let’s talk: MORTGAGES – THE APPLICATION PROCESS
WE ARE TALKING MORTGAGES AGAIN THIS WEEK! Teaming up with U.S. News & World Report last week we covered WHAT mortgages are, and what we should consider when looking for one. This week we are talking about the APPLICATION PROCESS.
So as we do, let’s talk Real Estate, let’s talk MORTGAGES – THE APPLICATION PROCESS…
let’s talk PREPPING FOR THE APPLICATION PROCESS
Applying for a mortgage can be DAUNTING. The first mortgage we applied for with our Binghamton LLC was the most EXHAUSTING process of my life. But I think we got it down to a bit of science now (ish)!
SO, what can we do to make sure we are ready to go?!
Check your credit report
This is one of the first things a lender will check, so make sure there are no red flags on that bad boy. The higher the credit score, the better!
What do I mean by red flags?
Past due credit card balances, medical bills, rent bills, etc. Basically, make sure all of your bills are paid to date.
I also want to mention how many people have a low credit score SIMPLY because they haven’t been building their credit for very long. The good news is, this is avoidable! All you have to do in order to start building credit is get a credit card! You can start building your credit score by getting a credit card and paying it off every month. My college girlfriends and I decided that we would all apply for Discover cards together our Sophomore year! I never spent more on it than I could afford to pay off every month, and this DRASTICALLY helped my credit score when it was time to buy a car or apply for an apartment, after I graduated from college.
If you are not sure where your credit score stands, you can order a free copy from AnnualCreditReport.com.
Make sure there are not any errors on it – this has happened before!
Alright guys, this is VITAL. You NEED to know what the bank says you can “afford” before you begin looking for your next home. Your pre-approval letter lets the seller know that you are serious and CAN make this transaction happen. In order to get your pre-approval, you may need to submit the following:
- W-2s for the previous two years
- Pay stubs
- Most recent federal tax return
- Two to three months of bank and investment statements (such as brokerage, 401(k), IRA, Roth IRA, 403(b) and pension statements)
- 1099 forms (if you are an entrepreneur)
- A list of your debts, including credit cards, car loans and student loans, along with your minimum monthly payment for each
- Social Security or disability statements
NOW, once you have your pre-approval letter, it is time to start searching for your dream home!! After a couple of weeks of attending showings, with your pre-approval letter in hand, you find your dream home and submit an offer. Good news is that you are working with an amazing realtor who helps you get your offer accepted. So now it’s time to apply for your mortgage!
let’s talk THE ACTUAL APPLICATION PROCESS
Step #1: Shop Around for Lenders
This whole process is scary and exhausting so it’s easy to say OKAY and go with the first lender that replies to you, but every lender is SO different. I encourage you to shop around for the best rate and term that makes sense for YOU. Just because a certain lender makes sense for your BFF doesn’t mean it makes sense for you. So, point is, shop around, call MULTIPLE lenders and see what they have to offer.
Step #2: Submit Your Application
Now that you have an accepted offer and an idea of who you want to borrow from, it is time to officially apply for your mortgage!
The mortgage application will ask you more questions about your financial situation AND about the property as well. If you are submitting applications to MULTIPLE lenders, it is important to do so within 45 days of each other. Why? Because, when you apply for a loan, the lender will pull your credit report and score. Anytime your credit is run, the pull may remain on your report for up to two years. A large number of credit pulls can have a negative impact on your credit score. If you DO apply for mortgage loans with multiple lenders within that 45 day window, those credit runs are treated as a single inquiry and have a minimal impact on your credit score!
If you decide to submit your application to a lender that has already pre-approved you, then they have most likely already reviewed your financial and credit situation, so you SHOULD be all set there! If you are using a lender that is different than the one who pre-approved you, you’ll need to send in the documents we talked about above in the “pre-approval phase” as part of your application as well!
If this all seems to be a lot, don’t worry, the lender will let you know exactly what they need in order to consider your application!
It is important that you do not apply for ANY other loans or credit cards from the time you submit your mortgage application until the time it closes. Doing so can negatively impact your credit score and can either increase your interest rate or result in the loan being denied all together. Step 3: Loan Estimate
Based on a preliminary review of your application, the lender will give you an estimate of the loan term, interest rate, monthly payment, total closing costs, estimated taxes, insurance fees and any other details that could apply to your loan. By law, the lender must give you a loan estimate within threedays of your application submission. There is nothing set in stone about a loan estimate, rather it is simply an estimate to help prepare you for what you can expect. Once you review your loan estimate, you have 10 business days to make a decision as to wether or not you would like to move forward with this lender.
Step 4: Processing
If you accept the estimate, it’s time for your application to be processed! During this phase, the lender will confirm that all documentation you submitted is accurate, request any documentation they think is missing AND confirm that the property title is clear and ready to go!
Step 5: Appraisal
Once the lender has processed your application, they will want to ensure that the home is “worth” what you are purchasing it for. After all, they will be using this property as collateral in the event you were ever to default on the loan. The lender will hire a third party appraiser to come out and inspect the property in order to develop on opinion on how much the home is worth. This can be different than the price you agreed to purchase it for. I have had properties appraise for both well below and well above the agreed upon purchase price. If a home appraises for LESS than the agreed upon purchase price, the lender can either deny your loan OR only lend to you based on the appraised value. If you disagree with the appraised value you can challenge it however there is no guarantee that the new appraisal will come back higher.
Step 6: Underwriting
Now that the lender has the full picture – your application, the clear title, your home’s value – they can take one last look at the entire loan has a whole and determine whether or not the loan is officially approved. Changes are, if you have made it this far in the process, it should be!
Step 7: Closing disclosure
Congrats, your loan is approved! Your lender will send you a closing disclosure that outlines your official term, interest rate, monthly payments, and closing costs. You should receive this at least 3 days prior to closing.
Step 8: Insurance
Now that your loan is approved and your closing date is set, it is important to ensure that you obtain property insurance AND add your lender to your policy.
In the event the insurance company does not have enough time to complete your application before the closing date, you can receive an insurance binder which is essentially temporary coverage that lasts 30 days.
In either event, it is important that the lender is listed on the binder or the actual policy itself.
Step 9: Closing Time!
Closing is the last step of the entire process, and frankly, the most exciting.
During the closing, you will review the final sale documentation, sign any necessary forms to complete the transfer and pay your down payment as well as any other outstanding closing costs.
Once all is finalized at closing, you’ll be given the keys to your new home!!
WHEW – THAT WAS A LONG PROCESS. APPLYING FOR A MORTGAGE IS DEFINITELY NOT EASY, BUT FOR YOUR DREAM HOME, OR NEXT INVESTMENT PROPERTY, IT WILL BE WORTH IT!YOU CAN DIVE INTO THIS EVEN FURTHER BY CHECKING OUT THE US NEWS & WORLD REPORT WEBSITE HERE.
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Me – this is based on my own personal experience!