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How to Get a Mortgage Home Loan


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Mortgage FAQs and the home loan process.

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How to Get a Mortgage Home Loan

  1. 1. How to Get a Mortgage at loanDepot Chapter 1 - The Home Buying Mortgage Process Chapter 2 - Frequently Asked Questions about Buying a Home Chapter 3 - The Mortgage Refinance Process Chapter 4 - Frequently Asked Questions about a Refinance Chapter 5 - Reasons for Refinancing a Mortgage Chapter 6 - Common Types of Home Loans Chapter 7 - Questions to Ask a Mortgage Lender Written by Rick Smith
  2. 2. Chapter 1 - The Home Buying Mortgage Process Do you know that real estate agents and home sellers consider a lender pre-approved buyer more attractive than a buyer who has not been pre-approved for a mortgage? Step 1: Get pre-approved for a mortgage A mortgage pre-approval is beneficial in many ways. First, it gives you an idea of what loan amount and purchase price you can afford. Second, it strengthens your offer to the seller and the seller's real estate agent. Third, by getting pre-approved, you're getting a jump start on the mortgage approval process. Once you find your home and open escrow, you're already a few steps ahead. Step 2: Determine which home loan best suits your needs There are many home loan options available from first-time buyer programs to traditional conventional, jumbo, and FHA loans. There are 30 year and 15 year fixed loans as well as adjustable and hybrid loans such as a 5/1 ARM or 3/1 ARM. Step 3: Contact a real estate agent and start shopping Once you've been pre-approved for a mortgage and have an idea of what price range you qualify for, you can work with a real estate agent to view homes for sale in the areas you'd like to live. Once you find a home you like, you can work with the real estate agent to draw up an offer and complete a purchase agreement. The seller has the option to submit a counter-offer and you may go through several rounds of counters. Once you and the seller agree to the price and terms, escrow will be opened. Typical escrow periods are 30 days but 45 and 60 day escrows are not uncommon. Step 4: Review your home loan application and update your file Depending on how much time has passed since your mortgage pre-approval, the lender may need to collect some updated information and updated documents from you. The mortgage lender probably has everything needed, but it is a good idea to go over the home purchase document checklist to ensure everything is complete. Once the mortgage lender has updated your file, your home buying specialist will go over the details of your home loan program, confirm the rate that you want, and go over your closing fees. The lender should make sure that you understand every detail of your mortgage program and answer any questions you have before moving forward. Step 5: Lock your mortgage rate At this point, if you'd like to secure your mortgage rate, your lender will send you a lock agreement to confirm the terms of the loan and rate. Once you review and approve the lock agreement, your home buying specialist will collect a lock deposit fee to lock in your rate. The lock deposit will be credited towards your closing fees at the end of the transaction. Once the lender receive the signed lock
  3. 3. agreement and lock deposit, the lender will send you some preliminary disclosures such as the good faith estimate and truth-in-lending disclosure to review and sign, which detail the terms of your loan. Step 6: Home inspection and appraisal Shortly after escrow is opened, it is advisable to schedule a home inspection with a professional who will walk you through the property to look for any red flags such as structural damages or appliances that may not be working properly and other items that may need to be fixed. It is a small investment for some peace of mind. Any major issues would need to be addressed before the close of escrow date. While your loan is being reviewed and processed, the lender will schedule an appraisal appointment with the seller's agent to confirm the value of the home. Unlike a home inspection, that appraisal is a requirement to determine that the home is worth what you are paying for it. Step 7: Home loan approval , signing and closing When the mortgage lender has everything needed, your account manager will submit your complete file to the underwriting department for approval. Once approved, the lender will prepare loan documents for you to sign. Generally, you will sign your loan documents at the escrow or title office and it will generally take between an hour and an hour and a half. After the lender receives the signed loan documents back, the lender will review your file one more time to make sure everything is complete. If everything looks good, your home loan should fund 3 days after signing. More about purchase home loans at loanDepot
  4. 4. Chapter 2 - Frequently Asked Questions about Buying a Home Question: How do I know how much I can afford? There are several factors that determine the loan amount and purchase price that you can afford. For qualification purposes, lenders look at income, debt, assets (how much money you have for the down payment, closing fees, points, and other funds necessary to close your loan), as well as credit. There are many different loan programs that offer different terms and rates, and some require lower down payments than others and offer more flexibility in credit and income. The best thing to do is get pre-approved so that you know what loan programs you qualify for, the price range you can afford, and what your monthly payments will be. Lenders will often provide a pre-approval at no cost. You can also use an affordability calculator to find out what your payments would be and determine what purchase price and loan amount is comfortable for you. Question: How much money do I need to buy a home? Traditional conventional financing requires a down payment of 