The Step-by-Step Mortgage Lending Process with CALoan
In this blog post, I will be delineating the step-by-step mortgage lending process. The first steps are to see if you meet pre-approval of course. The next would be to get pre-qualified. In this step, you’d look for an underwriter or a brokerage. When you apply for a mortgage loan, usually you deal with an underwriter. However, you can also deal with a brokerage. If you are dealing with an underwriter, you’ll realize that most of the underwriters work for banks. Also, none of the brokers provide loans directly. They have business relationships with the lenders. The following is a step-by-step mortgage lending process to help you buy a home:
Check the Affordability Criteria
In most cases, the mortgage that lenders offer you is four times your income. The amount may vary amongst lenders. Nevertheless, you still have to check your income if you are unsure about the mortgage size you can afford.
You can use your partner and your joint income as well. In this case, you’ll have to use a lower multiplier figure by adding both incomes together. Another way to use your incomes together is by adding the lowest income one the top of the higher after it has been multiplied.
Make a Deposit
The very first step in the mortgage lending process would be for you to get a good idea of what you can afford. See if you have enough in your savings to make a downpayment for your new home.
To qualify for a mortgage, you will need to put down at least 3.50% of the property value. Paying 10%-20% of the property value will be better for you. Generally, the bigger the deposit, the better the rates. In other words, the bigger deposit you make, the cheaper your mortgage will be due to the better rates.
Before you make a decision, it is crucial you compare lenders. This is a crucial step in the mortgage lending process that you should not neglect. Different lenders may have different mortgage available for you. Thus, before you make a decision, compare a few mortgages so that you can choose which will be best for you.
You can use a mortgage calculator to see what your monthly payments could be depending on the amount you want to borrow and your deposit. You should compare mortgages in terms of the interest rate. The lower the rate, the cheaper your mortgage will be.
There are three types of rates available:
- Variable rate mortgages are usually the cheapest available rates. The reason they can be the cheapest available rates is because of the fluctuating interest rates. If the underlying interest rate decreases, then the variable rate interest rate also decreases.
- The interest rate in fixed rate mortgages depends on the mortgage term you agree upon. However, the interest rate amount stays fixed throughout the term of the loan. There may be a way to change it if you aren’t happy with the monthly payment amount in the future.
- Tracker rate mortgages are different than the aforementioned two. A pre-agreed margin tracks the tracker rate mortgage and is then added to the base rate of interest. For example, if the base rate is 2% and your tracker is +3%, you would pay 5%. If the base rate rises to 3%, you would pay 6%. Don’t just compare on rates though! You should also take into consideration the initial period and exit fees, booking or arrangement fees, overpayments, and the term of mortgages.
Clean Up Your Credit File
Before applying for a mortgage, you should pay off all the debts. After all, lenders take your FICO score into account when providing you with a mortgage. Thus, check your credit report before you apply for any mortgages. Fix the errors by taking some steps like the following:
- Paying all your bills on time
- Get on the electoral roll
- Close all the joint accounts that you have with your ex-partners
- Close all unused credit cards
- Build up your credit history with responsible borrowing
Prepare Your Documents
Under the mortgage lending process, you’re required to give your lender some of the following documents:
- If you receive a gift fund, your lender will require proof if any one of your family members or friends are helping you with the deposit.
- Proof of current address
- Identification documents
- Last three month statements of all savings and current accounts
- Last three months of your paystub, including proof of any bonuses or commissions you received
- Your most recent P60 tax form
Getting an ‘Agreement in Principle’
An “agreement in principle” is a conditional mortgage offer that you aren’t obliged to accept. It’s not a formal offer or a mortgage agreement. While it tests your chances of approval, the lender making the offer can withdraw it any time he or she would like.
Some lenders use a “soft check” on your credit file so your file remains unaffected. Generally, a “soft check” can damage your credit score. Hence, it is best to try to avoid this as much as you can.
Once the processor has put together a complete package with all the relevant verifications and documentations, the file is sent to the lender. The underwriter is responsible for determining whether the package is deemed an acceptable loan. If more information is needed, the loan goes into “suspense.” Then, the borrower is contacted to supply more information and/or documentation. If the loan is acceptable as submitted, the loan is put into an “approved” status.
You will require to purchase the insurance that will protect the home from any damage and the cost of insurance vary depending on the size of the home you are purchasing.
The final step in the mortgage lending process is the closing. In the closing, the funding department gives the approval information to the closing attorney and the broker. The, the department verifies the broker and the closing fees. When the closing attorney schedules a time for you, you’ll sign the loan documentation. Your loan file is transferred to the closing and funding department when your loan is approved. Personal checks are normally not accepted because the bank will take some time to clear your check. If they accept your check, they will delay the closing until your bank clears your check.
Once you get the loan documents just conform the interest rate and the loan terms you agreed upon. Check if your name and address is correct in the loan documents. Finally, bring proof of insurance and identification when you will sign the loan documents.
There are some loans which are normally more expensive because they don’t require you to prove any of the statements that you make to your underwriter. These type of loans, which are known as no doc or low doc loans, can be easier to obtain. When you make an offer on a home you would like to buy, you will get a pre-authorization. This process can speed up your loan process. It also shows the seller that you are serious about the mortgage.