Mortgage Loan Process
For most lenders, the following loan process is standard full doc loan program that usually offers
the best rate and terms. Some lenders may have slightly different loan process.
It's best to get pre-approved for a home loan before signing on the dotted line for buying a house. The following documents are what you may need to provide to a lender in order to get pre-approved for a loan.
- If you are salaried: provide two years' W-2 and one month worth of pay stubs.
- If you are self-employed: provide two years' tax returns and an YTD profit and loss statement.
- Provide two months of the most current bank statements for each bank, stock and mutual fund account.
- Provide recent copies of any stock brokerage or IRA/401K accounts that you may have.
- Provide a copy of divorce decree if applicable.
- If you are not a US citizen, provide a copy of your green card, or if you are not a permanent resident provide your H-1 or L-1 visa.
Getting pre-approved before you apply for a loan can help you understand how much you can borrow.
When buying a house, you may get pre-qualified or pre-approved. You can typically get pre-qualified over the phone or on the Internet in a few minutes. A pre-qualification is not as beneficial as a pre-approval where you have to go through a more rigorous process which includes verification of your credit, income, assets and liabilities. It is highly recommended that you get pre-approved before you start looking for a house. This will help you:
- Find out the maximum house you can buy, so you don't waste time looking for properties that you can not afford.
- Put you in a stronger position when you are negotiating with the seller, because the seller knows that your loan is already pre-approved.
- Close quickly, since your loan is already pre-approved.
There are many loan programs and loan products available today. Find out from your lender. Loan programs range from conventional fixed rate mortgages for 15 years/30 years, adjustable rate mortgages, balloon mortgages, First Time Home Buyer 100% financing and etc.
As a rule of thumb, always ask yourself the following questions to help you decide on the loan product:
How long do I plan to stay in the house?
Think about how long you plan to keep the house. If you plan to sell the house in a few years, you may want to consider an adjustable or balloon loan. On the other hand, if you plan to keep the house for a longer time you may want to look at fixed rate loans.
What is my maximum affordable out of pocket monthly mortgage payment?
Always ask for a good faith estimate (GFE) from your lender, as you will be able to figure out from the GFE how much the principal and interest plus tax and insurance is going to be on a monthly basis. Talk to your lender if you have any questions about the loan.
What about the relationship between rates and points? Well, points are consider to be prepaid interest and are tax deductible. Each point is equal to one percent of the mortgage loan. For example 1 point on a $150,000 mortgage loan is equal to $1,500. The more points you pay, the lower the rate you will get.
Once your loan application has been received, your lender will start the underwriting process immediately.
This involves verifying your:
- Credit history
- Employment history
- Assets including your bank accounts, stocks, mutual fund and retirement accounts
- Property value
- Debt to income ratio(DTI)
During the loan underwriting period, lender may request more information from you. To be sure that your loan will be closed in a timely manner, you should:
- Respond promptly to any requests for additional documents. This is very important especially if your rate has been locked or if you must close by a certain date.
- Do not make any major purchases. Do not buy a car, furniture or another house until your loan is closed. Anything that causes your debts to increase might have an adverse effect on your current application.
- Do not move money into your bank accounts unless it can be traced.
- Do not go out of town around the closing date. If you do plan to be out of town when your loan is expected to close, you may request the lender for you to sign a power of attorney, to authorize another individual to sign on your behalf.
After your loan is approved, you will be required to sign the final loan documents at a scheduled closing date. This will normally take place in front of a notary public.
At closing, be prepared to:
- Bring a cashier check for your down payment and closing costs if required. Personal checks are normally not accepted. Request for the closing statement to be reviewed by you a day ahead of the closing. This can be done by asking the loan officer who handles your loan and you should be able to know exactly how much you will need to pay at the closing.
- At closing, review the final loan documents carefully. Make sure that the interest rate and loan terms on the mortgage note are what you were promised. Also, verify that the name and address on the loan documents are accurate.
- Sign the loan documents.
Your loan will normally close shortly after you have signed the final loan documents.
