Getting a mortgage can be a confusing process. There’s a lot of paperwork and there are many loan programs to choose from. In this post, I’ll provide an overview of the mortgage process and what you should expect from a mortgage consultant.
The mortgage process is substantially similar whether you are purchasing or refinancing a property. In both cases, your mortgage consultant should start by asking questions and listening to your goals. That way, he or she can help you achieve your goals. However, too many mortgage consultants start by telling you what to do based upon what is most profitable to them.
Your consultant should ask a number of questions, starting with, “What type of property would you like to purchase or refinance?”
- If you want to make a purchase, your consultant will want to know…
- What is your price range? If you don’t know, he or should should be able to help you determine the price range for which you qualify.
- How much money would you like to invest, if any? Despite the credit crunch, there are still loan options that do not require significant down payments.
- How much money do you have for closing costs and prepaid expenses, if any?
- Is the monthly payment amount important to you? If so, how much would you be comfortable paying on your mortgage each month?
- How long do you intend to own the property?
- Are you working with a real estate broker or sales agent? If not, the consultant should be able to refer you to someone in the area in which you wish to purchase.
- If you want to refinance, your consultant will want to know…
- What are you trying to achieve in pursuing a refinancing?
- How long do you intend to own the property?
- What is the estimated value of the property?
By listening to your goals, your mortgage consultant can help you determine the loan programs best suited to achieve them and to meet your needs.
Prequalification and Preapproval
Prequalification and preapproval only occur in the purchase process, so if you are refinancing, you can skip this step. In some locales, prequalification is the norm and in others, home sellers and real estate brokers and agents will require you to be preapproved. You do not need to have a specific property in mind to get either a prequalification or a preapproval. However, in both cases, your personal mortgage consultant sahould assist you.
- Prequalification – Prequalification is an estimate of your purchasing power. In short, it is an estimate of the price you can afford to purchase a property. Your mortgage consultant will order your credit report and ask questions about your employment and income.
- Preapproval – Preapproval means that based on the information you provide, a lender issues a loan approval with conditions. Your mortgage consultant will order your credit report and ask questions about your employment, income and assets. Depending on your goals, he or she may provide you with a checklist of information required for a preapproval. Once your mortgage consultant collects the information, he or she then submits the information to a lender (or, if he or she works for a lender, it is processed through the lender’s system). The lender will issue a preapproval with conditions that will vary depending on the property and on you and your circumstances.
Getting preapproved is a more thorough process than prequalification, but one is not necessarily better than the other. It depends upon what is the norm in the place where you want to purchase a property.
Your mortgage consultant will put together and submit a loan application and related documents and submit them to a lender.
- If you previously have been preapproved to purchase a property, you’ll most likely only have to update the information you provided when you applied for a preapproval.
- If you are refinancing or previously were prequalified to purchase a property, your consultant will ask you questions about your employment, income and assets. Depending on your goals, he or she may provide you with a checklist of information required to complete the loan application. Your consultant will order your credit report if it has not previously been ordered.
Depending on the type of property, the loan program and your personal circumstances, you may have to provide documentation supporting your income, assets or employment. Your mortgage consultant will advise you of the requirements. He or she should guide you along every step of the process and answer all your questions.
Processing and Underwriting
When your loan application and related documents are complete, the mortgage broker or lender’s processing center begins work on your loan. This can include verifying your income and assets, ordering an appraisal of the property’s value and ordering a title search from the lender’s attorney to make sure the property has clear title, among other items. If you’re working with a mortgage broker, the broker’s processors will transmit the loan package to the lender, who then begins the underwriting process.
In underwriting, the lender will evaluate the information that has been collected about you and your property. Lenders have thousands of loan programs for residential and commercial purchases, refinances, construction or investment. Therefore, the underwriting criteria will vary for each loan and according to your personal circumstances. However, some factors the lender will consider in its evaluation are the value of the property and whether it believes you can repay the loan in a timely manner.
Upon making a satisfactory underwriting determination, the lender will issue a formal loan approval, known as a mortgage commitment letter or conditional approval letter. The letter will state the terms and conditions under which the lender is willing to make the loan. The conditions will vary depending on the property and your personal circumstances. A typical condition, though, is that the property must have an appropriate amount of insurance.
The processor typically will work with your mortgage consultant and the lender to satisfy the conditions set forth in the commitment letter. Once the conditions are satisfied, the loan will be ready for closing.
At the closing, you will sign various documents that allow your loan to be put in place. These include a mortgage (evidencing the lender’s interest in your property), a promissory note or mortgage note (your promise to repay the loan according to specific terms and conditions) and other similar documents. If you are purchasing a property, the seller will transfer title to it to you at the same time.
At the close of the transaction, the mortgage is recorded in the land records of the city or county (Where the recording occurs varies depending on the state in which the property is located.).
Good service does not end with the close of your transaction. If you have any questions or concerns in the future regarding your mortgage, a good mortgage consultant will be there to assist you.