Understanding the Mortgage Process:
This is often equated to teaching someone a different language. When you have terms like “Appraisal” and “Inspection” that get intertwined, their meanings become confused and complicate the process.
It would be advantageous to know some basic terminology that the mortgage industry uses:
Loan Estimate: This is the new Good Faith Estimate, it is their initial quote that outlines what costs and rate are involved.
Closing Disclosure: Similar to the Loan Estimate it is the final summation of all costs for your loan, it will also identify how much (if any) you need at close.
Initial Disclosures: This includes your loan estimate and the standard paperwork associated with applying for a mortgage.
Home Inspection: This is frequently confused with the Appraisal, but the home inspection is an independently hired professional, contracted by the client, to inspect the home for defects
Pre Approval / Pre Qualification: Meeting with a lender to establish the details of what buying a home will cost. Type of loan, expected cost and what a buyer can afford.
Appraisal: The appraisal is an inspection paid for by the client, where a professional will determine the value of the home being purchased. It is essentially the lenders home inspection.
Accepted Offer: When a client puts a bid on a home and the seller accepts their price and terms, we not have an accepted offer. This is where the mortgage process typically begins.
Earnest Money: Money given in good faith from the client to the seller of the home, assuring the buyers interest.
Origination Cost: The cost from the lender / broker to work on your loan
Conditional Approval: This is the initial approval on your loan, after we first submit it for review. The underwriter will ask for several things to complete the file and ensure compliance.
Underwriter: The person who reviews the documentation from the borrower (Taxes / Income / Job history etc) to ensure it’s compliant with the lenders needs.
Title Fees: Third party fees that are required on every purchase and refinance to ensure there are no financial defects with the buyer / seller or house.
Recording Fees: Fees that are used to record the mortgage and deed in the clients name
Escrow / Prepaids: These are not actually costs, but rather the clients money being held in a “savings” account that the lender accesses for the use of paying Homeowners insurance and Real Estate taxes
Equity: The percentage of the home the client owns, compared to it’s value. I.E if your home is valued at $100,000 and you owe the lender $80,000. You have $20,000 in EQUITY, or 20% Equity.
Principle and Interest: This is the portion of your mortgage payment that goes to the bank to pay them interest and pay down your loan
Taxes and Insurance: This is the portion of your payment that pays your real estate taxes, homeowners insurance and mortgage insurance.
These are terms, if understood, will make the process much smoother and more understandable.
The time frame for buying a house is also a common inquiry I get from many clients, they are excited to know when they will be receiving the keys to their new home and beginning this chapter of their life. The following time line is how most loans usually progress, note that Day 1 starts when you have an accepted offer on a home and is based on a 45 day closing schedule:
Day 1: Accepted Offer – You and the seller have agreed on a price and terms to buy their home
Day 2-3: Initial Disclosures- You will sit down with your loan officer and review the terms and conditions of the proposed loan
Day 4-10: Underwriting (round 1) – You will have reviewed and signed the initial disclosures, and your loan officer will have submitted them for review to the lender for underwriting
**Day 4-10** Appraisal: During this time the appraisal will be ordered and scheduled
**Day 4-10** Home Inspection: Client should be scheduling and receiving their home inspection during this time
Day 10-13: Conditional Approval- You will receive a conditional approval request more documentation to finish your loan.
**Day 10-13** – Appraisal: Your appraisal should be back at this time
Day 14-25 : Working on conditions: The client should be getting the items on the approval, to their loan officer for review
Day 26- 35 : Final Underwrite: We should have everything in at this time for the underwriter to review. Appraisal / Conditions / Titlework.
Day 36-38: Final Review: We should be getting the clear to close at this time because the underwriter has reviewed and cleared all items.
Day 39-42: Final Disclosures: At this time the client will be receiving and acknowledging their closing disclosure, Once this is done we can schedule close
Day 42-45: Closing: Closing will be scheduled at an appropriate time for all parties. At this time the closing disclosure will be agreed to and acknowledged, and a time and place will be established for closing.
Day 45: CLOSING DAY: The fruits of your labor have come to fruition. You will meet at the desired location, at the desired time to sign paperwork for your NEW HOME! At this time you will receive your keys and be able to move in immediately after we are done.
Keep in mind, the above timeline can vary according to certain factors that influence loan closings, things that typically delay loan closings are:
- Low Appraisals
- Defects in the home
- Borrowers opening new lines of credit while the loan is in process
- Borrowers not getting the documents to their loan officer in a timely fashion
- Borrowers changing jobs during the loan process
So be wary of these common problems, and if you can avoid them you should have a relatively smooth closing and be on your way to home ownership!
Want to see how your purchasing timeline would work out?
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