The Home Buying Process
Step 7 – The Loan Process
If you remember, I had you talk with a lender prior to viewing properties. The lender will do a cursory check on your credit and loan to debt ratio and provide you with a rough estimate on what you can afford. This is the pre-qual, this does not mean they have approved your loan.
When we submit an offer on a house, we will ask the lender to give us a pre-approval letter for the home if we don’t already have a general letter without an address. This is required with the offer by most sellers.
After you are under contract, I will provide a copy of the contract to your lender and you will discuss the next step with them. In most cases they will want additional information on your financial status to include bank statements, credit card information, divorce decree with payment requirements, etc.. You will feel like you have no privacy during this time period and will question why they need all that information. The reason is, that the underwriter for the lender is responsible for verifying all information in order to make a recommendation on the risk to the lender for loaning you their money. In recent years they have obviously become more careful due to the mortgage crisis in 2007-2010. Credit requirements have gone up while loan amounts have gone down. With the exception of a VA loan, the more you have to put down as a down payment will reduce the risk of loaning you money and improve your chances for approval.
The lender is required to provide you with a Good Faith Estimate (GFE) for the home you are purchasing within a few days after making loan application. This GFE will outline the interest rate, down payment, loan costs, monthly payment, etc. and will estimate what you are expected to bring to closing. It is important to hold on to this document, you will want to refer back to it just prior to closing.
Once the inspection is complete, the lender will order an appraisal on the property. You are responsible for paying for this appraisal and may be required to write a check to the lender during loan application. Budget $750 for the appraisal.
The lender will receive the appraisal and will share the numbers with you. It is important to ask for a copy of the appraisal for future reference.
The lender will not loan more than the property is worth, with the exception of a rehab loan. If the appraisal comes in lower than what you agreed to pay, then we will go back to the seller to renegotiate the price, you may be required to share the appraisal with them. Occasionally, sellers will not negotiate down in price based on the appraisal. At that point, you have the option of canceling the contract or making up the difference, which means paying more than market value for the property, which I would advise not doing, especially if you are not planning to keep the home for more than 5 years.
One of the biggest mistakes buyers make between submitting a contract and going to closing is shopping for big-ticket items for their home. This is a huge mistake and may impact your ability to purchase the home if you place furniture or other large items on credit cards impacting your debt to loan ratio or paying cash. I can’t stress this enough, do not make large purchases until after closing!
Once you have loan approval you are cleared to close!
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