What are the steps in the mortgage loan process?
After you have made an offer on a home and it has been accepted, you will apply for the mortgage loan. It is advisable to meet with a loan officer to determine what type of loan you qualify for before house hunting.
If you have already been pre-qualified or pre-approved, you have discussed with your lender the loan product that fits your needs. If you have not already, you need to fill out a form called a “uniform residential loan application.” The form includes information about employment, income and expenses, and assets and liabilities. In the process of applying for a mortgage, the borrower will fill out and sign many forms. Make sure that you read and understand exactly what you are signing. If you are not sure about something, ask questions.
Within three days of applying for a loan, the lender is required by law to give you several documents: a good faith estimate of settlement costs, a truth-in-lending statement, and a booklet from HUD.
- Good Faith Estimate of Settlement Costs – When you apply for a loan, the lender or mortgage broker must give you a Good Faith Estimate of settlement service charges you will likely have to pay. Be aware that the amounts listed on the Good Faith Estimate are only estimates. Actual costs may vary. Changing market conditions can affect prices. Remember that the lender's estimate is not a guarantee. Keep your Good Faith Estimate so you can compare it with the final settlement costs and ask the lender questions about any changes.
- Truth-in-Lending Statement – A lender must give you a statement that gives the terms and costs of your mortgage loan, including loan amount, the interest rate, the total amount of money you will have to pay over the life of the loan, the amount of interest you will have to pay in advance (points) and the annual percentage rate (APR). APR is the actual interest rate you pay when you have the points and interest paid monthly.
At the time of the application, you may be expected to pay an application fee and appraisal fee. The lender orders the appraisal, which will assess the value of the property. This information is required because the lender will loan you no more than a given percentage of the value of the property. This is the loan-to-value ratio.
If the appraised value is less than the purchase price you have agreed upon, the amount of your mortgage may be smaller than you anticipated and you will have to come up with a larger down payment. However, if you have included an appraisal contingency in your contract, you may be able to renegotiate the purchase price or terminate the contract altogether in the event of an unexpectedly low appraisal.
You can take a few steps to ensure the condition of the home and the land it sits on. An appraisal protects the lender by making sure that the value of the property is sufficient collateral for the loan. The appraisal does not address issues concerning the condition of the property or structures on the property. You should ask to have a home inspection and survey completed. These are buyers’ expenses and are not typically required to complete the loan process.
However, a home inspection is important because it tells you the condition of the home and whether any repairs will need to be done to it. You may wish to include in your purchase agreement the right to terminate the contract if you are not satisfied with the inspection results. In that case, you may want to renegotiate for a lower sale price or require the seller to make repairs.
A survey is a surveyor’s drawing of the property showing the perimeter boundaries, easements, buildings, line setbacks, and marking the location of the house. The information from the inspection and survey are not taken into account with the loan application.
Once the processor gathers all the information necessary, he passes the loan application and documents to the underwriter, who makes the final decision. The underwriter reviews all of your information and then compares it to lending policies to make a decision.
The underwriter makes an approval, rejection or may send the application back with stipulation requests. If your application is approved, you will receive a commitment letter. The letter states the amount and terms of the loan. You must sign and return the letter to the lender. This is a legal document; make sure you understand it.
If your application is rejected, you will receive a rejection letter. Lenders are required by law to explain why they denied your request for a loan. Federal law prohibits lenders from refusing to make a loan because of your race, religion, age, color, national origin, gender, marital status, handicap, or receipt of local public assistance. Lawful reasons you may be turned down for a loan include, but are not limited to high debt, insufficient funds, low appraisal, and poor credit rating.
If you have been trying to buy a home and you believe your rights have been violated, you can file a fair housing complaint. Contact HUD’s Office of Fair Housing and Equal Opportunity online or by phone or mail