Buying a home is probably the greatest investment that you can make in your life. Very few people can afford to buy homes using cash from their savings. However, the good news is that you can consider the option of getting a conventional or fha loan in Florida to buy your house. Whether you are a first-time homebuyer or you have experience in buying properties, there are different measures that you should take when applying for a loan. Failure to follow certain steps can lead to a denial of your loan application. Read on to learn the mortgage process in five easy steps.
1. Know Your Finances
There are a few things that you should do before you rush to apply for a mortgage loan. You need to get a mortgage pre-approval first before you approach a real estate agent to show that you are qualified and ready to buy the property. Obtaining a pre-approval does not take much time, but you need to know your financial status first. You must consider your monthly or annual income to choose the right property that you can afford.
The next step is to obtain your credit report showing your credit score and history. Within your credit report, the lender can assess your lines of credit, payment obligations in the past and present. From your credit history, the lender can identify the amount of loan that you qualify to get. Therefore, this pre-approval is critical since it helps you save time and energy. You can focus only on the properties within your price range. With the help of your real estate agent, you can compare several properties before you purchase one.
When you get a mortgage pre-approval from potential lenders, this will show the seller that you are serious about buying the property. Apart from having a pre-approval, the other vital aspect that you should focus on is to build a significant down payment. This means that a lender requires at least a down payment of about 5% to 20%. Making a down payment is advantageous in that it will lower your interest rates and your monthly income. For instance, if the house is valued at $100, 000 and you make a down payment of $20, 000, it means that your loan will be 80%. You should also get an insight into other terms of the loan so that you get a clear view of the total amount you should pay.
2. House Shopping
You should start shopping for homes online and also try to contact different sales agents to help you get the right property. It is critical to use different platforms in comparing the prices of several properties. For example, if you have been pre-approved for a loan amounting to $100,000, it means that you can also consider homes within the range of about $110,000. You need to work closely with an estate agent to make an informed decision. Experienced realtors have a good understanding of the local market, and they also know the homes with prices that can be negotiated down. Real estate agents have considerable negotiation skills, and they know how to deal with various sellers.
The real estate agents usually are the first to get the details about the homes coming onto the market before these are listed anywhere else. When you identify the right property that you want, you should make an offer to the seller. A mortgage pre-approval will help you show the seller that you are serious about buying the property. If you intend to negotiate a deal, you should show preparedness to a high degree since most sellers do not want to waste their time negotiating with opportunists.
When you reach an agreement following your negotiation with the seller, you might carry out a home inspection before you get the loan. An inspection will help you together with the estate agent to determine the right value of the property. If the house needs some attention before you move in, you must take this into account when you negotiate the price. When the terms of the deal are approved by both parties, that’s the time you can sign the sale agreement of the house. The lender will only need to evaluate the final documents and approve the loan. When you already have pre-approval, the process of approving your mortgage loan will not take ages. You should make sure that the realtor approves every step you take before consenting to buy the property.
3. Choose the Right Lender
When choosing a lender, the most vital thing that you should consider is the interest rate. Most of the mortgages use fixed interest rates for a specific period, and they will later turn to variable rates. Fixed rates are only guaranteed for about 2 to 5 years, while the use of the variable rate is during the entire course of the loan. While many borrowers opt for fixed rates, the issue is that such types of loans come with higher rates.
When you get a mortgage loan, you should know the total amount that you should repay the lender including interests, monthly payments, and other charges. If you live in the UK, it’s advised to use a mortgage calculator to check how the changing interest rates over time can affect your monthly payments. With the right calculator, you can compare fixed-rate and interest-only loans to get an amortization plan for your loan repayment schedule. Other financial institutions set limits on how much the borrower can repay their loans during introductory periods. When the rates are reset, most borrowers tend to refinance their loans.
Apart from the interest rate, you should also know that many loans come with upfront fees. These upfront fees are meant to cover administrative fees and other related costs. The loan to value (LTV) ratio is another important aspect that you must consider when you take a loan. LTV refers to the size of your loan against the value of your home. If you pay a large down payment for your home, it means that your LTV also goes down. The interest rate is significantly lowered as well if you have low LTV values.
