity
• Are you looking for a fixed payment or a payment that fluctuate from month to month

The Closing

The closing is the last step in getting your mortgage and actually becoming the owner of a new home. This process takes about 1-3 hours, depending on the understanding of the loan you applied for. During this process, you will sign legal documents to officially transfer ownership of the home from one person to another.

The closing is usually conducted by a person called the closing agent. This person may work for the lender or title company, or may be an attorney representing you or your lender. The closing agent knows what documents need to be completed to finalize the deal.

What You Need to Bring to Closing

Your Homeowners Insurance: This is required before closing. You can send the information to the closing agent with proof of payment or an invoice that needs to be paid at closing.

A Certified Check: This check is for all closing cost along with your down payment. You should request a copy of your Hud1 settlement statement within 24 hours prior to closing.

Your Hud1 settlement will have the amount of money your certified check should be and what all items it is covering such as: down payment, taxes, appraisal cost, etc.

Title Search and Title Insurance: The title search ensures the seller is the legal owner of the house and that there are no outstanding claims against the property. Title insurance guards the lender against a mistake in this search and will not necessarily cover you. You can get an owner's title insurance policy for a small additional premium. If the seller has owned the house for a short time, see if you can obtain a significantly cheaper re-issue rate.

Survey (not always required): A survey ensures that the home and other structures on the lot are where they're supposed to be, and that the lot is free of any illegally encroaching structures. If a less costly survey is available, and is less than seven years old, your lender may accept a signed affidavit stating that no changes have been made to the property since that survey was completed.

Building Code Compliance Letter (not always required): Many local governments require a home to be inspected when it is sold to ensure that it is in compliance with local building codes. If it is not, repairs may be required before you can complete your purchase.

Termite Inspection and Certification (not always required): Usually, this is included as part of the purchase contract, and is generally paid for by the seller. It's required for all FHA and VA mortgages, and for many conventional mortgages.

Residential Use Permit or Certificate of Occupancy (new construction only): If your home is new, you will need a RUP or Certificate of Occupancy before you can close your mortgage loan. The builder is generally responsible for obtaining this.

Mortgage Insurance (not always required): If you have a conventional mortgage and your down payment is less than 20 percent, you may have to get mortgage insurance. (If your loan is insured by FHA or guaranteed by VA, you'll pay FHA mortgage insurance premiums or a VA funding fee.)

Flood Insurance (not always required): Required by law if the home you're buying is on a defined flood plain. The policy must be in force at the time of the settlement, and remain in force for the life of the mortgage.

These are just a few things that are usually required for closing. There may be other requirements that are not mentioned in this section, so ask you lender and closing agent what you will need to have prior to your closing day.

Fees and Taxes

The fees listed here are typically associated with settlements throughout the country. You should have received an estimate of your anticipated closing cost form your lender. This form is called a Good faith Estimate. With this estimate, you should have an idea of what your closing cost will be around. You should have exact figures of all final costs 24-48 hours before closing.

Application Fee: This covers the lender's initial costs to process your application and, in some cases, includes the cost of the property appraisal and credit report. It is often charged when you complete your mortgage application.

Appraisal Fee: Payment for the independent appraisal of the home you're buying, this fee may have already been paid directly to the appraiser or paid when you completed your application.

Closing Cost Fee: Typically, closing costs fees range from three to five percent of the cost of your home.

Loan Origination Fee: Usually a percentage of the loan amount, this covers the remaining costs associated with completing your loan. On FHA and VA loans, it is based on the base loan amount rather than the gross loan amount.

Discount Points: Paid to the lender to obtain a lower stated interest rate, you can pay discount points when you close. You are, in essence, prepaying finance charges. A percentage of the loan amount, one point is on percent of the value of the mortgage. On FHA and VA loans, they are based on the base loan amount rather than the gross loan amount.

Taxes: Local government generally charge transfer, recordation and property taxes when a home changes ownership. In some parts of the country, these taxes can be quite substantial. You cannot reduce them, but you may able to negotiate with the seller to share them when you make an offer. However, some states require either the seller or the buyer to pay theses taxes or require they split between the two parties.

Other fees may also apply at closing.

Documents You'll Receive

Settlement Statement Hud-1 Form: This is prepared by the closing agent, and lists all of the important details regarding the sale of your new home: price, amount of financing, loan fees and charges, prorated real estate taxes, and amounts paid back and forth between you and the seller. It must be signed both you and the seller. Your lender will keep the original.

Truth-In-Lending Statement (TIL): Shortly after you applied for your mortgage, you received a truth-in-lending statement from your lender, including your estimated monthly payment and the total cost of all finance charges involved in your mortgage. You will get a corrected TIL statement at the closing only if these amounts have changed.

Mortgage Note: The mortgage note is legal evidence of your mortgage, and includes your formal promises to repay the debt. It also spells out the amount and terms of the loan, along with the penalties the lender can impose if you do not make your payments on time.

Deed of Trust: This document gives your lender a claim against the house if you do not live up to the terms of the mortgage. It lists the legal rights and obligation of you and the lender, including the lender's right to foreclose on the home if you default on the loan.