What You Need to Know About the Mortgage Loan Process
If you need help with mortgages, count on none other than CNA Equity Group.
Here’s the step-by-step process of choosing the right housing loan for you:
Step 1: Find Out How Much You Can Borrow
Before applying for a loan, you must first determine how much money you can borrow. For homebuyers, you should know your buying power before you start with your property search.
This process requires verification of your income, credit, assets, and liabilities. We advise you to get preapproved before you start searching for your new house, so you can:
This involves the financial risk that lenders assess before financing your purchase. To put simply, the more they lend, the more risk they are taking.
The debt-to-income ratio allows lenders to determine your likelihood of running into trouble making monthly payments. This is a key factor in approving the maximum amount of loan as it measures your ability to manage your debt to repay the money you plan to borrow.
FICO™ Credit Score
Widely used by almost all types of lenders, FICO™ scores measure the creditworthiness and reflect the credit risk of an individual. It is based on several factors, including:
Compared to employed individuals, a self-employed borrower may find it difficult to apply for a home loan as there are issues in documenting their income. In the absence of pay stubs and verifiable employment records, lenders usually rely on income tax returns, which they typically require for two years.
Source of Down Payment
During the time of loan funding, borrowers need to come up with sufficient cash for the down payment and other fees payable. If a borrower does not have the required money, they may receive “gift funds” from an acceptable donor with a signed letter.
Step 2: Select The Right Loan Program
There are various home loans you can choose from. The two basic types of home loans each have benefits depending on your financial situation and goals.
These mortgages have fixed interest rates and monthly payments and with terms lasting 15 or 30 years. Choose this type of loan if you:
Just like fixed-rate mortgages, ARMs typically last for 15 or 30 years. However, the interest rate and monthly payments may go up or down during the term. This is recommended if you:
Step 3: Apply for a Loan
Step 4: Begin the Loan Processing
Depending on the standards set by government agencies and the terms of each loan, the approval is based on your ability and willingness to repay the loan and property’s value. We will start the loan approval process immediately after receiving the application. Your loan processor will then verify all of the information and troubleshoot if there are discrepancies. This information includes:
Is your income sufficient to cover monthly payments? Lenders and loan processors use industry guidelines to evaluate your income and debts.
What are your creditworthiness and ability to repay debts when due? We will review your credit history to determine the type and terms of previous loans. Any lapses or delays in payment are considered and must be explained.
Do you have sufficient funds for the down payment and closing costs?
Is there sufficient value in the property? The property is appraised to determine market value. This step includes the evaluation of the location and zoning.
In some cases, additional documentation might be required before your loan gets approved.
How to Improve Chances of Getting a Loan Approval
Step 5: Close Your Loan
After your loan is approved, you are ready to sign the final loan documents in front of a notary public. Make sure to review the documents and check if the interest rate and loan terms are the same as discussed. In addition, you must verify that the name and address on the loan documents are accurate.
You may have to pay off fees associated with obtaining a mortgage and transferring property ownership. Instead of personal checks, bring a cashier’s check for the down payment and closing costs if required. You also will need to show your homeowner's insurance policy and other requirements, such as flood insurance and proof of payment.
Your loan will normally close shortly after you have signed the loan documents. On owner-occupied refinance loan transactions, federal law requires that you have three days to review the documents before your loan transaction can close.