10 to 20% of the purchase price of the home; however, there are other programs available such as an FHA loan that allows you to buy a home with as little as 3.5% down. In addition to the down payment, you should be aware that there are other fees associated with purchasing a home. For example, there are closing fees, pre-paid interest, and prorated items such as property taxes and homeowner's insurance. Question: What's the difference between a pre-qualification and a pre-approval? A pre-qualification is an informal cursory review of your income, assets, and credit, usually conducted over the phone. Once the necessary information is gathered, the lender issues an estimate of loan amount and purchase price for which you qualify. A pre-qualification still gives a potential buyer a good idea of affordability but it is not as comprehensive as a pre-approval which is a more formal, more intense process where income, assets, and credit are documented and verified. A pre-approval is a conditional approval that holds more weight with a seller and the seller's real estate agent than a pre-qualification, especially if you are competing with another offer. Question: Do I need a home inspection? Although a home inspection is not required, it is a good idea to obtain the services of a professional qualified inspector to help you determine the condition of the home you are looking to purchase. A professional inspector will look for any structural issues as well as mechanical problems that may exist in the home that could cause problems in the future. In addition to a structural review, an inspector will also check faucets, toilets, appliances, and other items in the home to make sure everything is in working order. If something needs to be addressed, you can discuss items prior to closing. Question: What type of documentation do I need for a purchase loan? Standard documentation collected for a purchase transaction includes information regarding your income such as paystubs covering the most recent 30 days and W-2s for the last two years, asset
  5. 5. information such as bank or mutual fund stock statements covering the last 60 days showing source of funds for your down payment, closing fees, points and pre-paid items needed to close your loan. Question: How long is the purchase process? A typical escrow period is 30, 45, or 60 days. The escrow period, defined on the purchase contract and agreed upon by both buyer and seller, is usually what dictates when your loan closes. If you have already entered escrow and are closing in less than 30 days, the lender can still close your loan on time if the lender is brought into the loop as soon as possible. Question: What happens at the loan closing? Typically, you will sign your loan documents at a designated settlement office such as an escrow office or attorney's office. In the presence of the signing authority, you will review and sign all your loan documents and then present a certified or cashier's check to pay the remaining down payment, closing fees and other applicable closing funds. You may also wire your funds directly into escrow. Your loan processor will guide you through the process and will advise you on what needs to be done when.
  6. 6. Chapter 3 - The Mortgage Refinance Process Before you refinance your home, it's important to know how refinancing works, what questions to ask, research what options are available, and determine whether or not refinancing will benefit you. Step 1: Define your goals One of the most important steps before deciding whether or not mortgage refinancing can benefit you is to determine what your objectives are. Is your goal to reduce your monthly payment or pull cash out of your equity for home improvements or debt consolidation? Are you looking to fix your adjustable rate? Once you determine your goals, you can take a look at the various home loan programs available to decide which loan option helps you achieve those goals. Step 2: Inquire online or call a lender Once you've defined your goals and researched all the loan options available, you can submit your information online or pick up the phone. Your Mortgage Banker can answer any questions you have about how to refinance, the loan program you're considering or can make a recommendation for you given your individual goals. The lender should make sure that you understand every detail of your loan program and answer any questions you have before moving forward Step 3: Select your loan program If you decide you'd like to move forward with the refinance, your Mortgage Banker will confirm your loan program, rate, and payment. At this point, you can lock in your interest rate to protect you against any fluctuations in the market. Once your rate is locked, you should receive a lock agreement confirming the terms of your loan and your banker may collect a lock deposit fee to finalize the lock. The lock deposit should be credited towards your closing fees at the end of the transaction. Step 4: Submit your documents After the lender receives the signed lock agreement and lock deposit, your banker will provide you a list of items to fax or e-mail so that the lender can verify all your information to get your loan approved and closed quickly. Click here for the refinance document checklist. The lender will also send you some preliminary disclosures such as the good faith estimate and truth-in-lending disclosure to review and sign which detail the terms of your rate and loan. In a few days, the lender will contact you to schedule the appraisal inspection. It is important to schedule the appraisal appointment as quickly as possible to prevent any delays in your closing. Step 5: The lender handles it from here After the lender receives all your documents, your assigned Account Manager should contact you to go over the next steps, which includes opening escrow, ordering the preliminary title report, and coordinating with all the necessary parties to ensure your loan progresses smoothly and quickly. Once
