The 16 Steps of Getting a Mortgage and Purchasing a Home

Purchasing a Home is one of the most important decisions you will ever make in your life

(What step are you on?)

1.) You are sitting at the kitchen table writing a check to your landlord muttering to yourself that you are throwing away money to this person who cares nothing about you or your family. Suddenly your accountant calls and he or she reminds you about the tax benefits of owning a home not to mention that mortgage rates and home prices are at all time lows and your monthly payment would be less anyways. Then the A/C repair guy walks in the back door and tells you that the landlord has neglected to properly maintain the up keep on your A/C unit and it will be 5 days before the part comes in and you better be prepared to sweat a little bit. A little bit agitated you start shopping for a mortgage professional and a realtor.

2.) Finding a mortgage professional is really the step you need to take before you find a buyers agent. (realtor)The mortgage guy needs to review your income, assets, credit and debts to ensure that everything is in order and you will not have any road blocks along the way. It is important to know how much home you can afford and how much cash out of pocket you will need.

3.) In many cases future home buyers will need to repair credit or build credit or correct mis-information that appears on their credit bureau. The last step before the home buyer starts talking with the realtor is to actually pull credit. Yes, this is a credit inquiry that is noted on your credit bureau but no, one credit pull will not drag your credit scores down too much. Any good realtor will not take you out shopping until he or she has a proper pre-qualification letter in hand.

4.) Start working with a realtor that you like. The mortgage guy can refer a good realtor or you can search on line yourself. Find someone who has the personality that you like. You may spend some time learning neighborhoods and making offers so it is best to have a realtor who is knowledgable and easy to work with and will communicate well with you. This person will send you examples of homes in your area in the form of MLS listings and tell you about the pros and cons of each property. If you find something you like, you can make an offer.

5.) The process of making the offer may go around and around for a week or so. If you are attempting to buy a foreclosure sale or a short sale this part of the process may go on for months. The real estate market and the amount of activity will play a big role in how long it takes before you have your offer accepted. It is sometimes smart to make an initial offer less than the listing price. If you go too low on your initial offer you may insult the seller side so much that they don't want to work with you. A cash offer is the strongest type of offer and an offer with FHA 96.5% financing and 6% seller paid closing costs is the weakest type of offer.

6.) In the background, as you are making these offers, a smart borrower will be working with his or her mortgage specialist and start the process of preparing their loan file. Whereas the pre-approval letter gave you the green light to go shopping, now you must begin the task of verifying all of the numbers you provided earlier. This is where I will ask you to provide paystubs and W-2's and tax returns and bank statements. Most contracts have limitations on time frames when your file should be in place and approved by the lender and a commitment letter is passed out to the borrowers and the seller.

7.) Your offer is accepted. The realtors work out the agreed purchase price, time frame for inspections and application to a lending institution, appraisal and closing. In the contract the buyer and seller agents will also determine who is selecting the closing agent and who is paying for a majority of the title fees. Also in some cases the contract will say if it is an "as is" contract and whether or not the seller will be paying any of the buyers closing costs.

8.) Once the contract is accepted the lender can send you a package of his disclosures based on the agreed purchase price. These forms are very similar to the set of legal documents you will sign at the end of the process when you close on your loan at the title company. Before sending these documents to you the lender will contact the closing agent and get a quote of their fees. In todays world, as of 2010, the lender guarantees the fees of the Good Faith Estimate which protects the buyer from changes in closing fees.

9.) After a few days most buyers do a home inspection. Even in cases where the contract  is an "as is" contract, it makes sense to do a home inspection. This is for the buyers protection to ensure that they are not buying a "lemon." Typically the inspector will create a list of things that are lacking with the home and a "cost to cure" to fix them in a "workmanlike manner". Lets say on a $150,000 purchase the home has $3500 worth of items that need to be fixed. Usually at this point the buyers agent will go back to the seller side and ask for some type of a concession or simply ask for these items to be fixed prior to closing. Usually right before closing the realtor and the buyer will do a "walk through" to make sure these problems were fixed.

