Complete the Mortgage Process
Unless you are paying cash, you provided a pre-qualification or pre-approval letter with your offer. Neither are a guarantee that you will get final mortgage approval, but a good indication that it will happen based on preliminary work. A Mortgage Commitment is a firm commitment from your lender, and to get it, it requires a much deeper probe into your finances and a close look at the home you are buying.
Below is a list of the typical components required in the mortgage approval process. However, every lender is as different as ever buyer and home. Other information may be requested and additional services may be required. New laws and requirements have increased and tightened up making the process a bit more tedious, but try to relax and go with the flow. Remember, your new home is waiting at the end of the process.
UnderwritingThe process through which your lender will determine the level of risk you represent, and if you are creditworthy, is known as underwriting. Basically, the lender wants to make sure that if they lend you money you will be able to pay it back and that home you are buying is worth it. They are not going to lend you $200,000 to purchase a home that is only worth $150,000. Although the process may vary from lender to lender, it is likely they all lenders will require lots of additional information. Make sure that you provide everything your mortgage person has requested so they will be able to provide a mortgage commitment by the date required in your AOS. Your closing date can be delayed if the mortgage process is not completed in the given time frame.
It is important not to do anything that will change your financial profile while going through the underwriting process. Moving money from various accounts, withdrawing or depositing large amounts, liquidating assets, lending or receiving ‘gift’ money’ etc., can all impact results and raise flags which at best may delay the process and may even jeopardize your loan approval.
Your credit report will be run and your score will definitely impact your creditworthiness. It is therefore important that you avoid making major purchases, opening new credit cards, charging purchases on existing credit cards, co-sign for anyone, leasing any autos or equipment, AND paying things off without first checking with your lender. It is also a good idea to avoid frequent credit check as this can also impact your score. In short, don’t do anything that will change your current financial status without checking with your lender first.
Employment verification is a standard part of underwriting. You may want to give your employer a heads up that you are applying for a mortgage and to expect a call. The underwriting process is not a good time to change employment. If for some reason this become necessary, discuss any changes with your lender, if possible, before they are made.
As mentioned earlier your lender will also want information about the home you are buying. Lenders want to make sure that the home for what they are lending you money to purchase is worth it. If for some reason you default on your loan, your lender may end up owning it. They are not in business to lose money. They will most likely order an appraisal, the results of which will affect their loan decision.
Your lender will also want to make sure the home you are buying has a clear title and that there are not any liens. Your title company will do a title search, determine how much title insurance will cost and share the results with your lender. More information about a title search will be covered in another section.
In addition to the price of the home, you will also have to pay closing costs. These costs can vary from a few to several thousand dollars depending upon a number of factors. The price of the home typically has the greatest impact. The more expensive the home, the higher the closing costs. Closing costs include such things as title insurance, transfer tax, prorated school, county and municipal taxes, document preparation and legal fees. If you are getting a mortgage, there will be additional fees from your lender, and if the home is in a community there will be prorated dues and most likely a capital improvement fee. Your realtor should have already given you an estimate of these closing costs. But it was just that, an estimate. If you are getting a mortgage the law requires that at least three days before your closing, you receive a statement of final loan terms and closing costs. This document is known as the Closing Disclosure (CD). It will detail where each penny is going on both the buyer and seller sides of the deal.closing-disclosure.pdf
This PDF below is a sample Closing Disclosure form for your review. Familiarizing yourself with this form will help you more easily review your CD when you receive it from your lender.
Make sure you check your CD for accuracy and report any discrepancies immediately to your lender.
Finally, after the mortgage process is complete, if your were approved you will receive a mortgage commitment. Chances are the sellers are just as excited about this as you are. It means you have taken a giant step forward in the process and of purchasing your new home and the closing is right around the corner.