Mortgage Basics


01 Jun
01Jun
Before  you start you mortgage process, taking certain steps will help you  increase your chances of getting your loan approved. Here are few tips
  • Try to pay your bills on time. This will help you with your credit history. Late payments can affect your credit history, which in turn will affect your loan approval 
  • Make sure your credit is in good shape. Try to get your credit card balances below 40% of the limit
  • You don't always need years and years of  work experience with the same employer to get a home loan. However, lenders do want to see your stability and continuity in your employment history. It's typical for lenders to consider last two years of employment. Be prepared for lender to ask documentation once your process starts as lenders would want you to prove if your work history and income will be sufficient to handle home loan
  • Self Study. Do a research of all different loan options available such as conventional, conventional ARM, FHA., etc  and which one best fits your budget.  Reach out to an independent Residential Mortgage Loan Originator to help you understand current mortgage rates which in turn will help you understand on how much you can afford.
Obtain pre-approval letter from independent Residential Mortgage Loan Originator
  • Your loan officer will help you understand the required documents you will be needing during the mortgage process
Research a local real estate agent


Once you have finalized your dream home and agreement have been signed by both parties, it would be a good time to reach out to your loan officer to discuss what program works best for you. With so many programs available, each with different rates, points, and fees, shopping for a loan can be time consuming as well as overwhelming. An experienced loan officer can evaluate your situation and recommend the most suitable mortgage program. This will help you make an informed decision. The various fees and closing cost estimates should be discussed . Your loan officer should send you a fees worksheet  

Once rate have been finalized, your loan officer should start the application. Provide all the required documentations to your loan officer. These documents will provide your loan officer with everything that is required to know about you (the borrower) and property you are financing. 
  •  It is important for your loan officer to lock the rate. Locking in commits your lender to funding your loan at the specified rate. It takes away the risk of changing interest rates, which can happen daily, out of picture 

 You should be receiving Loan Estimate (LE) within three business days of the submission of the application to the lender. 
  • Loan Estimate is a three-page form that you receive after applying for a mortgage. The Loan Estimate tells you important details about the loan you have requested.
  • The form provides you with important information, including the estimates interest rate, and, monthly total closing costs for the loan. The Loan Estimate also gives you information about the estimated costs of taxes and insurance, and how the interest rate and payments may change in future. In addition, the form indicates if the loan has special features that you will want to be aware of, like penalties for paying off the loan early (a prepayment penalty) to increase to the mortgage loan balance even if payments are made on time (negative amortization). If you loan has a negative amortization feature, it appears in the description of the loan product
  • When you receive a Loan Estimate, the lender has not yet approved or denied your loan application. The Loan Estimate shows you what loan terms lender expects to offer you if you decide to move forward. If you decide to move forward, the lender will ask you for additional financial information
After you receive your Loan Estimates, it’s up to you to decide whether to move forward with a mortgage application. If you decide not to proceed with an application for a particular loan, you don’t need to do anything further.  If you do not communicate further with the lender, the lender will most likely close out your application.  
If you do intend to proceed with a particular mortgage application, you must take the next step and tell the lender you want to move forward with the application for that loan. The lender is only required to honor the terms of the Estimate for 10 business days so it is important to notify the lender within those 10 days. If you wait more than 10 business days after you receive a Loan Estimate to tell the lender you intend to proceed, the lender can revise the terms and estimated costs and provide you with a revised Loan Estimate.    

Once you submit your application, the processing of your application begins. Your Credit Report, Appraisal, and Title will be ordered. The documentation submitted with the application such as bank statements, tax returns, payment history, etc will be verified. You may be asked to provide written explanation of any situations such as late  payments, collections, etc. The underwriter will typically issue one of the three decisions to your application - approved, denied, or suspended
  • Approved - Underwriter will typically assign conditions you'll have to meet for full approval. This might be again a clarification regarding a late payment (as mentioned above), a large deposit, missed signature, etc
  • Suspended -  If underwriter needs more clarification, your loan might be in suspended status. This could be due to employment, income related, or asset verification. In this case, you will get conditions to clear the suspension and standard conditions for full approval
  • Rejected - If your loan application is denied, your will be receiving an email with the details on the reason for rejection.

 The status of the vast majority of loan applications is "approved with conditions," which means "conditional approval." In which case, the underwriter would be needing a clarification and additional docs. The underwriter, off course, would want the closed loan to be as sound and risk-free as possible.

 The lender is required to give you the Closing Disclosure at least three business days before you close on the mortgage loan. This three-day window allows you time to compare your final terms and costs to those estimated in the Loan Estimate that you previously received from the lender. 
  • Closing Disclosure is a five-page form that provides fine details about the mortgage loan you have selected. It includes the loan terms, yuor projected monthly payments and how much you will pay in fees and other costs to get your mortgage (closing costs)
  • The Closing Disclosure is a key part of your Know Before You Owe mortgage disclosure rule
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