10.) Meanwhile over at the bank the mortgage application has been submitted for underwriting. The underwriter has examined the entire file and determined the risks to the bank if they choose to "make the loan". Every file in todays world is run through an automated underwriting engine that gives a measure of risk for that file. A good mortgage person will have done this same step before the loan was even shipped to the bank. The underwriter will issue a conditional approval that states that the bank will make the loan for these borrowers as long as the following conditions are met. Usually the conditions involve clarifying details of the file and quality control procedures that protect against mortgage fraud and protect both the lender and the borrower.

VIDEO - My Smooth and easy Process Part I - This video details the initial steps in the mortgage process. This video gives you a chance to meet me and talks about the importance of shopping your mortgage and the importance of an accurate Good faith Estimate.

Smooth and Easy Mortgages in Florida part 1

Video - My Smooth and easy Process Part II - This video continues the explanation of the mortgage process from the ordering of the appraisal through closing at the title company and post closing conversations.

Get a home loan Today

11.) Once the inspection is done and you have received your conditional approval it is time to order the appraisal. The appraiser will come out and measure the home, observe the construction and provide recent market comparables that sold within the last 6 months and are less than a mile from the subject property. The appraiser is an independent third party consultant who provides an opinion of value regarding the subject property.

12.) Also going on in the background a title request has been ordered. The closing agent or title company will check  public records regarding the subject property. Unlike a typical insurance policy which insures you going forward, an owners title policy issued by a closing attorney or title agency insures your interest in the subject property going backwards in time. The title agent is basically insuring that there are no outstanding liens on the property which will cloud your title or cost you money some day when it comes time to sell the home or refinance the home. This step also protects the bank making sure there are no judgments or law suits outstanding against the buyers or sellers.

13.) Once the appraisal comes back supporting the purchase price of the home I forward a copy to the bank. In 2009 our government passed a law called "The Home Valuation Code of Conduct" which basically changed the appraisal request to be managed by the bank rather than the mortgage guy. This was done to ensure that there is no collusion whatsoever when it comes to meeting a contract price with an appraisal or even meeting a value on a refinance. If the appraised value comes in less than the purchase price than the bank will only lend on the lessor of the purchase price or the appraised value. If the appraised value comes in higher than the purchase price than that could be a sign that you are getting a good deal. Appraisers have no motivation whatsoever to go higher than a purchase price because that is their reputation and license that they are putting on the line every time they sign an appraisal. Also when the appraisal is received, the buyer receives a copy and it is forwarded to their insurance agent so the insurance company can work up an accurate insurance policy based on the replacement cost of the home.

14.) We are almost there. The lender reviews final conditions and issues a clear to close for the buyers. This means my clients are ready to close on their new home. The closing department of the bank creates a closing package which will be signed and a HUD-1 closing statement is prepared which provides a summary of all the costs associated with the purchase. If everybody has done their job well, this statement should look awful similar to the initial fees disclosure statement and Good Faith Estimate that was provided in the beginning of the process by me, the mortgage guy.

15.) The last step is when you close on the loan and you get the keys to your home. You will meet at a place that is convenient for both the buyers and the sellers. An agent of the title company or closing attorney will explain all of the documents and both sides sign away. The mortgage is later notarized and eventually recorded as part of public records. The buyer brings in a cashiers check to closing and the seller leaves with one. You get your home, they get their money and everybody rides off into the sunset. (Happy I hope)

16.) Step sixteen is the step that never ends. You find yourself happy in your new home with a chance to enjoy capital appreciation for years to come. You personalize your home in ways that you could never do when you were renting. It makes sense to always keep an eye out if mortgage rates should drop thereby giving yourself an opportunity to capture a lower note rate and save money. Don't worry, I will follow up with you and remind you if they do. That's what I do!