Mortgage Loan Process
Going through the loan process.
No one's born understanding mortgages. At First Western Mortgage, it's our goal to help you understand the process thoroughly and comprehensively. Because when you understand how mortgages work, you get the right loan for you, with First Western Mortgage guiding the way.
STEP #1: Determining How Much You Can Afford.
The loan process begins with "pre-qualification." That means determining how much money you should be able to borrow based on your income. By pre-qualifying, you'll have a much better idea of the price range of houses you can buy. With the answers to a few questions, a First Western Mortgage representative can tell you the amount you are pre-qualified to borrow.
Here's what you'll need to provide:
- Length of employment at current job.
- Gross monthly income.
- Current homeowner or renter status.
- If you plan to sell your current home before purchasing a new one.
- Monthly payment total on your credit cards, vehicles and other loans.
- Your credit score (if available).
**A pre-qualification does not mean that your loan will be automatically approved. It's meant to give you a general idea of how much money you may be eligible to borrow.
STEP #2: Preparing the Loan Application.
Once you have chosen your new home, and you and the seller have agreed upon a sale price, it's time to apply for your loan. As you begin, make sure you have a signed contract with the seller, and that any earnest money you put up is held in an escrow account until settlement.
When you fill out the loan application, you will need to provide information on your income, assets and liabilities, and employment history. You should have the following documents with you:
- Most current paystub.
- W-2 for the previous tax year.
- Two years tax returns and W-2s, and/or Form 1099s for self-employed borrower.
- Most current bank statement.
- Valid driver’s license.
- Social Security Card.
- Certificate of Eligibility for VA.
- Offer and Acceptance letter (if applicable).
This is also the time to have the home professionally inspected to make certain it is in good order. (Some buyers take this step before signing a sales contract.) The inspector will check a variety of things including the foundation, wiring, plumbing, insulation, cracks from settlement, evidence of termite or rodent infestation, among many other concerns. The inspection protects you as the buyer, as well as informing the lender of the condition of the structure.
STEP #3: Looking At Your Credit.
Once you have submitted your loan application, the First Western Mortgage team looks at several areas that have a large impact on approving the loan. One of these is a review of your credit history, which may be based on the past eight or 10 years. The report shows the typical amount of debt you carry, and if you pay your bills on time. If your credit score is less than perfect, First Western Mortgage will work with you to determine the cause and see if it can be remedied.
Other things we look at in evaluating your application include:
- Your Income. Your gross income (the amount you received from your employer before taxes and other expenses) helps determine the monthly payment you can afford. Income can also include commissions, child support, or any other income from verified sources.
- How much of your income will go towards your mortgage payment. We want to make sure that you can meet your mortgage obligations without sacrificing your other monthly expenses. The maximum percentage your mortgage obligation should represent, in most cases, is 29 percent of your total income.
- How much debt you owe. We look to see what current debts you have to make sure your mortgage payment can be met. These debts include credit cards, child support, auto loans, college loans, etc.
- Your employment history. How many years have you worked in your chosen field? What's the average tenure with past employers? Have you received promotions, salary increases and other recognition? These things show stability, which is important in proving your ability to meet your mortgage obligations
STEP #4: The Agreement.
At this point, you and the seller have agreed on a sale price, and earnest money has been put into escrow. The lender will want to make certain that your offer and the seller's acceptance comply with all agreements previously made. This helps to keep any surprises from arising later that could hinder the sale or loan.
STEP #5: The Price Is Right.
During this stage, the property will be appraised to make certain you're paying a fair market price. Mortgage lenders have homes appraised to make sure you're not overpaying, based on its market value. The appraisal compares your new home's price against prices of other similar homes recently sold in your area.
STEP #6: Researching The Title.
Many times, the home you are buying has been owned by someone else. They had title to the property until they sold it and transferred the title to the new owner. This may have happened many times. Purchasing title insurance protects you and the lender against any claims that arise from arguments about legal ownership of the property from an outside party.
STEP #7: Protecting Your Purchase.
You will be required to purchase homeowner's insurance that will go into effect upon transfer of the title. This insurance policy combines protection against damage to the house and its contents, or negligence or inappropriate action that results in injury or property damage.
STEP #8: Closing the Loan.
The process is almost over. This is when all final paperwork is completed and signed, down payment and other expenses paid, and the title transferred to your name. Here is a list of costs often associated with closing:
- Origination fees for the cost of loan processing.
- Cost of property survey.
- Cost of property appraisal.
- Advance payment of mortgage insurance premium, if required.
- Advance payment of hazard insurance premium, if required.
- Advance payment of earthquake insurance premium, if required.
- itle insurance fees.
- Recording and transfer fees.
If you make a down payment of less than 20 percent of the purchase price, you will be required to carry some type of mortgage insurance in case you default on the loan. Once you've built enough equity in your home, you will no longer be required to carry this insurance.
At the closing, there are many documents that you will be asked to sign. Your title company representative will explain each to you, answer any questions, and only ask for your signature once he or she is certain you're making an informed decision. These documents may include:
- HUD-1 Settlement Statement - an itemization of all funds and costs paid by the buyer and the seller at, or prior to, closing.
- Truth-In Lending Disclosure - information regarding the annual percentage rate, finance charge, amount financed, total of payments and payment schedule.
- Note - a binding legal agreement to make your mortgage payments according to the terms agreed upon.
- Deed of Trust or Mortgage - Legal documentation showing that the lender has a lien on your property as collateral for the loan.
Once all of this is complete, there's one final item you’ll receive - the keys. Congratulations! You now own your new home.