Perhaps one of the most overwhelming aspects of the home buying process is the accompanying mounds of mortgage paperwork involved with applying for a loan. Your lender or real estate agent might have mentioned what you’ll need, but now, as you sit down to get started, you draw a blank.
The best strategy for applying for a loan is to get prequalified. This means that the lender has reviewed your financial and credit information and has qualified you for a loan for a specific amount. This is a huge benefit, especially if you’re in a seller’s market and need to be competitive. If you see a house you love, you’ll already know how much you’re approved for and can make an offer quickly. It will resonate strongly with the seller because the funding is in place. Here’s what to expect when you apply for a mortgage.
Application
This provides your basic information including name, birthday, marital status and social security number. If you have a coborrower (such as a spouse), he or she will need to provide information, too. You’ll need to show proof of your income as well as a list of your assets and your debt. Your lender will also pull your credit report. This will help determine how much of a financial risk you are. If you pay your bills on time, don’t carry a lot of debt and don’t have any collections or bankruptcies, you have a better chance of getting a loan, and your interest rate will be lower. If the opposite is true, you might not qualify for a loan. If you do get a loan, you might incur a higher interest rate.
Good Faith Estimate
Unfortunately, there’s more to your loan than just the principal and interest. There’s a whole laundry list of extra fees called closing costs attached to the loan. Generally, they amount to about an additional 2 to 5 percent of the loan. Your lender will provide you with an estimate of the closing costs, which is called a Good Faith Estimate.
Truth-in-lending disclosure statement
The lender is required by law to provide you with exact amounts of the loan you’re borrowing, the amount you’ll be paying in interest, the payment schedule, the finance charge and the annual percentage rate.
HUD-1 settlement statement
This is the document that will spell out all the closing costs. You’ll see exactly what you’re paying for and how much it costs. The document will also specify the closing date.
Note and deed
The note is the legal paper you must sign to agree to pay back the loan. The deed is the document that transfers ownership from the seller to the buyer. The lender holds on to the deed until the loan is paid off, although you’ll have a copy.
Despite the vast amount of mortgage paperwork associated with buying your new house, the process will go much smoother if you know what to expect.
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