  7. 7. the lender has everything needed, your loan file will be submitted to the underwriter for review and formal approval. Step 6: Close your home loan Upon approval, the lender should contact you to schedule a loan document signing appointment. This appointment will generally take 30 minutes to an hour and can be done at the convenience of your home or at an approved settlement location. After the lender receives the signed loan documents, your loan should close approximately 3 days later. More about a refinance mortgage at loanDepot
  8. 8. Chapter 4 - Frequently Asked Questions about a Mortgage Refinance Question: Should you refinance? To determine whether or not it is a good idea for you to refinance, you should look at your specific situation and your motivation for refinancing. The most common reasons to refinance are to reduce your rate and/or payment, convert from an adjustable to a fixed rate, or pull cash out of your equity to consolidate debt or improve your home. If your objective is to reduce your rate and payment, you should review your current interest rate and see how much you can save with a 0 point loan and then determine if it makes sense to pay points to reduce your rate further. If you are converting your adjustable rate into a fixed rate, you may actually see an increase in your rate and payment but you’ll get peace of mind knowing your rate will never increase again. If you are using the equity in your home to consolidate debt, your overall loan balance and payment may go up, but you will save monthly because you will eliminate the monthly obligations that you are paying off. Your mortgage banker can run some numbers for you and help you determine whether or not refinancing makes sense for you. Question: How much can you save? Every situation is different. It depends on what your current interest is and what your motivation is for refinancing. If your current rate is higher than what is available in the market, it probably makes sense to refinance. To get an idea of what you could save by refinancing, check out a payment savings calculator and input numbers specific to your situation. Question: What if you have a second mortgage? Typically, any second mortgages are paid off through the refinance. The lender will consolidate both loans into one new first mortgage and you will only have one payment each month. If you’d prefer to keep your second mortgage intact, the lender may be able to ask your second mortgage lender to remain in second position and allow us to refinance the first loan. This process is called subordination and there is typically a fee charged by the second mortgage lender. Question: What are the costs associated with refinancing? Fees associated with refinancing vary from lender to lender but there are standard fees that are typical across the board. These fees include 3rd party fees such as credit report, title, escrow, notary, and recording fees. Other fees include the appraisal fee and lender fees such as processing and underwriting. If you are paying points to lower the rate, the cost of each point that you pay equals 1% of your new loan amount. Aside from the closing fees, there will be prorated pre-paid costs for items such as property taxes, interest, and homeowners insurance (if applicable). If you have enough equity in your home, you can add all fees and pre-paid items into your new loan. Question: What type of documentation do you need? Standard documentation collected for a refinance transaction includes information regarding your income such as paystubs covering the most recent 30 days and W-2s for the last two years, asset
  9. 9. information such as bank or mutual fund/stock statements covering the last 60 days and current loan information such as your most recent mortgage statement and homeowners insurance declarations page. Question: Should you refinance only if the rate at least .5% lower? There is no rule-of-thumb when it comes to refinancing because there are different reasons. If you are currently in an adjustable rate looking to get into a long-term fixed loan, your rate and payment may actually increase, but you will be in a better long-term situation knowing your rate and payment will not change. If you are looking to consolidate debt, your loan amount and mortgage payments may go up but your overall monthly outflow will decrease because you will have eliminated some or all of your credit card bills and other monthly obligations. There are also no-cost and low-cost refinance options that can lower your rate and payment with no or minimal investment. It is a good idea to go over your specific situation with a mortgage expert to determine whether refinancing makes sense or not. Question: How long is the refinance process? Most refinance transactions close within approximately 30 days from application to closing. As long as you do your part in delivering the documentation in a timely manner, the lender should be able to close your loan within 30 to 45 days. Question: What happens at the loan closing? Depending on the state where your property is located, you can either sign in your home or at a designated settlement location such as an escrow office or attorney’s office. In the presence of the signing authority, you will review and sign all your loan documents and then present a certified or cashier’s check to pay the closing fees and other applicable closing funds unless you decided to finance the closing funds into your new loan. If you are pulling cash out of the equity in your home, you will receive your funds 1 to 3 days after your loan closes
