Home Loan Process
Looking for a hassle free mortgage experience? You’ve come to the right place. Whether you are a first time home buyer or a seasoned homeowner, we help take the stress and worry out of applying for and closing on a home loan.
Learn more below about the mortgage loan process from start to finish, including how much home you can qualify for, choosing between a fixed and adjustable rate product, applying for and closing your home loan.
Not sure how much home you qualify for? RateCapital can help you determine how much money you can qualify for before applying for a home loan. Prequalifications are evaluations of your credit profile that let you know how you much you can afford. Typically, a preapproval involves running your personal and financial information through an underwriting engine through Fannie Mae or Freddie Mac, for example. A pre-approval is an application for credit and a lender’s written commitment (subject to underwriting and verification) of how much you can borrow. This occurs before a loan application is completed. Pre-approval requires more information than a pre-qualification, such as the property purchase price and down payment amount. Getting pre-approved helps illustrate to a seller, that you are a serious buyer.
Finding The Right Home Loan
The second step in the mortgage loan process is finding the right home loan. Your home loan will either be a fixed-rate mortgage or an adjustable-rate mortgage (ARM). We’ll help you determine which home loan might work for you based on three factors:
• How long you plan to keep your home
• How much you need to borrow
• How much financial risk you’re willing to accept
Home Mortgage Products Offered By RateCapital:
• Fixed & Adjustable-rate Fannie Mae & Freddie Mac home loans (up to $453,100)
• Jumbo fixed & adjustable-rate home loans (over $453,100)
• Construction to Perm and Rehab home loans
• First-time home buyer loan programs
• FHA & VA home loan products
• Non-QM loan products / small commercial home loan products
• Home Equity loan products
Mortgage Loans And Down Payments
The next step is determining your down payment, which depends on the amount of cash immediately available to you. Most home mortgage loan programs have minimum down payment requirements based on the amount you need to borrow compared to the actual value of the home. This is commonly known as the loan-to-value ratio, or LTV. For a refinance transaction, you can calculate the LTV by dividing the loan amount by the appraised value. For the purchase of a new home, this calculation is slightly different. LTV is calculated by dividing the loan amount by the lesser of the appraised value or purchase price.
The bigger your down payment, the lower your LTV. A low LTV not only gives you a better chance of a home loan approval, it also can affect the interest rate of your home loan, which can lower your monthly mortgage payment. Use our online home loan calculator to explore the impact of various down payment amounts on your mortgage loan payment. Some programs allow for gifts from family members. Ask your mortgage loan originator for further details regarding gift funds.
Applying for a mortgage is easy. You can apply online, over the phone, by mail, or in person. The mortgage loan application will ask for personal, property, employment, income, asset, and liability information and requires written documentation about your personal finances. Your credit history is also examined and documented as part of this process. A loan application may be made by individuals or more than one individual, (spouse, partner, relative, etc.).
Making An Offer On A Home And The Real Estate Process
RateCapital works with real estate agents throughout the state. Some agents specialize in different types of properties, such as condos or single family homes, or certain areas. While a real estate agent is not required to qualify for a mortgage, a purchase contract is required on purchases. A real estate professional can educate you on the process of making an offer and negotiating on a property, as well as recommend a home inspector and assist with other aspects of the purchase process.
Locking In Mortgage Rates
Mortgage rates are tied to movements in mortgage backed securities, economic and geopolitical news and the financial markets, which are subject to change on a daily basis (even throughout the day). This means we cannot guarantee what mortgage rates will be at any given time. When you apply for a mortgage, you will need to choose to either float or lock in an interest rate. The most common lock periods are 30 days, but you may lock for longer periods of time, or wait til your loan is closer to closing and lock for 15 days or less.
