THE IDEA
GENERATING AND EXECUTING "THE PLAN"
KEY STEPS
FROM MORTGAGE TO HOME
STEP ONE
FIND A HOME
You may have already started shopping online via real estate portals like Zillow or Trulia. At this stage, it’s a good idea to start working with a buyer’s agent and viewing homes.e.
National real estate portals don’t have accurate home prices. In fact, Zillow’s home price estimates, called Zestimates, are off by about 8% nationally. The accuracy can drop even further when drilling down to specific towns and neighborhoods. Zestimate inaccuracy isn’t necessarily a bad thing, it’s just something a smart home shopper should know.
There’s a strategy that can help you deal with Zestimates. The 8% inaccuracy cited above can swing in either direction. Zestimates can be high or low. Here’s what that means to you: If you are pre-approved for a $400,000 loan, that means you could include searches on homes up to $432,000 (8% greater than the $400,000 baseline approval). You real estate agent can help you fine tune your choices. An experienced realtor, with a good understanding of the local market, will have a sense about which homes may be negotiated down to a price you can afford.
STEP TWO
QUALIFY
Submit your application. Now that you’ve found the home you want to buy and a lender to work with, the mortgage process begins. At this stage, your lender will have you fill out a full application and ask you to supply documentation relating to your income, debts and assets.
Mortgage Pre-Qualification: As you do your online research, you may read the term mortgage pre-qualification. This is not the same as pre-approval. New home buyer need to know the difference.
A pre-qualification is a less meaningful measure of a person’s actual ability to get a loan. It’s usually determined by a loan officer asking a potential borrower a few basic questions like, “How is your credit?” There’s no third-party verification of the borrower’s answers.
STEP THREE
LOAN PROCESSING
Opening the file: Loan processors gather documentation about the borrower and property, review all information in the loan file and assemble an orderly and complete package for the underwriter. They’ll open the file and get the following wheels in motion:
- Order credit report (if not already pulled for a pre-approval)
- Start verifying employment (VOE) and bank deposits (VOD)
- Order property inspection if required
- Order property appraisal
- Order title search
STEP FOUR
AVOID NEW DEBT
The underwriter is the key decision-maker. They closely evaluate all the documentation prepared by the loan processor in the loan package. They cross check to see if the borrower and property match the eligibility requirements of the loan product for which the borrower applied.
Underwriters review at the borrower’s credit history and their capacity to repay the loan. The collateral (the property) is also weighed into the decision. They verify information and double check for accuracy. They’ll sniff out any red flags that indicate potential fraud.
Underwriting Decision: With everything reviewed, the underwriter approves or rejects the loan. Sometimes underwriters approve the loan with conditions. For example, they might ask for a written explanation of borrower’s credit history, such as late payments or collections.
Lock Interest Rate: At some point after initial approval and before closing, the interest rate for your loan is locked. Interest rates trade up and down every day that bond markets are open for business. You and your loan officer will choose the time to make the commitment.
Pre-Closing: Title insurance is ordered before the closing meeting so that you can walk away with the keys to your new home, ready to move in. This is also the time to make sure that all the offer contingencies have been satisfied. Once any conditions are satisfied, the closing is scheduled.
STEP FIVE
UNDERWRITING
The underwriter is the key decision-maker. They closely evaluate all the documentation prepared by the loan processor in the loan package. They cross check to see if the borrower and property match the eligibility requirements of the loan product for which the borrower applied.
Underwriters review at the borrower’s credit history and their capacity to repay the loan. The collateral (the property) is also weighed into the decision. They verify information and double check for accuracy. They’ll sniff out any red flags that indicate potential fraud.
Underwriting Decision: With everything reviewed, the underwriter approves or rejects the loan. Sometimes underwriters approve the loan with conditions. For example, they might ask for a written explanation of borrower’s credit history, such as late payments or collections.
Lock Interest Rate: At some point after initial approval and before closing, the interest rate for your loan is locked. Interest rates trade up and down every day that bond markets are open for business. You and your loan officer will choose the time to make the commitment.
Pre-Closing: Title insurance is ordered before the closing meeting so that you can walk away with the keys to your new home, ready to move in. This is also the time to make sure that all the offer contingencies have been satisfied. Once any conditions are satisfied, the closing is scheduled.
STEP SIX
CLOSING
One of the documents worth calling attention to is the Closing Disclosure. It should look somewhat familiar. Think of it as the companion to one the first documents you received in the mortgage loan process, the Loan Estimate. The Loan Estimate gave you the expected costs. The Closing Disclosure confirms those costs.
Review Period: You have the right to review the Closing Disclosure three days prior to the closing meeting. This quite period gives you a chance to review all of the terms of the loan. In most cases, you’ll compare the Loan Estimate to the Closing Disclosure but in some cases, you’ll compare the GFE to the HUD-1 Settlement Statement.
- The APR on the loan changes by more than 1/8th of a percent (most fixed loans) or 1/4th of a percent (most adjustable rate loans).
- A prepayment penalty is added to the mortgage.
- There’s a change of loan products (e.g. change from a fixed rate loan to an adjustable rate loan).
Final Walk-Through: You have the right to a final walk-through of property 24 hours before your closing meeting.
Closing Meeting: The closing is the moment for which you’ve been waiting. It’s time to sign a bunch of documents.