  10. 10. Chapter 5 - Possible Reasons to Refinance 1. Refinance to a lower rate and payment This is one of the most common reasons for a home mortgage refinance. If your current interest rate is higher than what is currently available in the market, it is probably a good idea to see how much you could save by refinancing. There are no-cost and low-cost options that could save you money with little to no investment. 2. Refinance to convert an adjustable rate into a fixed rate Adjustable rate mortgage (ARM) loans are a great way to ease into your mortgage payments, especially if you are a first time buyer or if you need lower payments initially. Eventually, if you decide you will stay in your home longer, you may want to consider refinancing your mortgage into a long term fixed rate loan. Doing so will give you peace of mind, knowing that your rate and payment will not change for a set period of time. 3. Refinance an interest-only loan into a fully-amortized loan Like ARMs, interest-only loans are a great way to minimize your mortgage payments at the beginning; however, because you are not paying any principal, your loan balance does not decrease. If you plan to keep your home long term, refinancing can help start paying off your loan. Often, you can refinance your interest-only loan to a 30 year fixed rate loan while keeping your payments about the same. 4. Convert a 30 year loan to a shorter-term loan Sometimes plans change and the home (and loan) that you thought you were going to have for a while turns from a permanent situation into a temporary one. If you are planning to sell your home sooner than you thought and no longer need a long-term rate, then you may consider converting your 30 year fixed to either an ARM or a 3/1, 5/1, or 7/1 loan program, which often have lower rates and payments. 5. Take cash out to consolidate debt Leveraging the equity in your home is one of the smartest ways you can make your money can work for you. Use the cash from your home to pay off higher interest, credit cards, student loans, or medical bills. By consolidating your debts, you can enjoy the benefit of having only one payment each month, and in most cases your overall monthly outflow decreases. 6. Take cash out for home improvements What better way to use your hard earned equity than to invest it back into your home with repairs or home improvements? Whether you would like to fix your leaky roof or update your kitchen, you can tap into your home's equity and have a possible tax deductible* way to tackle your projects. *consult with your tax advisor 7. Take cash out to buy investment property
  11. 11. With home prices and interest rates at the lowest they've been in years, if you've been thinking about buying a vacation home or an investment property, now may be a great time to take action. Tap into your home's equity and use the cash for your down payment, home improvements, or for any reason. 8. Remove mortgage insurance If you purchased your home with less than 20% down, chances are you're paying private mortgage insurance (pmi). Refinancing will help you eliminate the extra expense if you've paid down your loan balance and/or have seen an increase in your home's value to a point where you have at least 20% equity in your home, or a loan-to-value (LTV) of 80% or less.
  12. 12. Chapter 6 - Common Types of Home Loans Fixed Rate Mortgages Fixed rate mortgage loans come in various types, and are generally the most popular loans for those looking to buy or refinance their homes. This is due to the security that fixed mortgage rates provide, ensuring consistent monthly payments, without worry or hassle about changing interest rates. If you are planning to own your home for several years or more, a fixed rate home loan may be your best option. The most popular loan program is the 30 Year Fixed Rate Home Loan, but 20 year, 15 year, and 10 year fixed rate loans are also popular. More about fixed rate mortgages at loanDepot
  13. 13. Adjustable Rate Mortgage (ARM) Considering an adjustable rate mortgage? An ARM loan may be a good option if you anticipate a significant increase in your income or property value in the next several years. Also, if you plan on staying in your home short-term, or would like to significantly lower your payment, an ARM home loan might be right for you. As the name implies, Adjustable Rate Mortgages (ARM loans) have interest rates that change at a pre-determined frequency. Federally insured FHA ARM rates to refinance or buy a home are also available. More about ARM home loans at loanDepot
  14. 14. Jumbo Mortgage Loans Jumbo mortgages are home loans that exceed the conforming funding limits set by government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac. Conforming loans are home loans that meet Fannie and Freddie guidelines and typically, have a set maximum loan amount. The conforming loan limits set by Fannie Mae and Freddie Mac vary by county; some states and counties have a higher conforming limit than others due to the cost of housing. In most housing markets, the conforming limit is $417,000 Jumbo loans are considered to be higher risk than a traditional mortgage because you are borrowing a larger-than-average amount of money. This is one reason interest rates for jumbo loans are usually higher than conforming loans. Also, the approval process for a jumbo loan is generally more rigorous and there are more stringent credit, income and reserves requirements. More about jumbo mortgage loans at loanDepot
  15. 15. FHA Home Loans Insured by the Federal Housing Administration (FHA), FHA home loans are government-assisted alternatives to conventional financing. FHA loans were originally offered by lenders to first-time home buyers with imperfect credit. Now, FHA loans are open to a wider audience, and are even popular options for homeowners looking to refinance. Overall, FHA mortgage loans provide more flexibility in credit, income, and equity/down payment requirements, and are great alternatives to conventional loans. They do include a Mortgage Insurance Premium (MIP), as well as monthly mortgage insurance, but a fixed rate FHA loan enables many homeowners who wouldn’t qualify for conventional financing to purchase or refinance a home. More about FHA home loans at loanDepot
