March 6, 2019
If you are a first-time home buyer or if it’s been a while since you’ve shopped for a house, you may not know or remember what’s involved in one of the most important steps in the process of house hunting: obtaining a mortgage loan (unless, of course, you have a suitcase of cash).
To help home buyers understand what to expect, I recently interviewed a couple of local mortgage loan originators, Rick Riggs of Acopia Home Loans and Seton Zappala of Prime Lending. Here is a quick summary of the main steps:
1. Finding a Lender
Your relationship with your mortgage lender is likely going to be a long one, often decades long. This means that you should choose your lender carefully, and not solely based on the lowest interest rate. First, get your credit in order. Then talk to at least two (preferably 3-5) lenders and compare their rates, terms, fees and penalties, including pre-payment penalties, reputation of the company, how quickly they can close on the loan, and how easily you can communicate with your mortgage broker and get your questions answered. Ask your realtor (hopefully us, wink!) for recommendations.
2. Getting Pre-Approved
Pre-approval for a loan will give you several important advantages when shopping for a new home. First, most realtors, us included, will need this letter from your lender in order to start showing you homes. Second, you will have a better idea of the kind of home you can actually afford and avoid wasting time on viewing the houses that are beyond budget. Third, the sellers will take your interest in their home more seriously, so you can negotiate with them more confidently.
3. Finding a Home and Making an Offer
Enlist the help of a knowledgeable real estate agent (here are a couple of excellent ones serving Jupiter, Gardens and nearby) to find a ‘perfect’ house for you and your family. The mortgage lender isn’t involved in this step of the process, but once you make a move with your offer on a home, it’s time to finalize your application for a mortgage loan.
4. Getting the Loan Processed
Unlike during the pre-approval stage, in this step your lender will go much deeper into analyzing your credit history, assets, current and past debts, and income. They will pull your credit score, verify your employment, look at your tax records, weigh your assets, evaluate your debts, and much more. Additionally, they will order an appraisal of the property. By the way, you, the buyer, will pay for the appraisal but don't get to choose an appraiser.
5. Mortgage Underwriting
Now is the time to make a decision regarding your loan. In this step, the mortgage underwriter evaluates all documents related to your financial well-being and the value of the subject property and makes a determination as to whether the risks are acceptable for the loan to be approved. The underwriter will focus on the “three C’s” of underwriting: your Credit history, your Capacity to service the debt given your income and total debts, and whether or not the property can serve as a sufficient Collateral for the loan, based on the appraisal report.
6. Closing on Your New Home
Closing is the final step of the home purchasing process. A closing representative coordinates the signing of all documents needed for the transfer of ownership of the house and the dispersion of the monies, such as closing fees, broker’s commission, etc., to the appropriate parties. Be sure to understand what you are signing and do not hesitate to ask questions if something is unclear. Take your time to read all documents carefully and enlist the help of your realtor to get you through this often overwhelming and confusing but at the same time exciting process.