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A Step by Step Guide of the Mortgage Process

When it comes time to buy a home, most people need to set up a mortgage.  A mortgage is a legal agreement by which a bank or other creditor lends money at interest in exchange for taking the title of the debtor's property, with the condition that the conveyance of title becomes void upon the payment of the debt.  Or in other words, its a loan used to purchase a home.  If you are unfamiliar with the mortgage process, it may seem daunting, but it is actually a fairly simple and straight forward process.  Here is a step by step guide of the mortgage process.

1.) Select a Lender

The first step to prepare yourself for a home purchase is to find a lender.  You will find that there are a lot of mortgage lenders out there and selecting the right one to work with is very important.  You are essentially creating a long term business relationship with someone and it is key that you are confident that the lender you have chosen offers quality service and competitive rates.  Look at the company's reputation and how long they have been in business.  Consider their closing costs and fees as well as the interest rate they offer.


2.) Preapproval

Once you have selected your lender, the next step is to start the preapproval process.  You will need to provide your lender with specific documents so they can determine how large of a mortgage you qualify for.  Once you have been preapproved for a mortgage it is time to find a real estate agent.  Most agents won't work with you until you are preapproved, so it is important to get preapproved before finding an agent.


3.) Shop for a Home and Make an Offer

‚ÄčAt this point, you have a lender that has preapproved you for a mortgage and found a rockstar agent to guide you through the buying process.  The next step is to shop around for a home in your price range and make an offer.  If you have selected the right agent, they will be able to prepare a comparative market analysis to determine a fair offer.  Your agent will look at how long the home has been on the market and if the seller has been coming down in price.  Your agent should be very helpful in the negotiation process.  If the seller accepts your offer, you move to the next step which is to create a purchase contract.  This formalizes both parties' intention to go through with the sale and is sent to your lender.


4.) Finalize the Loan

At this stage, the lender will formally evaluate you through a process called underwriting. The goal is to assess your ability to repay the money you borrow. Doing so requires a check of your credit score, income, assets and past and current debts.  You'll need to submit some documents, including, but not limited to:

Pay stubs for the past 30 days.
W-2 forms for the past two years.
Details about long-term debts, such as auto and student loans.
Recent statements from all your bank accounts.
The previous year's tax return (the past two years if you're self-employed).
Proof of any supplemental income.
Proof of homeowner's insurance.

The required documents can vary based on the type of loan you're getting and your lender's underwriting requirements.  To keep things moving, be ready to respond quickly to any requests for additional documents or details.  The lender will also order a professional appraisal of the property and review recently sold properties in the area to make sure the sale price is reasonably close to its true value to serve as collateral on your loan. The title to the property will also be reviewed to ensure you are obtaining the property free and clear.


5.) Closing Time

 The final stage of the mortgage process is closing on your new home.  You will meet with the seller and the other professionals involved in the transaction.  This is the point where you will sign dozens of documents to complete the sale.  At closing, you'll be required to have a certified check or complete a wire transfer to cover closing costs and down payment. These costs can vary, depending on the type of loan you choose, location and property type. They typically range from 2% to 5% of the loan amount and can include:

Application fee: It covers the cost for the lender to process your application.
Appraisal fee: It's paid to the appraisal company to confirm the fair market value of the home.
Attorney fee: It's paid to an attorney to review the closing documents.
Escrow fee: It's paid to the title company, escrow company or attorney for conducting the closing.
Escrow deposit for property taxes and mortgage insurance: It's money set aside to pay taxes and insurance payments. If you use an escrow account, you'll usually need to pay two months of property tax and mortgage insurance payments to get started. The actual amount can vary based on the time of year.
Lender fees: These are the origination fee and discount points paid to the lender.
Prepaid interest: It will accrue between closing and the date of your first mortgage payment.
Other fees: These can include credit report fees, required inspections, survey costs, title search and title insurance policy.

Congrats! You are now a homeowner!


Source: By Dillon Landfried - Feb 19, 2020

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