If you’re considering buying a home, you must understand the mortgage loan process. It starts with getting preapproved by a lender and ends with your mortgage closing. It involves a thorough review of your financial information. Lenders value borrowers who have high incomes, low debt and healthy savings.
Application
Before shopping for a home, you can get pre-approval from a lender. It is a document that estimates your borrowing capacity in light of your credit and savings. It also helps sellers and agents know that you’re serious. During the formal mortgage application with the help of a mortgage company Denver, you’ll share more detailed information and provide documents to verify income and assets. It includes pay stubs, bank statements and employer contact information. Lenders review these with a fine-tooth comb to ensure you’re eligible for the loan you are applying for. If you’re denied, it’s important to understand why so that you can take steps to re-qualify. For example, if the lender thinks you have too much debt, you could reduce your balances or apply for a smaller loan. You’ll receive a Loan Estimate document within three business days of submitting your application. It lists estimated fees, closing costs and other details for the mortgage loan you are being offered.
Underwriting
In the underwriting process, lenders review the information you shared on your mortgage application to assess the risk of lending you money. Underwriters will verify your employment history, income, debt and assets, and the property that will serve as collateral for the loan. They’ll ask for a copy of your credit report, which they’ll check for late payments, bankruptcies, and excessive credit usage. An important consideration for underwriters when determining your ability to repay a mortgage is your credit score. They will also look at your list of debts to calculate your debt-to-income ratio and ensure that your monthly pretax income is sufficient to cover your new mortgage payment and existing debt obligations. To prove your earnings and employment history, lenders may request to examine tax returns, balance sheets, and profit and loss statements. Be prepared to provide these documents promptly if requested.
Appraisal
The home appraisal is an important step in the mortgage process because it allows a lender to ensure that the property is worth the price it’s being sold for. It also protects the lender if the homeowner cannot make their mortgage payments, so the property can be resold to cover the loan amount. Most home appraisals are within a few percentage points of the sales price. It is good news for buyers, as it means they won’t be spending more than the property is worth. However, if the home appraisal comes in lower than expected, it can cause a delay in closing because the buyer will need to come up with additional money to pay for the home. The good news is this can be avoided by negotiating with the seller to bring the sale price in line with the appraised value. It is one reason why the appraisal contingency is included in most purchase agreements.
Closing
Closing is the last step in a homebuying or refinancing transaction. It involves signing a large stack of documents. The lender establishes a date and location for the closing, usually in the office of an escrow agent (or at the title company that handles the settlement). After reviewing your application, the underwriter will approve or reject your loan. If your loan is approved, the underwriter will set a list of conditions you must satisfy to close on time. These may include requirements for a clean title, proof of homeowners insurance or a satisfactory home appraisal. Homebuyers can delay their loan closing by not responding quickly to additional information or documentation requests. It includes failing to provide the underwriter with copies of bank statements, W-2s or tax transcripts as requested. It is one of the most common causes of delays that buyers can control. It also pays to start the mortgage process as early as possible.