  16. 16. VA Home Loans The VA loan program is available to individuals who have served or are presently serving in the U.S. military for refinancing or buying a primary residence. The Department of Veterans Affairs (VA) does not lend money for VA loans, but it backs loans made by private lenders (banks, savings and loans, or mortgage companies). This essentially means that the Veterans Administration stands as the insurer for all their loan programs and packages; they guarantee a portion of the loan to the lender if anything goes awry (missed payments, defaults, etc.). This gives lenders a sense of security during the approval process. Those who are eligible for a VA loan include: Veterans, Active-duty personnel, National Guard/Reserve members and some surviving spouses. Though VA loans do not require any pre-existing equity or income documentation, you must have an adequate credit rating, sufficient income, and a valid Certificate of Eligibility. A VA loan can only be used to purchase a home for your own personal occupancy. More about VA home loans at loanDepot
  17. 17. Mortgage Loan Calculators You can crunch your own numbers with online mortgage calculators and run as many different scenarios as you'd like for home purchase, refinance, mortgage qualifying, rent vs. buy, ARM vs. fixed rate. Online mortgage calculators at loanDepot Mortgage Interest Rates Most of the popular home loan rates are available online for you to compare. You can also personalize your mortgage rate search by adding specific parameters. Current mortgage rates at loanDepot
  18. 18. Chapter 7 - Questions to Ask a Mortgage Lender You may have heard the old saying “You won’t know if you don’t ask”. This is especially true when shopping for a mortgage to finance what may be the home of your dreams. Obtaining a mortgage is one of the single most important and largest financial decisions you may make in your life. Before choosing a mortgage lender or broker and determining which loan works best for you, be certain you have the information you need to make an informed decision. Before applying for your home loan, ask a lender or mortgage broker these key questions that will help you select the lender that’s right for you and help you gather the information you need to know before starting the mortgage application process. 1. How long does the loan process take? The average loan process for a home purchase depends on the loan and lender. The process from application to funding generally takes between 30 and 45 days. 2. How much will obtaining a loan cost me? Are those “out-of-pocket” costs or can I finance them into the loan amount? Mortgages come with fees to cover a range of services related to the process of funding your mortgage. Fees vary from lender to lender so be sure to ask up front which fees to expect, and which fees can be negotiated. Lenders are required to provide a written good-faith estimate of closing costs within three days of receiving a loan application. 3. How do I qualify for a loan? When will I know if I qualify? The determining factors in the qualification process are typically your credit score and history, your property value, and your debt-to-income ratio. Other factors may be included in the consideration process, but these three are the primary factors lenders consider when evaluating a potential borrower’s credit worthiness. In general, these factors determine the perceived level of risk associated with your ability to responsibly manage a loan, and determine your loan decision as well as your interest rate, in some cases. Every lender is different, so make sure you ask these important questions. 4. What kind of documentation must I provide to get approved for a mortgage loan? Most lenders will require proof of income and assets before approving your loan. Lenders will be able to provide you with their specific requirements. 5. Do I need an appraisal on the property I am hoping to buy or refinance? What happens if the appraised value isn’t what I think it is? Sometimes lenders do not need to obtain an appraisal, other times they require a full appraisal, and there are levels in between the two. Appraisal needs are generally determined based on specific loan
  19. 19. programs versus being credit/income driven. This determination is typically made after reviewing your application and the selection of a loan program that best meets your needs. 6. Can I refinance my mortgage if I don’t have equity in my home? Most lenders require a homeowner to have at least 20 percent equity in a home before they’ll approve a refinance. However, it is possible to refinance your mortgage if you don’t have equity in your home, or even have negative equity. The federal government has implemented the Home Affordable Refinance Program (HARP) to assist homeowners who may not have sufficient equity in their home to qualify for traditional refinancing. 7. What’s my rate? The advertisement said … Regardless of where you see the ads for ultra-low mortgage rates, some companies don’t disclose the true terms of the deal as the law requires. Make sure you ask your loan officer, broker or mortgage banker what the Annual Percentage Rate is for the loan you are applying for, what your monthly payment will be, and how long the low interest rate will last. 8. What’s the best loan for me? What are my options? Your lender should be able to answer this question easily once you provide pertinent information, such as: employment history and verification, income, assets, credit score, debt, monthly expenses, down payment amount, etc. It’s also important to discuss your short-term and long-term objectives so you better understand your options and what will be the best loan program for you. 9. Who can I talk to throughout the process when I have questions? The mortgage loan process may seem a little overwhelming; there are a lot of people involved, including your real estate agent, the mortgage broker/lender, escrow officer, title company, and real estate attorney. Because there are so many different people with different roles involved in the process, it’s a good idea to find out if there is one point of contact for you if you have questions, or obtain a list of people/roles and their contact information. Mortgage and Refinance References Provided by loanDepot