The process involved with getting a mortgage can be a frustrating
and tiresome experience, unless you know what to expect from the
start. We have compiled these tips and advice to help our clients
better understand the mortgage process, and answer many
commonly asked questions. The following video from the National
Association of Mortgage Brokers provides a good overview of the
application process, as well.
Understanding the underwriting process – There are many steps along the way during the mortgage process. The lender’s underwriters, who are compiling and analyzing your file, will often request more documents from you throughout the process. Many times, documents you submit may create the need for more information. For example, any large deposits in your bank account will need to be explained and thoroughly documented. These requests don’t mean that the lender is questioning your credit worthiness; they simply have to put together a complete file.
No new debt, late payments, or collections – Avoid any late payments, and especially don’t let any accounts go into collection during the mortgage process. Also, do not incur any new debt. This can risk pushing your debt to income ratio beyond acceptable levels. Please don’t go out and buy a car or furniture for your new home until after settlement. If you’re getting a refinance, continue making your mortgage payments.
No change in employment or income – Any change in your income could also negatively impact your debt to income ratio.
Be prompt with requested documents – As mentioned before, you will need to supply and complete various documents throughout the underwriting process. Please do so as quickly as possible, as any delays could hold up other parts of the process.
Send complete documents – When sending a document such as a bank statement, it must contain your name, and account number as well as all pages, even the seemingly irrelevant ones. If there are 5 pages, we’ll need all five pages.
Prepare your accounts - If you plan to move large amounts of money around in your accounts to put together your down payment, try to do so before the application process starts. Any large deposits will need to be documented, and explained to ensure that no new debt has been incurred, and that assets are from approved sources. If these transactions take place during the underwriting process, expect the lender to ask for this supporting documentation. If your family or friends are gifting you money to use toward purchasing your home, their bank statements will need to be submitted as well to document the source if the deposits happen during the process.
Pre-approval vs. conditional approval vs. final approval – They may sound similar, but they aren’t. A pre-approval is based on the initial documents such as your pay stubs, W2s, credit report, and bank statements that you supply to us. The pre-approval is what you will need in order to place an offer on a home. The conditional approval comes from the lender after they have reviewed your application and the file we submit to them, including the sales contract. They will ask for additional documents from you at this point, and third party vendors such as the attorney and appraiser will begin their work. The final approval comes in after all conditions have been satisfied, and the lender is prepared to finalize your mortgage and provide the funds for closing.
Competing offers – You may receive competing offers from other lending institutions early on in the process. Often, your bank, or the realtor/builder’s preferred lender will make you an offer. While it’s good to get a second opinion, please know that as a brokerage, we have the flexibility to meet or beat any competitors.
Rates change every day – We constantly track interest rates because markets change throughout the day. Decide on a target rate, and we’ll do everything we can to lock it in. Rates can be locked any time after the file is initially accepted by the lender.
Be flexible with the closing date – It is nearly impossible to pinpoint a closing date more than a week beforehand. The closing date on your sales contract is a suggested target date, not a deadline. It is common for closings to take place a few days after the date on the contract.
Closing costs vs. Funds to Close - Closing costs are the various fees and charges incurred as part of your mortgage. These include attorneys fees, title work, transfer taxes, recording fees, reserves for taxes and insurance, etc., and are part of the Funds Needed to Close, which also includes your down payment, upfront mortgage insurance, and pre-paids.
Rate lock extensions – Sometimes the process can take longer than expected, and rates locked early in the process could be at risk of expiring. In order to keep your rate, it will be necessary to pay rate lock extension fees, which are applied at closing by the lender.
Costs outside of closing – Aside from the earnest money deposit on purchases (typically $500-$1000), be aware that you will also need to pay for services such as the appraisal (typically $495) early in the process. Inspections (typically $500) are not always required, but are recommended. Surveys (typically $400) are sometimes required by attorneys as well, and some neighborhoods require residents to pay dues to their Homeowners Association. If you incur any costs outside of closing, please let us know!
Backing out/charges incurred – If you are approved, but decide to cancel your application, you may be liable for certain third party charges if services have been provided.
Initial Documents You Will Need to Get Started:
- Pay stubs covering the last 30 days (including Year to Date income)
- Bank statements for the last 2 months (all pages, including your name, bank name, and account number)
- W2s for the previous 2 years
- Any other income, or asset documentation being used to qualify, or for down payment (savings, 401k, etc.)
- Clear picture/copy of drivers license
- Most recent copy of your mortgage statement (for refinances)
- Homeowners Insurance policy declarations page (for refinances)
- Property tax bill (for refinances)