Applying for a home loan is one of the most complex financial experiences in life. The process involves multiple steps and it is much more in-depth than filling out a form and handing over a few paystubs. You may be required to dig up paperwork you haven’t looked at in years, and you will be required to prove and discuss just about every detail in your financial history. Whether you are a new buyer or an experienced one, the housing market crash has turned the home loan process into an extensive headache.
By being prepared, the home buying process will not be as stressful. Most importantly, you will understand the steps, so you can be patient while you wait.
All home loans start with an application, but this is merely the first initial step – there are plenty of more forms and documents after it. The residential home application will vary by lender. Some lenders require you to fill out a physical form, while others let you speak toa loan officer and fill it out electronically. After the initial application is completed, you will sign it.
Before you can go into initial underwriting, the lender will need some documentation from you. These documents prove your credit worthiness, financial stability, etc. These documents can include, but are not limited to:
- Social security cards
- Driver’s licenses
- Most recent paycheck stubs
- Previous year’s tax return
- Profit and loss statement for current year (if self-employed)
- W-2 forms
- Bank account statements (from 30 to 90 days’ worth of statements)
- Retirement account statements
- Proof of cash assets
- Proof of insurance
You may have to also explain any large cash deposits in your bank accounts. Lenders want to make sure you are not borrowing money.
Your credit file will also be pulled and if there are any questions on that credit report, you may need to supply documentation. For example, your credit report shows you are paying on a revolving credit account, but it is really paid off. You will need to provide proof that it has been paid in full with a letter from the creditor or an updated statement. In this case, the lender may require a credit supplement, which means they will request a change on your credit report so it reflects accurate information.
Paying Upfront Costs
Regardless of what you have agreed to with the seller, you will have some costs that you must pay upfront to begin the process. This can include covering any credit report fees, appraisal fees, home inspection fees, and of course, the earnest money deposit. The fees and deposits will vary depending on the bank, but they often result in a few hundred to few thousand.
Some of these upfront costs will come back to you at closing – or you can choose to roll them into your loan.
Once you have submitted documentation, the application goes through an initial underwriting process. This is the point when you couldbe denied or receive a conditional approval. A conditional approval is better than a pre-approval, because it means the bank’s underwriter has already assessed your risk and debts and is approving you with conditions. Conditions can be minor discrepancies that you must clear up or they could all be tasks that the lender must handle.
While your application goes through processing, a few things will happen in the background, including:
- Home Appraisal – The bank will order the home appraisal to make sure they are not loaning more than the home is worth. Depending on the type of loan and loan limits with that loan, you may have to increase your down payment or request the seller lower the price if the appraisal is lower than the loan amount.
- Pest Inspection – The lender will do their own pest and termite inspection to make sure the property is suitable.
- Tax Transcript Review – The lender will order a tax transcript from the IRS to see if the tax return you supplied them is accurate. As long as the income matches what was reported on your tax return, there will be no issues.
This loan review process can take weeks. Most buyer/seller contracts have deadlines and the bank will be aware of those dates – such as your proposed closing date. If for any reason the bank needs to move past these, then you will have to request an extension from the seller. It is best to keep in contact with your loan officer or processor and get a status update to make sure that the loan is processing fine and there is nothing the bank needs.
If the lender contacts you for information or further documentation, do not hesitate to give it to them. The longer you take to provide the documents, the longer the underwriting process will take – and you may miss critical deadlines.
A title company will hold all money and documents until the conditions of your loan are met. Title work will start while the final underwriting is moving through. This can include performing a title search, examining the property’s title history, and creating the mortgage deed.
After the final decisions have been sent by the underwriter, then the documents are sent to a title company. The title company will prepare the documents for the buyer and seller to sign and you will be notified of any final costs that you must pay at closing. If you are required to pay anything, you must bring a cashier’s check for the balance due. Some closing costs you may be required to pay include:
- Appraisal fees
- Settlement fees
- Title insurance
- Homeowner’s insurance
- Credit report fees
- Title examination fees
- Application fees
If the seller is paying these fees for you, then they will bring a check when they sign closing documents.
Once all of the funds have been collected, and amounts verified, the title will be transferred and funds disbursed.
Title Lab Can Help You With Your Closing
If you are going through the home loan process, request the services of Title Lab. We offer escrow account services and real estate closings for buyers in the state of Florida. When you work with Title Lab, you get real estate experts ready to help you through the closing process and ensure you have a home with a clean title.
Contact us today to learn more at 305-440-4150.