Acute Home Mortgage « Mortgage Approval 101

Understanding The Mortgage Approval Process

Before making the decision to purchase or refinance your home, chances are, you have spoken with friends or family members who are homeowners. It’s almost certain in your discussion they’ve expressed many horror stories during the financing process. At Acute Home Mortgage, we will give you the best possible mortgage experience through honesty, integrity, and education. Take our Mortgage 101 class to learn more about the mortgage approval process.

Step 1 – Choosing the Best Loan

Decide how many years it will take you to repay the loan. This is called the mortgage term.

There are many choices:

10 year mortgage term
15 year mortgage term
20 year mortgage term
30 year mortgage term
40 year mortgage term

Remember, your mortgage payments will be less expensive if you choose a longer mortgage term.

Decide which type of interest rate will work best with your homeownership goals.

In the world of interest rates, you can choose between a fixed interest rate mortgage and an adjustable interest rate mortgage (ARM). The difference between a fixed interest rate and an adjustable interest rate is, the fixed interest rate does not change over the life of the loan. However, the adjustable interest rate is fixed for “x” amount of years, and then it adjusts periodically according to the index.

You may ask yourself, why would I choose an adjustable rate over a fixed rate? Typically, an adjustable rate is introductory interest rate from 1 year to 10 years. This means if you are planning to sell your home within 1 to 10 years, it is best to choose an adjustable rate mortgage. However, a fixed rate is a good idea if you plan to live in your home for more than 10 years.

Next, you should decide if you want to include the property taxes and the homeowners insurance in your monthly mortgage payment. This is called escrow. Certain loans may require you to escrow your property taxes and insurance. Contact your Acute Home Mortgage professional to discuss which type of loan will best serve your needs.

Step 2 – Application Process

Completing this step with accuracy is critical to finding which loan program will fit your needs. All lenders require the borrower to complete and sign a mortgage application, also known as a “1003” form. The lender will verify the information on the application. Therefore, it is imperative to be as accurate as possible when completing the 1003 application form. Next, you will provide documented proof to the lender regarding your income, employment, and assets through:

W-2 Forms
1099 Forms
Pay Stubs
Bank Statements

If you are refinancing the lender will verify your credit by obtaining a report of your credit history from independent credit bureaus. This information is viable to determine your loan amount. If you are purchasing a home, the lender will require a fully executed purchase agreement.

It is imperative that you do not change your financial situation at this time. Your loan will be approved based upon your credit scores, credit history, and income. In addition, do not change your employment during this process.

Next, the lender will request an appraisal of the property to determine its current value. In addition, the lender requests a title report to verify the legal description, ownership, and current liens on the property for the purpose of title insurance. Title insurance insures the lender against loss of value from defects that may exist in title. Defects such as unrecorded deeds, liens, documentation errors, or fraud can interrupt the chain of title. If uninsured, you and the lender could lose an obscene amount of money. Therefore, your lender will require title insurance on your home. If you are refinancing, you will have to obtain new title insurance. However, you may be eligible for a discount on your title insurance if you have a previously issued Owner’s Title Insurance policy. In addition, all lenders require adequate homeowner’s insurance and flood insurance, if necessary. Some lender may require a termite inspection on the property to complete the application process.

Step 3 – Mortgage Approval Process

This step is the nail biting stage of this process. The lender is reviewing or underwriting the application and its supporting documents (appraisal, title report, income documents, credit report, etc.). When the application is in underwriting, the lender is evaluating whether the information presented fits their guidelines for approval. Then the underwriter approves the application with conditions to be met, or declines the application. Conditions are further documentation needed by the underwriter to fit the application into the lender’s guidelines. Each lender is independent. This means that all lenders have their own programs, interest rates, and underwriting guidelines. Therefore, if you cannot fit into one lender’s guidelines, there are other lenders waiting to approve your application.

Once the underwriter clears all of the conditions, the application is clear to close.

Step 4 – Closing Process

The closing date is the most anticipated date throughout the mortgage process. It is an event where all of the necessary paperwork from the lender is signed to complete or close the mortgage process. Your Acute Home Mortgage professional with the title insurance agent schedules this final step. For the closing, you will need two pieces of identification such as a driver’s license, passport, social security card, or any official identification.

When purchasing a home, the closing finalizes the agreement made between the buyer and the seller. After the terms of the purchase agreement are fulfilled and the lender’s documents are settled, the title is transferred from buyer to seller, and then the necessary documents are recorded at the local recording office.

When refinancing your primary home, the closing date is the date in which the loan documents are signed. Three business days later, the loan is disbursed. This is called a rescission period.

After the rescission period, the loan is disbursed, and then the necessary documents are recorded at the local recording office.

When refinancing a non-primary home, the closing date and the disbursement date are the same. The rescission period is waived.

Step 5 – Post Closing Process

Immediately after obtaining a mortgage, you may heave a sigh of relief. You may wonder to yourself, what do I do now? Well, maybe not. However, you should do a few things over the term of your mortgage.

Make sure your mortgage payment is on time as agreed between you and the lender. Having a perfect mortgage payment history can increase your credit scores quite considerably. On the other hand, mortgage lates or non-payment of mortgage can adversely affect your credit scores quite considerably.

If your taxes are escrowed, make sure your taxes are paid within a reasonable time after the new bill is issued.

If your homeowners insurance is escrowed, make sure you are aware of the renewal date. Call your insurance agent to verify the lender paid the renewal payment.

Be aware if you have an adjustable rate mortgage. You must be able to anticipate the pre-determined date of your interest rate increase. After the fixed rate expires, some loan payments may increase annually, semi-annually, or monthly. If you need assistance with determining the date of the interest rate increase or the amount of the increase, please contact your Acute Home Mortgage professional.

Be aware of the pre-payment penalty feature on your mortgage, if applicable.

Be aware of the value of your home. If you have private mortgage insurance, also known as PMI, you can remove the PMI if you have over 20% of equity in your home.

Knowing the mortgage process is important to a loan applicant. This knowledge can offer some peace of mind. Know that your Acute Home Mortgage professional is willing to assist with any questions before, during and after the mortgage application. (back to top)