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The Mortgage Process: Understanding the Home Loan Process

mortgage processAre you trying to get a loan and you aren’t sure what’s ahead? The mortgage process can be tough, but it is possible to get a home loan. Read this article to understand the home loan process. 

The Mortgage Process: Understanding the Home Loan Process

You can prepare for the mortgage process by learning what’s ahead.

Buying a new home can be an exciting chapter in your life. However, this large purchase can come with a large amount of stress. Knowing what to expect can help the process go more smoothly.

There are things you should do before, during, and after obtaining a home loan. When your finances are on the line, it’s important you’re armed with the necessary knowledge. You can keep reading to learn more about the mortgage process and getting a loan.

Prep First

Before you discuss anything with a lender, you should evaluate your finances. This will give you an accurate idea of how much you can afford. Showing up with the correct documentation can help you speed the process along.

Before contacting a lender, review all three of your credit scores:

  • Equifax
  • Experian
  • TransUnion

This will give you the chance to correct any errors on your reports or boost your credit score before applying. A good credit score is key to acquiring a larger loan and a lower interest rate.

Remember to save for the:

  • cost of fees for title services
  • credit reports
  • appraisals

You’ll need to have savings to cover expenses and settlement costs. Most home loans will require 20% of your mortgage as a down payment to avoid private mortgage insurance (PMI). 

Related: How I Raised My Credit Score to 750 In Just 3 Years

Educate Yourself on Real Estate Facts

There are crucial facts you need to know about real estate to understand the mortgage process. For instance, you’ll need to decide if a 15-year or a 30-year loan is the right choice for you. Take into account your down payment and monthly budget before setting sights on one over the other.

Another important term you should know is the adjustable-rate mortgage (ARM). Also known as a variable-rate mortgage, this home loan has an interest rate that reflects market conditions by adjusting over time. Upon completing the initial fixed-period, a lender can calculate a new rate.

By including…

  • loan discount points,
  • broker fees,
  • mortgage insurance premiums, and 
  • closing costs…

…you’ll have a more accurate breakdown of your mortgage.

That’s why one of the things you’ll need to know the difference about are the annual percentage rate (APR) and interest rate. Unlike an interest rate, the APR takes into account your other loan charges and your interest rate. 

Application Process

The first step of the actual process is filling out an application. You’ll likely fill out a Uniform Residential Loan Application, a five-page document that provides a lender with basic information on a buyer. It will focus on your finances and your potential mortgage.

During the loan processing period, your lender’s processing team will review your file to it’s completed accurately.

They will:

  • collect and verify your information
  • order your credit reports
  • arrange for a home appraisal

The data will determine your loan approval status before moving you to the next stage.

After lender approval, your application will move forward to the mortgage underwriter. This person will confirm that your financial profile matches the lender’s guidelines and criteria for loans. They will also be the one who decides to approve or deny your loan request.

what to look for in your house searchObtain Home Owners Insurance

Lenders require proof of insurance before final approval on home loans. This is also something you’ll need to include in your new monthly budget. Remember to consider the fact that insurance won’t cover everything.

With most insurances, you’ll need to add on separate options to cover:

  • floods
  • earthquakes
  • windstorm damage,
  • as well as other disasters…

With any purchase, you can expect to pay more for each type you add. There are also dollar limitations on claims unless each item is insured separately.

The replacement cost will be the amount insured, not the amount you paid. Ensure you set up sufficient insurance to cover the costs of a destroyed home. If you choose not to replace a destroyed home, your insurance carrier will likely offer you the actual cash value.

Related: 9 Tips to Help You Save on Homeowner’s Insurance

After Approval

After you’ve received approval for your home loan, you’ll move into the closing. This is when the property title transfers from the home seller to you, the buyer. Your closing agent should explain the details of your settlement process, including who will need to be present.

Your role during closing is simple: to sign the required documents for ownership.

You’ll need to pay proper attention to all legal documents in order to:

  • review
  • date
  • approve

If there were needed repairs you requested in your contract, now is the time to ensure they’ve been handled.

There are additional documents that you are required to review and sign, those include:

  • Closing Disclosure (CD)
  • the promissory note
  • the Deed of Trust
  • certificate of occupancy
  • a Notice of Right to Cancel

These are all documents you can expect to read and sign during the closing process. 

More Important Information About The Home Loan Process

You may have an easier time obtaining specific loans. For instance, doctors can obtain home loans for doctors. First-time home-buyers and veterans can apply for a loan designed specifically to meet their needs.

Also, beware that transferring of home loan service from your initial lender to another company can happen. You’ll receive two notices in the weeks leading up to the transfer, one from your old lender and another from your new lender. When this happens, review and correct any legal documents and insurance policies.

Remember to budget correctly to maintain your new:

  • mortgage,
  • APR,
  • insurance,
  • as well as any other bills.

Avoid taking on any new debt during the processing time. This will help you lock the rate and receive approval faster. 

Enjoy Your Dream Home

You’re almost there! Now that you’ve read this guide to understanding the mortgage process, you can confidently begin taking the steps. By preparing early on, you’ll have a chance to obtain your dream home without delay.

There are a lot of ways you can improve your finances to obtain a higher quality of life. We offer you the tips you need to get out of debt, save money, and become rich. You can visit other pages on our site to learn more about how we can help you achieve your dream home and lifestyle. 

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AUTHOR LaTia Longuemire

My name is LaTia Longuemire. I enjoy writing, singing, and cooking in my spare time. My passion is helping others. At this stage in my lifetime, I'm primarily focused on my children. They are everything that keeps my world spinning.

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