When you are in the market shopping for a mortgage loan it is normal to get overwhelmed with the information that you might get bombarded with especially if you are a first time buyer.
The best way to start with is to talk to your friends and see if they can refer you to a good broker. You can do your analysis by reading the reviews of a broker on the net. Personally I give a higher weight to the references I receive from my friends. Getting a good broker to help you with the mortgage loan process completes the first step! The rest will be taken care of by the broker. So that is not complex you might say! Well we just got started! But you would be happy to know that the whole process of getting a mortgage is simpler than you think it to be.
When you talk to the broker, he or she would make you sign up a few forms. at this initial stage the broker simply needs to know how much money you need, what are the income sources you would use to repay the mortgage loan and what has been your credit rating. The forms you sign at this stage provide your personal profile and authorization to the broker to check your credit history and to present your case to the bank.
The broker approaches several banks to find out the lowest possible interest rate you can get. The broker has an option to lock a rate for you in case you think the rates may go up soon before you close. Since the rates are different for different mortgage loan types you would need to decide first if you need a 30 years fixed rate mortgage or a 15 or 20 years one. You can also opt for an adjustable rate mortgage, commonly called as ARM that has interest rates normally lower than the fixed year mortgage loans. You should know the advantages an disadvantages between choosing a fixed year mortgage and an ARM.
You should ask your broker to keep your options open so that you can choose a different mortgage loan type if you happen to change your mind before the mortgage loan is closed.
Once the bank is okay with the amount of mortgage loan you are seeking and knows your net worth and your credit history, it would send someone for your home appraisal. The home appraisal provides the estimate your home is worth currently. The bank would normally approve a mortgage loan that is maximum about 80% of appraised home value.
If you currently owe more than the bank is ready to provide the mortgage for, in case you are looking to refinance, you would be asked to make a down payment so that you have at least a 20% equity built in your home.
If you cannot provide the 20% equity, the bank may not finance your mortgage loan. It may be very difficult these days, but before the collapse of the economy, some banks would give you a 10% extra mortgage loan on a variable rate. This second mortgage loan is called the home equity line of credit. The bank may require you to buy a property mortgage insurance if your equity in the home is less than 20%.
Once the mortgage loan is approved, the banker fixes up an appointment with you to do the closing. If you had agreed to pay some points or make some down payment, you might be asked to bring that amount at the time of closing.
The closing procedure involves signing a lot of papers. You might want to take your attorney with you if you are not comfortable signing up all the papers without understanding them. More or less the documents are all standard formats. Do not be surprised if the whole closing process takes a few hours! All the parties taking the mortgage loan need to be present at the closing to sign all the documents. Since the process can be time consuming requiring a lot of your attention, it is a good idea not to take kids along with you for the closing if possible.
Once the closing is done, the bank pays the builder directly or pays off the remaining agreed upon portion of an existing mortgage loan if you are refinancing, on your behalf.
After the closing is done you need to start making monthly mortgage payments. Defaulting on mortgage installments can severely affect your credit history making it difficult to refinance later.
