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Applying For A Mortgage
The typical application is basically an outline of who you are, the property you
want to buy or refinance, your financial assets and liabilities, and how long
you expect to stay in your home.
Application Credit Check and Appraisals
The lender will initiate a credit check and arrange for an appraisal on the
property you plan to buy. The appraisal assures you and the lender that the
property has fair market value. The lender is investing in you, and in the
unlikely situation of default on your loan, the property must be worth enough
to settle the debt.
Approval and Commitment
Once your credit check, appraisals, and verification are complete, this
"credit package" will be reviewed by an underwriter, who will make
the loan decision.
If your loan is approved, your lender will issue you a loan commitment — a
binding agreement — to lend you the money. The commitment spells out all
the details of your loan, including all charges and fees, closing requirements
and any important conditions including:
- A list of documents you need for the closing
- Information on when the commitment expires
- Important information you should know about when closing on your home
It also may have certain conditions you must meet before your loan is
granted — bills you must pay off or special requirements of a homeowner
association. In the case of a new construction, your lender will want the
appraiser to inspect the home just prior to closing. This is to ensure that it
is in accordance with the plans and specifications furnished by the builder or
contractor.
You and an attorney (if you choose to consult an attorney) should review the
commitment carefully. Since it is possible that the terms of the mortgage
being offered may vary from the time of your initial application, you must
make sure the terms are acceptable to you.
Assuming you and the lender come to terms, your agreement with the lender is
now complete.
At the same time, your lender also checks the title to the property to make
sure there are no outstanding liens or title problems. The lender requires
and sometimes will arrange for title insurance to protect it against
unforeseen problems. This is called a "lender's" title insurance policy.
You may want to obtain title insurance to protect your own interest in the
property. This is called an "owner's" title insurance policy.
If the down payment on your home is less than 20%, your lender will
normally require that you get private mortgage insurance (PMI). This insurance
will insure the lender against your possible default on the loan. If you do
default, PMI will pay the lender the amount due on your home. In other
words, PMI will pay the lender the difference between the amount you've paid
into your home (down payment + mortgage payments) and the amount for which
your home was purchased.
Closing Costs
Closing costs and procedures will vary from state to state, and from
county to county. In some jurisdictions, an attorney represents the
lender. In others, the title company represents the lender. There may be
state or county transfer taxes to be paid. There may also be fees to be
paid for recording certain documents. There are also standard charges which
are paid at all closings, some of which are appraisal and credit fees, title
insurance premiums and interest on the loan prorated from the closing date to
the end of the month.
Summary
Things you'll want to consider when buying a home:
- Your present income
- Your expected income over the next few years
- Outstanding long-term debt
- How long you expect to stay in your home
- What kind of mortgage is right for you
- Which lender is best for you
You should consult your tax advisor or attorney for more information on which
mortgage products may be appropriate for you.
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