You and your RE/MAX Landmark Realtor just successfully negotiated a Purchase and Sales’ Agreement (P&S).  Congratulations!   You’re on your way to owning a new home, vacation home or investment property!

Now what?

First you need to identify a mortgage lender to work with.  Take some time and talk to a few.  This is an important decision, so ask questions and look for complete answers.

THE THREE “C’s”: A mortgage loan is underwritten using what those in the industry refer to as “the three C’s”.  These are:

• Collateral: The property value is confirmed by an independent third party appraisal by comparing the home value with at least three properties that are in the area, are considered similar and have sold within the last three to six months.

• Credit: The borrower’s past credit history is evaluated to make sure it meets the requirements of the loan program.

• Capacity to Pay: The borrower’s income and debts are evaluated to confirm that the ability to pay the loan back.

Regardless of the lender you choose to work with, here’s what you can expect.

APPLICATION: You and your lender representative (Loan Officer) will complete a Residential Mortgage Loan Application (People in the business call this a  “1003”).   At your initial meeting, your lender representative will spend time learning about your needs and goals.  Things you should be thinking about at this initial meeting include:

• What is your price range?
• What percentage of the sales’ price would you like to invest as a down payment?
• What is your present rent or mortgage payment.
• How long do you expect to occupy your new home?

CREDIT: Your Loan Officer will then obtain what is called a “tri-merge” credit report.  This report contains data and a credit score for each of the three major credit bureaus (Equifax, Experian and Trans Union).   Your Loan Officer will review this credit report in order to verify it meets or exceed the lenders’ underwriting standards.  If it does not meet the lenders’ expectations, then the Loan Officer should further review the credit report with you to verify it’s accuracy and make suggestions for how to proceed.

PREPARING THE LOAN PACKAGE: After reviewing the P&S, 1003 and credit report, your Loan Officer will use an automated underwriting program to determine initial eligibility.  Since almost all loans are ultimately sold to agencies like Fannie Mae, Freddie Mac, FHA and VA, all lenders are required to use this program on each and every loan before it is underwritten.  This program will render an initial decision on whether you qualify, as well as provide a list of preliminary conditions.  This decision will also comment on any discrepancies it may find in the information entered. The Loan Officer will request documentation on your income, assets and any additional information required by the decision from the automated underwriting program.

THE LOAN PRE-APPROVAL: After the application interview, your mortgage professional will issue a written mortgage loan pre-approval so that you can start shopping for your new home with confidence.  When you submit an Offer through your Realtor, a letter of pre-approval from your lender will provide credibility.

SIGNING YOUR MORTGAGE DISCLOSURES: After reviewing your 1003 for accuracy, you will be asked to sign the initial mortgage application and multiple documents called Disclosures.  These documents are to ensure you understand the terms and conditions of the mortgage you are applying for.  You will also receive a document called a “Good Faith Estimate” (GFE).  The GFE is intended to provide an estimate of all costs involved with obtaining the loan and transferring ownership of the property to you.  Most of these costs are fixed, but some costs are unknown at this early phase and can only be estimated.  Ask your Loan Officer to explain the variables.

THE APPRAISAL: Lenders have lots of laws to follow.  One new law that went into effect in 2009 requires the appraisal to be ordered only after the mortgage disclosures are signed.  Since the appraisal is performed by an independent licensed appraiser, most lenders require the appraisal to be paid either COD or by credit card.  Cost is determined by the property type, as well as the type of appraisal required.  Your Loan Officer can give you the cost prior to it being ordered.  Typical time for the Lender to receive the appraisal is 7 days.  Once the appraisal is received, the Loan Officer reviews it to make sure it meets the Lender’s Underwriting Guidelines.  The Loan Officer may request the appraiser to address discrepancies or clarify statements before the file is submitted to the underwriter.

READY FOR UNDERWRITING: The Loan Officer then sends the initial loan decision, the application, the appraisal, the report from the title agent and all documentation provided by you to be underwritten. (Give a sentence explanation of what an underwriter does) Time with the underwriter varies, but is generally known at the time the loan is logged into underwriting.

PREPARING FOR CLOSING THE LOAN: You will need an attorney or closing agent to handle the settlement of your loan.  It’s important to understand that this individual represents the lender.  Their job is to handle the disbursement of the new loan proceeds after making sure that all documents are signed and recorded properly and legally.  They are expected to ensure that you understand the documents you are signing, so you can and should ask questions of them if you have them.  The closing agent will provide the Loan Officer with a Title Report, as well as tax and fee amounts necessary to transfer the property to a new owner.

HAZARD AND/OR FLOOD INSURANCE: You will be required to obtain proper insurance coverage.  It will be necessary for the Loan Officer to obtain proof of insurance coverage and payment in full prior to the loan closing.

CONDITIONAL APPROVAL: If all has gone well, the lender issues a “conditional approval”.  This document lists other items that the underwriter has determined are necessary.  These items may be a request for a correction or a written explanation for something that isn’t completely understood.  This request could be direct to the borrower, the appraiser or the title agent.   The requested items are collected and sent to the lender.  The lender reviews the documentation submitted to determine if the items sent meet the conditions and either removes the condition or requests something else.  Once all conditions have been met, the loan is “cleared to close”.

CLOSING DAY: Closings are frequently held at the Registry of Deeds.  You will be required to bring a Certified check for the amount of the down payment and closing costs to the closing.  The actual amount you will  be required to bring should be provided to you the day before closing.  You and the closing attorney will sign the actual loan documents, which include a duplication of the same documents you signed at the time of the initial application.  Once signed, the closing agent records the deed and the mortgage while you take the keys to your new home!