Before looking for the perfect home, get qualified to buy so you can be certain what price range in which to be looking. The principal and interest payment + taxes + insurance (PITI) will all be calculated as your monthly payment and must fit into your debt to income (DTI) ratio. The ratio calculates what you have coming in vs. what you have going out each month.

The outline below explains what you can expect through each stage of the loan process. When you understand the steps for home financing, it will make the experience more streamlined and predictable.
Getting Prepared

Here is a list of documents that will be needed for all transactions, refinances and purchases alike.
It will be necessary for borrowers to provide items listed.

1. W2’s and/or 1099’s & complete tax returns for the past 2 consecutive years.
2. Pay stubs for the most recent 30 days.
3. Most current bank statement(s) covering a 60 day period (all pages even if blank).
4. Most current quarterly retirement/stock statement.
5. Hazard Insurance, agent’s name and phone number.
6. Copy of valid driver’s license and Social Security cards
7. Current mortgage, tax and insurance statements for ALL properties owned.

If you are purchasing you will also need a copy of the purchase agreement and a cancelled check for the earnest money deposit.

If you are refinancing you will need a copy of your current mortgage statement.

Down Payment
Is your proposed down payment sufficient? On a conventional loan product, in order to get away from paying Private Mortgage Insurance (PMI), you will need to put down at least 20% or procure a 2^nd lien to make up the difference of your intended down payment, i.e., if you plan to put down 10% you will need a 2^nd lien of at least 10% to get to the 20% mark in lieu of the PMI. Second lien holders can be very particular about the files they are willing to lend on. If you do not qualify for a 2^nd, or simply do not wish to open that door but still would like a minimal down payment, a government insured loan (FHA, RDA, or VA) may be an option for you.

Please visit the Loan Types and Descriptions page for more details.

The Application
The application (AKA the 1003) can be taken over the phone or in person. It takes about 15 minutes. The 1003 outlines you the borrower, i.e, full name, DOB, SS#, current address, employment, income, assets and liabilities. The liabilities will be taken directly from the credit report. Take the time to ask questions during this time. Make sure you are comfortable and have a full understanding about the mortgage opportunities that are available to you. The 1003 will then allow your mortgage professional to create the loan disclosure package which he or she will send to your email, mail, or meet with you in person. These will need to be reviewed, signed, dated and returned (originals are not necessary).

Credit history
A credit report for all borrowers will be ordered at the time of your application. Credit scores play an important role as to how fast or if your loan will be approved. The magic score for premier rates on a conventional loan product is 740 (720 with some lenders). Scores can go down to 640 for most government backed loans and even down to 580 for certain circumstances (call for explanation if needed). In conjunction with the scores, the credit history on your report is equally as important. We review each report individually and will discuss any potential problems and options to remove them.
Processing

This is when the mortgage professional reviews the application and loan disclosures to make sure it is signed /dated correctly and also that details are accurate and match all documentation provided. We will then take the documentation and submit your loan to an underwriter of the chosen lender.
You may get a call during this time for more information. This is not a sign that there is any trouble with your application. We want everything just right to make the rest of the process go faster.

Should any changes be made, ask for a copy of the updated application to be sent along with your Good Faith Estimate that will be sent within 3 days of your application, as required by law.

Appraisal
A full appraisal will then need to be ordered to determine a particular home’s value, whether you are refinancing or making a purchase. The valuation is based on similar houses in the neighborhood that have sold at prices comparable to yours. You have the right to receive a copy of the appraisal.

Underwriting
When the loan is submitted, it will go into queue to be reviewed by an underwriter. This could take up to 3 days depending on turn times with the lender. The underwriter looks at the file submitted by your broker and decides whether or not the loan meets the requirements of the specific loan product. The underwriter makes the decision as to whether or not your application is approved. He or she will usually request conditions (see below) on the loan. After review, the underwriter will issue a conditional approval.

Clearing Conditions (24 hours)
“Conditions” are requests by the underwriter for additional information in order to make a definitive decision on the loan.

When your mortgage broker tells you there are conditions to clear and asks for something, don’t delay. This stage is where most loans are held up. Many times, this is due to the companies from which the information must be retrieved.

This may involve things like a Verification of Employment from your place of work, a statement from your bank that the funds on your bank statement are still in the bank or proof of where those funds came from.

Other examples of conditions that are needed are explanation letters explaining payments that you have made late and why this occurred or perhaps a letter explaining a gap in your employment history. If you know that these things have happened, an explanation up front at the application meeting will allow your mortgage professional to draft an explanation and submit this with the loan to save you the time later on.

Conditions may not have anything to do with you the borrower. There could be title issues or items on the appraisal that need explanation from the appraiser. There may also be questions regarding the information in the title commitment or the information disclosed on the survey of the home and property.

Conditions that take the most time though are clearing up past collection accounts that have been paid or need to be paid in order for the loan to be cleared to close.
 
Once all conditions are cleared a “clear to close” is issued by the bank or lender. When this has been issued a closing may be scheduled 2 to 4 days later, depending on the title company’s scheduled closings and the timeframe of the lender’s closing attorney.

When the clear to close is issued the lender will send over closing instructions to the title company. These will outline the loan itself, such as rate/term and the itemized costs of services, title insurance, taxes, homeowner’s insurance, etc. The fees will have been disclosed to you at the beginning of the loan process and updated during underwriting with any modifications. The HUD (closing statement) will be the final breakdown of actual fees, and will be produced to you at closing. There will be no surprises on the final closing statement.

The Closing
You made it! Although this is the time that you actually sign the final paperwork and commit yourself to the loan, this will be the least stressful time of the mortgage. We will be sure that you attend closing feeling comfortable and confident about your loan and all that it entails.

Be sure to ask any questions during the closing and if your mortgage professional is not able to attend, be sure to call and ask any questions that the title company is not able to answer.  

Summary
We hope this information has explained the process of financing a home and given you an understanding of the steps that are ahead of you.