The lenders use different criteria to determine the final amount they will offer to the borrower. The stability of your income, your credit score, and history, debt-to-income ratio are some factors that play a role in determining how much the lender is willing to provide a loan. If the lender has other reasons to believe that you may lose your career or you might have a baby, they may not automatically approve your loan application. It is essential to decide before you apply for a mortgage loan. Once you sign the loan agreement, you may not be able to reverse it, and this can pose some challenges in the future. Failure to repay your loan can lead to foreclosure and you lose your money and property in turn. It is worth mentioning that if you live in Florida and you are a current or a former member of the ARMY, you can apply for a VA loan, you can find more information about this kind of loan at Security American Mortgage.
4. Mortgage Loan Application
When you have identified the right lender, you need to get organized with all your documents as you work through the loan application process. Each application should have details about your employer, your current job position, the length of time working for the same employer, salary, and other earnings. If you are self-employed, you should submit a profit and loss statement together with your application. You also need to include other details like social security, pensions, child support, and public assistance.
You should also include details about your assets like bank accounts, investments, real property, and gifted funds from different sources. You must also provide information about your current debts including car loans, existing mortgage if any, liens, credit card, and property information. When you provide property information on your loan application, you must never be tempted to falsify information. Your real estate agent or loan officer can dig deeper to get some hard-to-find details. You must also be prepared to explain all previous financial mishaps like collections, bankruptcies, delinquencies, or foreclosures if any. Your loan officer will help you provide all the necessary data on your loan application.
Additionally, you must clearly state the type of mortgage loan that you want. There are different types of loans that you can consider like fixed or variable, conventional, forward or reverse, or government-insured. Proof of military service is required if you are a veteran. Your lender can get this information if you want to use it in your application.
All the documents that you provide in your application will be pulled together to determine the loan estimate. A loan estimate is a term that is used to describe the terms and predict the costs associated with the loan. Your loan officer will go through all the paperwork, and you will get the loan estimate within three days of submitting your application. The loan estimate includes other details like interest rate, closing costs, and monthly payments. However, a loan estimate does not necessarily mean that your application has been approved or rejected. This is just a statement of the costs that should be covered. Most types of loans use loan estimates during the application stage.
5. Loan Processing and Underwriting
The loan processors look at the documentation about the borrower and the property. The processors will open a file and begin the verification process that can include the following steps:
- Check the applicant’s credit report
- Employment verification and bank deposits
- Order property inspection and appraisal
- Order title search
As you can see, all the documentation that you provide is thoroughly verified to prove your credibility for the mortgage loan. Therefore, you must never be tempted to provide false information since this can jeopardize your application. It is better to have the loan officer review your application downwards so that you can settle for a property that you can afford. When the loan processors discover several anomalies in your application, it may be rejected.
When the loan officers are satisfied with your loan application, it goes to the underwriter who is the key decision-maker. The underwriter closely evaluates all the documentation to see if the borrower is eligible for the loan and property requirements. The underwriter will perform final verification of your credit history and ability to repay the loan. They will also sniff out any potential fraud and red flags. When all the documents have been reviewed, the underwriter will either approve or reject the loan. In some cases, the underwriter may approve a loan with conditions.
The underwriter locks the interest rate when you have reached an agreement, and you are only left with commitment. Before closing the loan, title insurance is ordered, and this is the time to ensure that all the conditions are satisfied. When everything is in order, the loan documents are printed and sent to the attorney’s office where a closing meeting will take place.
You will get a closing disclosure that gives you the expected costs of the loan. The borrower has the right to review the closing disclosure before attending the closing meeting. At this final stage, everything sets into motion, and your loan becomes active when you finalize everything with the lender at the closing meeting. Make sure that the seller vacates the property before you move in. Above all, sign the documents that seal the deal between you and the lender and the seller as well.
Buying a house is a great achievement in life since it guarantees you a permanent place to stay with your family. However, buying a home can be easy if you obtain funding like a mortgage loan from reliable lenders. There are simple steps that you should follow in the mortgage loan application process. It is essential to determine your needs and consider your financial status. You should also ensure that you have a good credit history and gather all the documentation that can support your application. You should look for a home that you can afford then choose a reliable lender. When all the required documents are in place, you can begin the loan application process.