How are Purchase Loans Made? Here are the 15 Steps to Homeownership involved in the typical purchase home loan process?
Before you get started looking for homes, it is good to do some preparation, so when you find the home you’re looking for, you are ready to make an offer and will have a smooth process until closing. Noel Livingstone is a Senior Loan Officer with Sunbelt Lending
and we’ve prepared this outline of 15 steps describing how purchase loans are made. You can visit him at his personal webpage – and even apply for your loan – at Sunbelt Lending, Sunbelt Lending Noel Livingstone. He can be reached directly on his cell phone at (561) 843-1983 if you have any further questions.
PRE-QUALIFICATION AND PRE-APPROVAL:
1. Pre-qualification or Pre-Approval – You are encouraged to get pre-approved for a mortgage before looking for a house. However, if you don’t want to become pre-approved, pre-qualification is the next best option. Pre-qualification gives you an idea of how much you can afford based on your debt, income and credit history. The key to getting pre-qualified, is to provide your entire credit history. Neglecting to mention an outstanding car loan or previous credit problem can nullify the pre-qualification. Most people buy a mortgage payment, not necessarily the price of a home, so that is why it is so important to go through these steps before you start looking.
Pre-approval is similar to pre-qualification, except your debt, income and credit are all verified and you are actually approved for a loan, up to a specific amount and under certain conditions and terms. Becoming pre-approved means you can search for your dream home without worrying about whether or not you can afford it.
Noel has calculators on his site listed above. Several other sites with calculators to help you initially get a ballpark figure for monthly payments are Freddie Mac, and Bankrate.com. Rates on these sites are national averages, so please check back here for current local rates. Please see links at the bottom of this article for other home-buying tips on this site – more articles can also be found through the “categories” “tags” and “search” box.
2. The Hunt – Now that you know how much home you can afford, you can begin shopping. As your Real Estate Agent, I search the MLS (Multiple Listing Service) daily for homes that meet your specific requirements.
3. Purchase and Sale Agreement – When you find the right home, the terms of the sale are negotiated, including sales price, repair requests, move-in date, etc. I will then present your offer to the sellers. Your pre-qualification or pre-approval letter will usually be submitted with your offer since it can tilt the sale in your favor, especially in a competitive market.
4. Property Inspection – Most purchase loans require an inspection for general construction, termite and water damage, as well as possible safety hazards. Some problems may need to be repaired before finalizing the sale.
5. Loan Application – Once the seller accepts your offer, you will need to apply for your mortgage, usually within 5 days from acceptance. It’s crucial to supply the lender with as much information as possible, as accurately as possible. All outstanding debts as well as assets and income should be included.
6. Documentation – Paperwork supporting the application must also be submitted. Information commonly sought includes pay stubs and/or two years’ tax returns, and asset account statements verifying the source of the down payment, funds to close and reserves. If you were pre-approved, this step has already been completed.
7. Appraisal – Lenders require an appraisal on all home sales. This step could jeopardize a deal if a big discrepancy were to exist between the home’s sale price and appraised value of the house.
8. Title Search – This is the time when any liens against the property are discovered. A lien may have been placed on a property to ensure payment of outstanding debts by the owner. All liens must be cleared before a transaction can be completed.
9. Processor’s Review – The lender’s loan processor packages all pertinent information to be sent to the lending underwriter, including any explanations that may be needed, such as reasons for derogatory credit.
10. Underwriter’s Review – Based on the information put together by both the loan executive and the processor, the underwriter makes the final decision on whether a loan is approved. Lenders are looking for borrowers who will make their payments on time and for a property that will cover the cost of the investment, if a buyer defaults.
11. Mortgage Insurance – Many lenders require private mortgage insurance when borrowers put down less than 20 percent on a loan. The interest rate of the entire loan is the same, plus there is an additional charge for the mortgage insurance. Even if a loan meets the standards of a lender, a mortgage insurance company could choose to deny coverage. Another option instead of mortgage insurance, is a second mortgage equity line, usually at an interest rate that’s about 2-3% higher than the first mortgage, but there is no mortgage insurance charge.
12. Final Loan Approval, denial or counter offer – In most cases, when your credit and debt-to-income ratio is good, your loan will be approved with little or no problem. However,in some cases, the lender may ask the borrowers to put more money down to improve the debt-to-income ratio. If the property appraises for less than the purchase price, you may need to increase your down payment to cover the difference. In some cases, repairs or improvements on the property may be required. There may also be other conditions to meet before the final loan approval and loan documents are issued.
13. Insurance – Lenders require fire and hazard insurance on the replacement value of the structure. Flood insurance will also be required if the property is located in a flood zone. In California, some lenders require earthquake insurance on condominiums. The first year’s premium is required to be paid in full at closing.
14. Signing and Funding of the Loan, and Close of Escrow – Closings in Florida are usually handled by a title company that acts as the intermediary. Final loan and escrow documents are signed by you (the buyer) and the seller. You bring the balance of your down payment and closing costs in certified funds to the closing. The lender sends a wire or check for the amount of the loan to the title company, and gives instructions to the title company to disburse the funds to the seller after all documents are confirmed to be in order. Title insurance companies use gap insurance at the closing, so that all funds can be disbursed at closing. Documents transferring title are then sent to the County Recording office for recording.
15. Move In! – Now you get to move into and enjoy your new home and make many happy memories.