The Ultimate Guide to Navigating the Mortgage Maze: 6 Steps to Owning Your Dream Home

The mortgage loan process consists of six distinct stages: underwriting, closing, mortgage application, mortgage application processing, pre-approval, and house shopping. Heres what you need to know about each step.

A few things have changed since the real estate meltdown a few years ago. For purchase transactions, real estate agents will first want to know if you can get a loan. In the old days, financial institutions were doling out money to anyone with a heartbeat. Unfortunately, soft lending standards helped fuel an eventual rash of foreclosures. Suffice it to say, conditions on the ground have changed since then. Today, the best way to approach a real estate agent is with a lender pre-approval in hand. It shows that you’re ready and able to buy.

Pre-approvals dont take much time. They entail obtaining a tri-merge, or three-bureau credit report, which displays your credit score and credit history as provided by reputable third-party organizations. A lender can view your payment history and credit lines (past and current) in your credit report to determine whether you have always made your payments on time and in full.

Your lender will be able to pinpoint a loan amount for which you qualify. You’ll save a ton of time with this pre-approval because it will allow you to concentrate only on homes within your budget.

Mortgage pre-approvals also signal to the seller that you’re a serious buyer. Being prepared is particularly useful when making an offer on a house. Pre-approval lends a little more weight to your offer if you plan to negotiate the deal—and why wouldn’t you? Being prepared can also be helpful in a competitive market where sellers frequently consider several offers at once. Sellers tend to focus on the path of least resistance: the buyer who is pre-approved.

As you do your online research, you may read the term mortgage pre-qualification. It is not the same as pre-approval, and it’s important to know the difference.

A pre-qualification is a less meaningful measure of a person’s actual ability to get a loan. It’s a very lightweight “at a glance” look at a borrower’s credit and capacity to repay a mortgage. It’s typically ascertained by a loan officer asking a prospective borrower a few simple questions, such as “How is your credit?” The borrower’s responses are not independently verified. Although speaking with a loan officer can be beneficial for other reasons, there isn’t a concrete outcome that can be shown to anyone (such as a seller or your real estate agent).

One of the best things to do during the pre-approval stage is to compile the documentation required for mortgage pre-approval. When you find the right house and submit an offer, you won’t be as stressed out if you take any proactive steps to prepare. At that stage, you’ll be able to hand over all your paperwork to your loan officer at once. Being ready is a solid move!.

You may have already started home shopping online. At this stage, it’s a good idea to start working with a buyers agent and viewing homes.

Shopping for houses online is convenient, easy, and fun. There are a few things you’ll want to know in advance.

First, national real estate portals dont have accurate home prices. In fact, Zillow’s home price estimates, called Zestimates, are off by about 8% nationally. The accuracy can drop even further when drilling down to specific towns and neighborhoods. Zestimate inaccuracy isnt necessarily a bad thing, it’s just something a smart home shopper should know.

There’s a strategy that can help you deal with Zestimates. The 8% inaccuracy cited above can swing in either direction. Zestimates can be high or low. This is what it means to you, if you are pre-approved for a $440,000 loan: You can search for homes up to $432,000 (8% more than the $440,000 base approval). You real estate agent can help you fine tune your choices. A knowledgeable real estate agent with a solid grasp of the neighborhood market will be able to identify which properties could be reduced to a price you can afford.

Map-based searches make it easy to find homes for sale by location.

Second, listings on big real estate portals are not always up-to-date. The most recent inventory in a particular market is only reflected in a Multiple Listing Service (MLS), which is utilized by real estate brokers.

Lastly, large portals dont show 100% of the available inventory on the market. Additionally, agents might be aware of new listings for homes before they are made public (pocket listings). Having an expert with their ear to the ground in the market where you wish to buy is beneficial.

Accurate pricing, current data, and all agent-listed inventory in a particular market can only be obtained through two sources: the Multiple Listing Service (MLS), which is only available to licensed, paying members, or a Realtor’s website that incorporates the MLS feed. All Southern California and Los Angeles real estate listings are displayed on RubyHome, which obtains listings directly from the CRMLS.

