Team Sigura
Coldwell Banker Realty

Your guide to obtaining a loan

 

While finding a new home can be exciting, navigating the mortgage process can be overwhelming for some.

As long as you know what to expect and what steps you need to take the process can go more smoothly.

        

                   

Type of loans

  • Fixed Rate vs. Adjustable Rate loans

When it comes to your mortgage's interest rate structure, you have two basic choices. You can get a fixed-rate mortgage, which has the same interest rate throughout the entire loan term, or you can choose an adjustable-rate mortgage, which has a set interest rate for a certain number of years (Five or Seven is common), but the rate can then adjust periodically thereafter.

There are valid reasons in favor of both options, and the best choice depends on your situation. For example, a fixed-rate mortgage can allow you to lock in an interest rate and maintain a predictable mortgage payment. On the other hand, an adjustable-rate mortgage generally has a lower initial rate, so if you don't plan to keep the home for more than a few years, it could be a smart option.

  • 30-year vs. 15-year and other options

The 30-year mortgage has been the U.S. industry standard for many years, but it's not the only option. 15-year mortgages generally have lower interest rates and can allow you to pay off your home in half the time, and you may be surprised to learn that your payment won't be nearly twice as much. It may be a smart idea to ask your lender to run the numbers on a 15-year mortgage as well as any other loan lengths they offer.

 

How to start the loan process

Before you start shopping for a home, it's a smart idea to meet with a lender and obtain a pre-approval. Doing so will require a full mortgage application, including a credit check and employment verification, but a pre-approval can be a powerful tool to have when shopping for a home. Don't confuse this with a pre-qualification, which is based solely on unverified information you provide.

In addition, don't hesitate to shop around for the lowest interest rate. As long as you do all of your rate-shopping within a two-week period, it won't have an adverse effect on your credit score.

Be sure to gather the proper documentation before you start the process, as doing so will make the process much easier.

What are closing costs, and how much are they?

Closing costs refer to the various fees and taxes you'll pay (or finance) upon the finalization of your mortgage and include such things as the loan origination fee, appraisal costs, title insurance, deed recording fees, and more. Closing costs are typically between 2% and 5% of your loan amount and depend on several factors.

 

Once you have an accepted offer

Here’s what you need to know to make sure your loan application stays on track:

            

  1. Submit your application. Now that you’ve found the home you want to buy and a lender to work with, the mortgage process begins. At this stage, your lender will have you fill out a full application and ask you to supply documentation relating to your income, debts and assets.
  2. Order a home inspection. Schedule a home inspection as soon as you can if not done already by the seller. Doing so will give you adequate time before your closing date to negotiate with the seller if the inspection reveals any unforeseen issues.
  3. Be responsive to your lender. If you applied and qualify for a mortgage, you’ll receive conditional approval. At this stage, your lender may require additional documentation. Make sure to respond promptly to keep your application moving forward.
  4. Purchase homeowner’s insurance. Your lender will require proof of insurance before the loan can receive final approval.

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5 things to know about homeowner’s insurance

  • Know about exclusions to coverage.For example, most insurance policies do not cover flood or earthquake damage as a standard item. These types of coverage must be bought separately.
  • Know about dollar limitations on claims.Even if you’re covered for a risk, there may be a limit to how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
  • Know the replacement cost.If your home is destroyed, you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $300,000 and it costs $330,000 to replace it, you’ll only receive $300,000.
  • Know the actual cash value.If you choose not to replace your home when it’s destroyed, you’ll receive the replacement cost, less depreciation. This is called actual cash value.
  • Know the liability.Your homeowner’s insurance will generally cover you for accidents that happen to other people on your property, including medical care, court costs and awards by the court. However, there’s usually an upper limit to the amount of coverage provided – be sure your coverage is sufficient if you have significant assets.

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  1. Know what’s happening behind the scenes. Your lender will order a home appraisal to ensure that the value of the home you’re buying is in line with the purchase price. The appraiser will visit the home and compare it to other recently sold homes in a similar price range. Your lender will also order a title search to make sure there are no outstanding liens on the property. 
  2. While your loan is in process. avoid opening new credit cards or making other major financial changes. New loans or other changes that affect your debt-to-income ratio could get in the way of your mortgage approval. Big deposits into your account during the loan processing period might trigger questions by the lender. The lender might also require a trace of your EMD (earnest money deposit) from you account to the escrow account.
  3. Lock in your rate. If you haven’t already locked in your interest rate with your lender, you’ll want to do so.
  4. Review your Closing Documents. Once your loan is approved and your inspection, appraisal and title search are complete, your lender will set a closing date and let you know exactly how much money you’ll need to bring to your closing. The Lender must provide you with the “Closing Disclosure” (CD) at least 3 business days before closing.
  5. Arrange to pay your down payment and closing costs. The title company will provide the estimated statement to close. You’ll need to get a cashier’s check or arrange to wire money to cover your down payment and closing costs. 
  6. Close on your home. At the closing (final signing), be sure to read all the documents you receive and ask any questions you may have about the terms of the agreement. Then, after you’ve signed everything, the funds were transferred and the title company confirmed it’s recorded, you can unlock the door and celebrate your new home!