Step 1: Needs and Goals
The mortgage process begins with you. There are a number of questions that will need answering when
you begin. For example, you may want to start by thinking about the following:
- What is your price range?
- What is the amount of down-payment you would like to invest?
- How much would you be comfortable paying on a monthly basis?
- How long do you think you will live in the home?
Use the Mortgage Calculator and our Mortgage First pre-approval process to help establish your needs.
Once you have established these preliminary boundaries, it would be beneficial to speak with
one of our mortgage consultants; together, you can determine the optimal loan amount and program best
suited to your needs.
Step 2: Pre-Approval
Pre-Approval provides real benefit.
There are two terms incorrectly being used interchangeably in today's marketplace: pre-qualified and pre-approved.
They sound similar, but their impact on a transaction is quite different.
- Pre-qualification is an estimate of your borrowing power. This estimate is based only on the information you
provide and is not verified by a lender.
- Pre-approval is a firm loan commitment issued by a lender, subject to a satisfactory appraisal of a property to
be purchased. When you have been pre-approved, your income, assets, and credit have been reviewed to the satisfaction of the lender.
Here are several reasons to consider getting pre-approved early in your homebuying process:
- Confidence: Knowing that you are pre-approved for home financing allows you to search for properties with confidence, having eliminated financing issues
- Credibility: Providing a pre-approval letter increases the credibility of your offer in the eyes of homeowners who often have several offers to consider
- Agility: Knowing your financing capacity allows you to respond quickly
- Focus: Getting pre-approved early in your homebuying process allows you to focus on the most important goal: finding the perfect home
Step 3: Mortgage Application
Applying for a mortgage is an important transitional phase in the process. To this point, you may have begun to
determine your needs, and may have even become pre-approved with the assistance of Imagine Lending.
Now, you are ready to formalize the process.
Imagine Lending will help you:
- Identify all required documentation regarding your income, assets, and liabilities
- Determine the most comfortable loan amount and appropriate loan programs to meet your needs
- Prepare your loan application for underwriting
When you speak with our mortgage consultant, they will need information concerning your employment history, your
financial assets, and your credit history.
In order to process your loan, we typically need to obtain the following
documentation at the time of application:
- Copies of your most recent, consecutive pay stubs (covering 30 days), or a copy of a signed offer letter stating your new salary
- Most recent 2 years W2's
- Most recent 2 months consecutive bank statements (all pages) to verify assets, including checking/savings, mutual funds, and brokerage accounts
- Miscellaneous information, such as copies of resident alien cards, visas, divorce decrees, etc., may also apply, depending
on your particular situation; your mortgage consultant can advise you about documenting any unique information
Step 4: Underwriting
Underwriting is the process of evaluating your credit history, debts, assets, income, and information about the property you are
looking to purchase, in order to make a mortgage loan decision.
General Factors Considered When Underwriting (The 3 C's)
- Collateral: The property's value is confirmed by an independent appraisal comparing the subject value with at least three properties that are similar and have sold within the last three to six months in the area.
- Capacity: The borrower's income and overall debt structure are evaluated to determine that she/he has the ability to pay the loan back on a timely basis
- Credit: The borrower's past credit history is evaluated to make sure that she/he has a history of paying their current obligations on time.
Specific Factors Considered When Reviewing Your Loan
- Housing-to-Income and Debt-to-Income Ratios
- Credit History
- Ability to Repay the Mortgage
- Cash and Reserves
Step 5: Loan Processing
The processing of your loan involves the collection of all the outstanding documents that are needed to satisfy
the conditions that were set forth by the underwriter in your commitment letter. These conditions could include
verifying your income and assets, reviewing the Purchase and Sale Agreement and appraisal, or obtaining information
or documentation to substantiate past credit issues, child support/alimony payments, receipt of gift funds, employment
The Commitment Letter
The commitment letter is the formal loan approval, issued by the lender, that sets forth the terms and conditions
under which the loan is made. The body of the letter will specify your loan amount, loan program, interest rate, and
any conditions that must be met prior to your closing.
The loan amount is the amount of money that the lender is willing to finance for your home purchase, and is equal
to the purchase price of your property less your total down-payment.
The loan program is the type of mortgage program that you were approved under. Some examples would be a 30 Year
Fixed Rate, a 5 Year Adjustable Rate (ARM), or a FHA/VA 30 Year Fixed Rate. The commitment letter is specific to
the loan program. If you decide that you would like to change the loan program, your loan will have to be re-underwritten
and a new commitment letter will be issued.
The interest rate is stated in the mortgage commitment letter if you have a rate lock. If you have not locked your
interest rate, the commitment letter will read "to be determined".
A condition is an item or a document, specified in the commitment letter, that an underwriter requires from the buyer prior
to the closing of the loan. The three types of conditions are generally related to income/employment, assets, or credit:
- Income/employment conditions may include an updated pay stub reflecting a salary increase, a recent W2, or a signed offer letter from a new employer.
