If you are like most people, your home will be the most expensive purchase you ever make, and very few people are able to or would want to pay cash for a home. A mortgage is the type of loan that a mortgage lender provides to help you finance the purchase of your home. In short, you borrow the money, promise to repay it, and give the house as collateral for the loan. So – before you begin to look at houses, you should get pre-approved to find out how much financing you will be able to obtain.
It is most advantageous to make a down payment of 20%, borrow just 80% of the value of the house, and avoid the additional expense of mortgage insurance which is required on home loans that exceed 80% of the value of the home.
With a mortgage, you will sign a document, called the “note”, that specifies the loan amount, interest rate, and terms of repayment. You will also sign a “deed of trust”, which gives the home you are buying as collateral against the money you borrowed. If you don’t make your payments per the terms of the loan, the lender will take steps to take the home back from you, known as foreclosure. Foreclosure is the lender’s greatest fear – lenders are in the business of loaning money, not re-selling homes. That’s why the underwriting process is so important – to make sure the borrower has the capacity to make the monthly payments.
Many people find that they qualify for a larger monthly payment than they really want to pay each month. I can work through the numbers with you to determine the price range that is right for your needs, with a down payment that you can afford and a monthly payment that feels comfortable for you. And we’ll choose a loan program that is right for you.
Once your application is under way, my team and I do everything we can to make sure that the loan process is smooth, surprises are avoided, and dates, deadlines and terms are honored.
Once you are under contract and you have signed your loan application, you will authorize and pay for an appraisal. Your loan amount will be based on the lower of the appraised value or the purchase price, and so we want to get the appraisal completed as quickly as possible. If there are issues with value, you and your realtor will want to attempt to renegotiate your purchase price.
To get your loan closed, we must get approval of you – the borrower – and of the property you want to buy. To get you approved, we must verify your documentation that your employment, income, credit, assets for down payment and closing costs, and assets for post-closing reserves meet the loan program guidelines.
Approval of the property is for the most part determined by the appraisal, but keep in mind that even if the appraised value meets or exceeds the purchase price, the appraisal still must be accepted.
If the property is a condominium, there is an additional layer of approval – the condo project itself must meet all applicable eligibility requirements. Underwriters must review condo documents regarding investor concentration, budgets, insurance, fidelity bonds, and more. The condo property manager will charge you a fee to provide the documentation needed. The reason for this extra layer of approval is that when you buy a condo, you are only purchasing the space INSIDE the structure. The structure itself and the common areas are something you share with all of the other owners, but do not own, so this extra layer of review protects both you and the lender from buying into a problem.
When you apply for your loan, I will provide you with a Loan Estimate of what the figures will look like at closing. The Loan Estimate will show the amount you are borrowing, your rate and terms, your monthly payment, and the closing costs for your mortgage. You’ll see my estimate of the amount of funds you will need to bring to closing in a certified check or wired to your closing attorney’s trust account. The exact to the penny amount will be calculated by your closing attorney, and he or she may not have this number for you until the day before or even the morning of closing. Don’t be alarmed – it only takes a few minutes in a bank to get a certified check, or I can provide an estimate which you can round UP, and then at closing, your attorney will write you a check for the amount over the exact amount due