It’s time to submit an offer after you and your agent have viewed properties and you’ve decided on the house you want. Your real estate agent will know the ins-and-outs of how to structure it. It will include contingencies (or conditions) that must be satisfied before the deal is complete. Here are a few common ones:

Contingencies protect you and your earnest money, a deposit that tells the seller you’re a committed buyer. Typical earnest money deposits are 1% to 2% of the sale price. The funds are released from escrow and applied to your down payment at closing.

The buyer and seller sign the purchase agreement, which is a legally binding offer, after both have given their approval to the terms of the agreement. At this point, you can move forward to finalize the loan.

Mortgage Loan Application

A few documents are needed to get a loan file through underwriting. Some of the information will be gathered online or over the phone. Much of it will already be included in some of the documents you submit, such as a pay stub that contains the employer’s address. While the list looks long, it wont take much effort to round them up. The lists below will help you keep track. Additionally, your loan officer will help you prioritize which items to send in first and will indicate which items won’t be needed.

• Name of current employer, phone and street address
• Length of time at current employer
• Position/title
• Salary including overtime, bonuses or commissions

• Two years of W-2s
• Profit & Loss statement if self-employed
• Pensions, Social Security
• Public assistance
• Child support
• Alimony

• Bank accounts (savings, checking, brokerage accounts)
• Real property
• Investments (stocks, bonds, retirement accounts)
• Proceeds from sale of current home
• Gifted funds from relatives (e. g. down payment gift for FHA loan).

• Current mortgage
• Liens
• Alimony
• Child support
• Car loans
• Credit cards
• Real property

Your real estate agent will be able to grab some of the harder-to-find items such as property taxes.

• Street address
• Expected sales price
• Type of home (single family residence, condo, etc.)
• Size of property
• Real estate taxes (annual)
• Homeowner’s association dues (HOA fees)
• Estimated closing date

Be prepared to explain any missteps in your financial background. It’s good to have dates, amounts and causes for any of the following:

• Bankruptcies
• Collections
• Foreclosures
• Delinquencies

• Fixed or adjustable
• Forward or reverse
• Conventional
• Government insured: VA, FHA, USDA
• Jumbo

VA Certificate of Eligibility (COE)

If you are applying for a VA loan you will need proof of your military service. The VA can provide a Certificate of Eligibility (COE). Your lender will be able to pull it for you. If you want to get it yourself, you can do so via the eBenefits website.

All the documentation from above is pulled together to produce the Loan Estimate. The Loan Estimate describes the terms and predicts the costs associated with your loan. By law, you must receive it within three days of your application.

The Loan Estimate includes closing costs, the interest rate and monthly payments (principal, interest, taxes and insurance). If interest rates fluctuate in the future, as they would with Adjustable Rate Loans (ARMs), a notification is included. Additionally, it contains details on any unique provisions, like early payment penalties or the possibility of loan balance increases even with timely payments—a practice known as negative amortization.

At this stage, you’re not yet approved nor denied a loan. A loan estimate is simply a statement of the terms and estimated fees in plain English. It’s similar to getting an estimate for auto repairs; you’re just getting a sense of the work that needs to be done and how much it will cost without anyone having taken out a wrench yet.

Quick note: Most types of loans — but not all — use the Loan Estimate at the application stage. Some loan products, like reverse mortgages, still use two older forms – the Good Faith Estimate (GFE) and Truth-in-Lending (TIL) disclosure. You can get a sneak peek of what Loan Estimates look like plus an even more detailed explanation of each section of it on the Consumer Financial Protection Bureau (CFPB) website.

Loan processors compile borrower and property documentation, go over all the details in the loan file, and put together a neat and comprehensive package for the underwriter. They’ll open the file and get the following wheels in motion:

• Order credit report (if not already pulled for a pre-approval)
• Start verifying employment (VOE) and bank deposits (VOD)
• Order property inspection if required
• Order property appraisal
• Order title search

The underwriter is the key decision-maker. They closely evaluate all the documentation prepared by the loan processor in the loan package. They perform a cross-check to determine whether the borrower and the property satisfy the prerequisites for the loan product that the borrower applied for. For example, for a VA loan, the underwriter will verify the borrower’s military service.

Underwriters review at the borrower’s credit history and their capacity to repay the loan. The collateral (the property) is also weighed into the decision. They verify information and double check for accuracy. They’ll sniff out any red flags that indicate potential fraud.

