The home loan process can seem very daunting and challenging to even seasoned investors, but home buyers should not be deterred by this seemingly harrowing process. There is enough anxiety involved with simply purchasing a home and beginning the process of moving; therefore, home buyers should not also be saddled with concerns or worry about the home loan process. Understanding the steps involved in the home loan process can give borrowers peace of mind and keep their stress levels to a minimum. The following information can help home buyers better prepare themselves for obtaining a mortgage.
Preparing for the Home Loan Process:
There are a number of documents that home buyers will have to sign to begin the mortgage process. Some of these documents are called disclosures, and they include things such as the Truth in Lending disclosure, the Good Faith Estimate, and the Credit Report disclosure. Other personal documents that home buyers will want to make sure are organized include things such as tax returns, bank statements, and W-2s for verification of employment.
To get qualified for a loan, a lender will assess the borrower’s debt-to-income ratio. The debt-to-income ratio compares a borrower’s pre-tax income to both housing and non-housing expenses. Non-housing expenses include costs such as car loans, child support, or student loan payments. Ideally, monthly mortgage payments should be 29 percent or less of the borrower’s pre-tax income. Additionally, the monthly mortgage payment in conjunction with the borrower’s non-housing expenses should not total more than 41 percent of the borrower’s pre-tax income.
Shopping Programs and Rates
Shopping programs and rates will help borrowers ensure they are getting the best financing deal possible. Borrowers should obtain loan program information and quotes from several lenders. Borrowers should research all of the important cost information associated with each lender and loan program. Important costs about which borrower should inquire include rates, points, fees, down payments, and private mortgage insurance (PMI).
Obtaining Loan Approval
When borrowers are attempting to obtain loan approval, there are three major areas that lenders will evaluate before extending credit to a borrower. These three areas of loan underwriting include: collateral, credit reputation, and capacity. Collateral includes things such as the value of the home, down payment, and the type of property being purchased. Credit reputation will prove to the lender the borrower’s ability to repay the loan. Capacity verifies the borrower’s income, debt, and cash reserves.
Closing the Loan
There are a few steps that home buyers will want to take before closing the loan. Hiring a home inspector, searching the title, setting a move-in date, obtaining a copy of the settlement statement, and setting a closing date are all crucial steps to closing the loan. At closing, borrowers may need to bring a certified check for closing costs, and they may also wish to bring their homeowner’s insurance policy and proof of payment. Furthermore, borrowers will need to review and sign all documents associated with the mortgage loan.