The following is a step-by-step walkthrough of how purchase loans are made:
1. Loan Search
Buyers should seek the advice of an experienced mortage professional – someone who can help determine which financing options best suit their needs today and in the future.
2. Load Application
It’s crucial that consumers supply the lender with as much information as possible. All outstanding debts as well as assets and income should be included.
Buyers must submit paperwork supporting the application. Information commonly sought includes pay stubs, two years’ tax returns, and account statements verifying the source of the down payment, funds to close and reserves.
Getting pre-approved for a mortgage allows borrowers to know exactly how much they can afford. A pre-approval allows for greater negotiation power.
5. The Hunt
The buyer begins shopping for a home. When the right home is found, the terms of the sale will be negotiated, including price and potential terms of the loan being sought.
Lenders require an appraisal on all home sales. By knowing the true value of the home, the borrower is protected from overpaying.
7. Title Search
This is the time when any liens against the property are discovered. A lien may have been placed on a property to ensure payment of outstanding debts by the present owner. All liens must be cleared before a transaction can be completed.
8. Termite Inspection
While most purchase loans do not require a formal inspection for termite and water damage, some loans (especially government loans) allow for the possibility. If problems are found, repairs may be necessary.
9. Processor’s Review
The mortgage professional packages all pertinent information and sends it to the lending underwriter, including any explanations that may be needed, such as reasons for derogatory credit.
10. Underwriter’s Review
Based on information put together by both the loan executive and processor, the underwriter makes a final decision regarding whether or not a loan is approved.
11. Mortgage Insurance
Many lenders require private mortgage insurance when borrowers put down less than 20 percent on a loan.
12. Approval, denial or counter offer
In order to approve a loan, the lender may ask the borrower(s) to put more money down to improve the debt-to-income ratio. The borrower may also need a bigger down payment if the property appraises for less than the purchase price.
Lenders require fire and hazard insurance on the replacement value of the structure. Flood insurance will also be required if the property is located in a flood zone.
During this step, final loan and closing documents are signed.
At this point, the lender sends a wire or check for the amount of the loan to the closing company.
16. Close of Transaction
Documents transferring title will be recorded with the City or Town Recorder.
6. Mortgage Payments
Buyer begins making monthly mortgage payments.