Home Inspection (Purchase Only)
You will want, and your mortgage loan may require, a home inspection by a qualified professional. The home inspection is not an appraisal. It’s an evaluation of the general quality of the home that details the structural condition of the house and the life expectancy of the major systems, such as plumbing, heating, electrical, etc. The inspection should tell you whether your new home is free from obvious or hidden problems that can cause significant emotional and financial stress both now and in the future. By making a home inspection a contingency in the purchase contract, you’ll have a set amount of time to inspect the home once your offer is accepted. You also can use the inspection checklist as a basis for negotiating the final price.
Escrow and Title Preparation
A title company or closing attorney will hold earnest money in an escrow account during the course of the loan process. The closing attorney prepares the title work, which includes a title exam to ensure the title to the property is clear from any defaults or encumbrances. Other documents such as the mortgage note and deed will be prepared.
Conditional Approval Of Your Mortgage Loan
The underwriting of your loan may begin before or after you find the property you wish to purchase. Documents that are typically requested by the underwriter, include but are not limited to A conditional approval will be issued identifying specific requirements that must be met before a final approval is issued and your loan is cleared to close.
In most cases, your property / or the property you are purchasing will require an appraisal to determine its value. Some transactions with loans over $1m may require more than one appraisal. You may also hear the terms automated valuation or desk review, etc… during the appraisal process. Typically the appraiser will visit the property and will also consider the sale prices of comparable properties.
Private Mortgage Insurance (PMI)
As part of the loan qualifications set out by Fannie Mae and most investors, a borrower is required to pay PMI when at least 20 percent of a home’s purchase price is not provided as a down payment. Private mortgage insurance is paid by the borrower, but it benefits the lender. It protects the lender against loss if a borrower defaults on a loan.Lenders view the down payment as additional evidence that you are financially prepared to take on the debt of a monthly mortgage payment. The larger the down payment, the more you can prove to the lender that you will not be at risk of joining the default statistics. Here is an example of how PMI breaks down for the borrower.
PMI is usually about one-half of one percent of the loan amount. So if you bought a home for $200,000 and put 5 percent down ($10,000), the annual cost of PMI on your $190,000 mortgage would run approximately $950 a year, adding an extra $80 to your mortgage payment each month.
Alternatively, you could avoid PMI by taking a first mortgage to 80 percent of the loan amount and a second mortgage for the remaining balance. You would instead have an 80-15-5, where 80 represents your first mortgage; 15 represents the second mortgage; and 5 represents the percentage of your down payment. But this structure doesn’t necessarily mean your payment will be $80 cheaper if you avoid PMI. Instead, you will have the additional payment of your second mortgage which could be more than the PMI. We suggest you contact your accountant for the most current tax consequences of PMI versus a second mortgage.
The good news is that if you must take a loan with PMI attached, you can call your lender to cancel it once you’ve reached 20 percent equity in your home. The process of determining the equity in your home, will vary from lender to lender. If you haven’t proactively called your lender to cancel, the Homeowners Protection Act of 1998 requires lenders to automatically discontinue it when you’ve reached 22 percent equity.
Mortgage Insurance Premium (MIP)
Some conventional mortgages with mortgage insurance as well as FHA-insuredloans require a small amount of cash to close a loan. This is typically called a Mortgage Insurance Premium or MIP. All FHA borrowers must pay MIP to insure the lender against loss if the homeowner defaults on the mortgage. While there are ways to avoid PMI with conventional loans, there is no way to avoid MIP on FHA loans because the down payment is only 3.5 percent.
For loans originated as of October 4, 2010, if your FHA term is more than 15 years, your monthly mortgage insurance payments will be cancelled when the loan-to-value (LTV) reaches 78 percent. This is calculated based on the original value of your FHA home loan and only if you paid the annual MIP amounts for at least five years. If the term of your FHA loan is 15 years or less, with an LTV of 90 percent or greater, the monthly mortgage insurance payments will stop when the LTV reaches 78 percent. Mortgages with an LTV of 89.99 percent or less will not be charged annual mortgage insurance premiums.