With everything reviewed, the underwriter approves or rejects the loan. Sometimes underwriters approve the loan with conditions. For instance, they might request a written summary of the borrower’s credit history, including information about late payments or collections.

At some point after initial approval and before closing, the interest rate for your loan is locked. Interest rates trade up and down every day that bond markets are open for business. You and your loan officer will choose the time to make the commitment.

Before the closing, title insurance is ordered so that you can get the keys to your new house and be ready to move in. This is also the time to make sure that all the offer contingencies have been satisfied. Once any conditions are satisfied, the closing is scheduled.

The drawn documents—which are referred to as loan docs by everyone in the mortgage industry—are printed out and delivered to the title company or attorney’s office where the closing conference is held. You can expect a big stack of papers.

One of the documents worth calling attention to is the Closing Disclosure. It should look somewhat familiar. Think of it as the companion to one the first documents you received in the mortgage loan process, the Loan Estimate. The Loan Estimate gave you the expected costs. The Closing Disclosure confirms those costs. In fact, the two should match pretty closely. Laws prevent them from differing too much.

You have the right to review the Closing Disclosure three days prior to the closing meeting. This quite period gives you a chance to review all of the terms of the loan. The Loan Estimate and Closing Disclosure are typically compared, but occasionally the GFE and HUD-1 Settlement Statement are as well.

At this stage, you’re like a space ship on the launching pad. The countdown has begun. Most of the time, everything goes as planned. Small things in the loan docs are allowed to change, like typos. However, bigger changes reset the three-day review period. Continuing with the space launch metaphor, the “countdown” would start over if:

• For the majority of fixed loans and adjustable rate loans, the annual percentage rate (APR) fluctuates by more than 1/8th of a percent or 1/4th of a percent.
• A prepayment penalty is added to the mortgage.
• Theres a change of loan products (e. g. switch to an adjustable rate loan from a fixed rate loan.

You have the right to a final walk-through of property 24 hours before your closing meeting. You can make sure the seller has vacated property. You can make sure any contractually stipulated repairs are complete.

The closing is the moment for which you’ve been waiting. It’s time to sign a bunch of documents and complete your purchase or refinance. Some docs seal the deal between you and the lender. Other docs seal the deal between you and the seller (if it’s a purchase transaction).

Please bring two official forms of identification such as a drivers license and passport to the closing.

Speak with your loan officer about how you will transfer funds, either electronically or by cashier’s check, if closing costs are not included in the loan amount. Settlement fees, or the cost of processing the loan, as well as any prepayments (placed in an escrow account) for taxes, homeowner’s insurance, and mortgage insurance are included in closing costs.

For any minor discrepancies between the final amount and the estimated balance owed, a checkbook will come in handy.

The closing meeting will take a couple hours, and theres a lot of paperwork. Your hand will be tired when its all over.

• The Closing Disclosure, sometimes known as the HUD-1 and TIL, is a summary of the loan terms, monthly payments, and closing expenses.
• As the name suggests, a promissory note is a pledge to repay a loan. It displays the loan amount, terms, and the lender’s options in the event that you don’t make payments.
• In the event that you default on the terms, the Deed of Trust secures the note mentioned above and grants the lender a claim against the house.
• The legal document you’ll need to move into a newly constructed home is the Certificate of Occupancy.

TIP: Be sure to read all documents. And ask questions! Lastly, don’t sign any forms with blank lines or space.

When everything is signed, your participation in the closing meeting is done. Congratulations! The final closing details take place in the background; the title company will finish the funding and recording.

Federal law provides an opt-out or cancellation of some types of mortgage transactions called a Right of Rescission. After signing the closing documents, you have until midnight on the third business day to revoke (cancel) the following:

• A refinance transaction on an owner-occupied home
• Reverse mortgages

Purchase transactions do not have this feature.

SUMMARY: Now that you are aware of the six different stages of the mortgage loan application process, hopefully you are better informed about each one and more at ease with what to anticipate at each stage. Remember to update your address with the post office, your bank, government agencies, and service providers when you move to your new residence.

Have you ever wondered what credit score is required to purchase a home? The quick response is: Lenders

VA home loans are guaranteed (but not made) by the US Department of Veteran’s Affairs (VA). The actual loans are .

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Home Mortgages 101 (For First Time Home Buyers)

FAQ

What are the stages of getting a mortgage?