- Asset conditions may include looking for the HUD 1 Settlement Statement from the sale of a previous home, a source of a large deposit into a bank account or sufficient liquid funds prior to closing. The sufficient liquid fund's statement refers to the paper trail of the liquidation of mutual funds or stock accounts into a checking account.
- Credit conditions may require a letter of explanation regarding derogatory credit or a copy of a payment coupon to verify a payment that may not be showing up on the credit report.
The appraisal is a professional opinion by a third party who will determine the market value of the property.
The appraiser will search out a minimum of three other like properties (same size, style, or square footage) and
compare them to the subject property.
They use a process of addition and subtraction for different physical attributes to obtain a bottom line adjusted price.
When determining a loan amount, the lender will base it on the lower of either the appraised value or the sales price.
Purchase and Sale Agreement
The Purchase and Sale Agreement (P&S) is a binding contract between the buyer and the seller that sets forth the terms and
conditions under which a property is sold. The contract outlines specific dates for performance, such as the mortgage application
date, the mortgage contingency date, and the closing date. It also outlines any items that may be included in the sale, as well
as any repairs to the property that need to be completed prior to closing.
The buyer must meet specific dates for performance, set forth in the Purchase and Sale Agreement:
- The dates that are important to the buyer include the mortgage application date, the mortgage contingency date (if applicable), and the closing date
- The mortgage application date is the day by which the buyer will have to formally apply for mortgage financing with a lending institution
- The mortgage contingency (mortgage financing) date is the last day that the buyer has to provide to the seller with written mortgage commitment or denial from the lender. If the lender is unable to meet this date, the buyer can ask for an extension of performance, but the buyer should understand that the seller is under no obligation to agree to an extension
- The closing date is when all of the mortgage documents are signed and the title is officially transferred from the seller to the buyer by recording the deed
The seller's obligations usually relate to the condition that the property must be in at the time of the closing. The agreement will usually
outline what items are to be included in the sale depending upon the terms that have been negotiated into the agreement. These items may or
may not include such things as appliances, window treatments, swing sets, etc.
It may also outline what repairs, if any, the seller has agreed to make to the property. It may, for example, include the fixing of appliances,
replacing rotten wood on a deck, or any item that was negotiated into the agreement. The buyer should keep in mind, however, that the seller is
under no legal obligation to make any repairs to the property unless it has been negotiated as part of the agreement.
In order to close the mortgage, all buyer and seller obligations must be met.
Step 6: The Closing
The closing step completes the process of obtaining a mortgage. Because it often occurs at the same time that you are purchasing a home, it can be a complex and confusing step.
The best strategy for a smooth closing is to know what is involved, think ahead, and ask for our help.
The final days and weeks before closing can be a very stressful period of time for both buyers and sellers. There are major steps that need to
be taken before the closing can occur.
Steps Required in the Weeks Before Closing:
- Setting the Closing Date
- Selecting a Closing Agent
- Securing Title Services
- Obtaining Homeowner's Insurance
- Obtaining a Certificate of Occupancy
- Meeting the Mortgage Conditions
- Going on the Final Walk-Through Inspection
At the loan closing, or settlement, your mortgage is activated, the title (ownership) to
the property is transferred from the seller by recording a deed, and you are given the keys to
your new home. You will be required to sign many papers, and to pay your closing costs, prepaid
finance charges, and the remainder of your down-payment, in order to finally take possession of your
new home. The other attendees present at the closing may include the seller, real estate agents, closing
agent, and, if applicable, the buyer's and/or seller's attorney. The meeting can often take an hour or more
and will be held at the location specified in the agreement, unless other arrangements are agreed upon.
Steps Required At Closing
Final Review: The closing agent reviews the HUD-1 Settlement Statement with you and the seller, answering any questions that arise. The HUD-1 Settlement Statement itemizes all of the closing costs and adjustments for buyer and seller.
Document Presented and Signed: Both parties sign the HUD-1 Settlement Statement, and any additional loan documents are signed, such as the mortgage, promissory note and Truth-in-Lending Statement. The required insurance certificates and inspections are presented, if not previously provided to the closing agent.
Funds Exchanged: After all paperwork is in order, you submit a certified (or cashier's) check to cover the balance of funds due (such as closing costs, prepaid expenses, and remainder of down-payment). The check from the lender, covering the mortgage, is also submitted to the closing agent.
Documents Required At Closing
- HUD-1 Settlement Statement: The standard form detailing all of the funds that are payable at closing
- Truth-In-Lending Statement: The standard form, required by law, disclosing the terms and conditions of a mortgage, including the annual percentage rate (APR) and other charges.
- The Promissory Note: The written undertaking, or promise, to repay a specified amount over a specified period of time.
- The Mortgage: The legal document evidencing the lender's interest in a property to secure repayment of debt.
- The Deed: The legal document transferring, or conveying, title to a property.
- Affidavits: Sworn statements in writing by the borrower.