For lenders, it’s true that insurance replaces the unknown with security. For home buyers and homeowners, the best strategy is to obtain a mortgage that meets your needs, your pocketbook and your financial goals.
*On April 18, 2011, FHA made a change to their MIP factors which impacted the 15-year loan. Now, there is MIP on loan to values (LTV) greater than 78 percent. (LTVs less than or equal to 78 percent do not require MIP). If you receive conflicting information from lenders you have spoken with, it may be because the mortgagee letter published by FHA didn’t clearly state that there would be no MIP for LTVs less than 78 percent. FHA subsequently stated in an email addressing it, but not in a formal mortgagee letter…yet. We are expecting a mortgagee letter being published about it some time in the future. However, not all lenders have followed suit with the 0 percent MIP on LTVs less than 78 percent.
*Effective June 3, 2013, FHA will require MIP to be paid for 11 years if your original LTV is 90% or lower and for the life of the loan if you are over 90%.
To close on a home loan, a title insurance company will need to research the deed to the property you are purchasing to confirm that there are no liens against it and the seller is able to deed the property into your name. The owners policy of title insurance is a one-time expense to the buyer / borrower to guarantee that the seller legally owns the property and that there are no outstanding legal or financial claims against it. The lender requires its own title insurance policy in the amount of the loan upon the purchase of the home and if/when the home is refinanced.
Insuring your home against disaster and liability is not optional. You are required to be insured against unexpected hazards (such as fire) and personal liability claims (injury to others while on your property). Prepayment of the first year’s homeowner’s insurance will be part of your closing costs, while your ongoing insurance premiums will become part of your monthly mortgage loan payment. The lender’s interest, like yours, is to protect their investment.
Mortgage Loan Closing Costs
Closing costs typically total between two and five percent of the purchase price of the home. These mostly one-time fees typically include the following:
• Title insurance
• Closing attorney fee
• Loan origination fee
• Discount points
• Recording fee
• Georgia Intangible Tax
• Transfer Tax (purchases only)
• Underwriting fee
• Credit report
Another important part of the mortgage loan closing is the prepayment of expenses involved in owning a home. These expenses include property taxes, homeowner’s insurance premiums, association / HOA dues (if applicable), and pro-rated interest. The lender collects these funds to ensure your taxes and insurance are paid on time.
The conditional approval lists the items that need to be provided in order to receive a final approval and the clear to close on a loan. Typically the underwriter may need to review such items as a corrected proof of insurance, corrections to title documents from the closing attorney, additional pay stubs, letter of explanation for a certain item in the loan file. Documents in the loan file typically need to be dated within thirty days of closing. Once you have submitted the necessary documents, we will send your loan file to our underwriters. After an underwriter reviews and accepts all documents and information, you are ready to close on your home loan. The loan is clear to close, the loan is scheduled with the closing attorney and the closing department. The closing instructions are then sent to the closing attorney, which allows the attorney to draw up the settlement statement. The settlement statement is then sent to the closing department for approval, after which time the closing department releases the closing package. These are the documents that the borrower signs at closing.
Mortgage Loan Closing
This is the final step in the mortgage loan process. A date and time convenient to you will be coordinated with the settlement agent (title company or attorney) and the sellers, if applicable, to close on your home mortgage loan. The closing will take place at the title company or attorney’s office. To close the loan, you will need to bring a valid, unexpired ID, certified funds totaling the down payment, closing costs and prepaid items, and then sign all the applicable documents.
The total amount of funds that you will need will be provided to you at least three business days prior to the closing in the form of a closing disclosure or (CD). The CD is a key part of the closing and details the different fees and charges associated with the mortgage loan. The final CD will be included in the closing documents. Once these documents are signed, you will receive a copy of each one.
When funds are collected and the contract has been verified and loan documents signed, the title is transferred and the purchase price funds are disbursed to the seller. After this step, you can take over the keys to your new home – congratulations!