Determining How Much You Can Afford.
The loan process begins with pre-qualification. In this step, we’ll determine how much money you should be able to borrow based on your income. By pre-qualifying, you’ll have a much better idea of the price range of houses you can buy. Just answer a few questions, and your First Western Mortgage representative will tell you the amount you’re pre-qualified to borrow.Here’s what you’ll need to provide:
- Length of employment at current job
- Gross monthly income
- Current homeowner or renter status
- If you plan to sell your current home before purchasing a new one
- Monthly payment total on your credit cards, vehicles and other loans
- Your credit score (if available)
Please note that a pre-qualification doesn’t mean that your loan will be automatically approved. It’s meant to give you a general idea of how much money you may be eligible to borrow.
Preparing the Loan Application.
Once you’ve chosen your new home, and you and the seller have agreed upon a sale price, it’s time to apply for your loan. As you begin, make sure you have a signed contract with the seller, and that any earnest money you put up is held in an escrow account until settlement.When you fill out the loan application, you’ll need to provide information on your income, assets and liabilities, and employment history. You should have the following documents with you:
- Most current paystub
- W-2 for the previous tax year
- Two years of tax returns and W-2s, and/or Form 1099s for self-employed borrower
- Most current bank statement
- Valid driver’s license
- Social security card
- Certificate of eligibility for VA
- Offer and acceptance letter (if applicable)
This is also the time to have the home professionally inspected to make sure it’s in good order. (Some buyers take this step before signing a sales contract.) The inspector will check a variety of things, including the foundation, wiring, plumbing and insulation; cracks from foundation settlement; evidence of termite or rodent infestation; and many other factors. The inspection protects you as the buyer while informing the lender of the condition of the structure.
Looking At Your Credit.
Once you’ve submitted your loan application, the First Western Mortgage team looks at several areas that can have a major impact on loan approval. One of these is your credit history, which may be based on the past eight or 10 years. The report shows the typical amount of debt you carry, and if you pay your bills on time. If your credit score is less than perfect, First Western Mortgage will work with you to determine the cause and see if it can be remedied.
We will also consider:
- Your income. Your gross income – the amount you received from your employer before taxes and other expenses – helps determine the monthly payment you can afford. Income can also include commissions, child support or any other income from verified sources.
- How much of your income will go towards your mortgage payment. We want to make sure that you can meet your mortgage obligations without sacrificing your other monthly expenses. The maximum percentage your mortgage obligation should represent, in most cases, is 29% of your total income.
- How much debt you owe. We look at your current debt amounts to make sure you can afford your mortgage payment. These debts include credit cards, child support, auto loans, college loans, etc.
- Your employment history. How many years have you worked in your chosen field? What’s your average tenure with past employers? Have you received promotions, salary increases and other recognition? Positive answers to these questions show stability, which is important in demonstrating your ability to meet your mortgage obligations.
At this point, you and the seller have agreed on a sale price, and earnest money has been put into escrow. We’ll make certain that your offer and the seller’s acceptance comply with all agreements previously made. This helps prevent any surprises from arising later that could hinder the sale or loan.
The Price Is Right.
During this stage, the property will be appraised to make certain you’re paying a fair market price. The appraisal compares your chosen home’s price against prices of similar homes recently sold in your area.
Researching The Title.
Many times, the home you’re buying has been owned by other people. They had title to the property until they sold it and transferred the title to the new owner. This may have happened many times. Purchasing title insurance protects you and the lender against any claims that arise from arguments about legal ownership of the property from an outside party.
Protecting Your Purchase.
You’ll be required to purchase homeowner’s insurance that will go into effect when the title is transferred to you. This insurance policy includes protection against damage to the house and its contents, as well as negligence or inappropriate action that results in injury or property damage.
Closing the Loan.
In the last step, all of the final paperwork is completed and signed, the down payment and other expenses are paid, and the title is transferred to your name. Here is a list of costs often associated with closing:
- Origination fees for the cost of loan processing
- Cost of property survey
- Cost of property appraisal
- Advance payment of mortgage insurance premium, if required
- Advance payment of hazard insurance premium, if required
- Advance payment of earthquake insurance premium, if required
- Title insurance fees
- Recording and transfer fees
If you make a down payment of less than 20% of the purchase price, you’ll be required to carry some type of mortgage insurance in case you default on the loan. Once you’ve built enough equity in your home, you’ll no longer be required to carry this insurance.
At the closing, you’ll be asked to sign a number of documents. Your title company representative will explain each to you, answer any questions, and only ask for your signature once he or she is certain you’re making an informed decision. These documents may include:
- HUD-1 Settlement Statement. An itemization of all funds and costs paid by the buyer and the seller at, or prior to, closing.
- Truth-In Lending Disclosure. Information regarding the annual percentage rate, finance charge, amount financed, total of payments and payment schedule.
- Note. A binding legal agreement to make your mortgage payments according to the terms agreed upon.
- Deed of Trust or Mortgage. Legal documentation showing that the lender has a lien on your property as collateral for the loan.
- Once this is complete, there’s one final item you’ll receive – the keys! Congratulations!
Ready to get started?