Few are cash-rich enough to buy a new home outright. A mortgage (also referred to as a trust or deed) helps buyers secure a loan against a house. At closing, a promissory note is signed and a final agreement to finance your home is reached.
Here are some useful tips to guide you through the home loan application process:
Prior to searching for homes, your first move should be to get pre-qualified and pre-approved. A seller is far more likely to accept a buyer’s offer when the buyer has already been pre-approved. This process involves basic fact-gathering to ensure you meet baseline requirements to go through the process and also tells you the exact number of you can afford. Part of pre-approval involves pulling a credit report, so do your due diligence to ensure you don’t have any negative marks or errors that credit bureaus might have on you.
The Loan Application
A mortgage specialist requires a litany of personal and financial information to process your application. W-2s, credit reports, pay stubs and more all factor into your worthiness as a buyer.
Types of Loans
- Conventional: Either fixed-rate or variable-rate, these are the most common types of mortgages and are not backed by the government.
- Hybrid Loans: These mortgages begin with fixed rates for the earliest 3, 5 or 7 years that later switch to a variable rate when the fixed period ends.
- Government Loans: Government-backed mortgages are common programs that help buyers by reducing their riskiness. Types include FHA and VA loans, among others.
- Bridge Loans: This type of loan helps buyers purchase their new home while they try to sell the house they’re living in.
Once the lender accepts your loan, you receive a commitment letter that includes a list of conditions that must be met before the final approval is made. The commitment letter also locks in your rate for a certain period of time, often 30 days.
The best (and also most stressful) day of the home buying process is the closing date. After a final walk through, the buyer and seller head to a title company to conduct the closing proceedings. Prior to closing, you’ll be given the necessary dollar amount by the closing agent to bring along with proper identification to execute the sale.
Here is what is commonly included in closing costs:
- Property taxes
- Loan origination fees
- Home inspection fees
- Attorney’s fees
- Loan points
- Recording fees
- Survey fees
- First payment to the escrow
- Title insurance
- First premium of mortgage insurance
As the contract is explained your pen’s ink hits the contract, breathe easy – you’re moments away from being a homeowner!