As a mortgage processor, I have seen a lot of people apply for a mortgage to purchase a home and say “Now what?” This article will go into some detail about the process of a typical first time home-buyer mortgage in the state of Texas. First of all, let’s start with the application:
Nothing will help your lender more than filling out the preliminary application as completely as possible. Disclose everything! Mortgage processors need to know upfront whether you’ve ever filed bankruptcy, been divorced, receive/pay alimony, are currently involved in a lawsuit, planning on getting married, etc. Major life changes that you are going through may affect your pre-qualification, so it’s best to notify them upfront.
Now that your application is filled out and signed, the lender can pull your credit in order to pre-qualify you for a home. The pre-qualification will give you an idea of how much money you have available to make a house payment with. The lender will figure your “debt-to-income ratio”.
Here is how it’s figured: all of the monthly payments that show on your credit report are added up. This total amount is divided by how much your gross monthly income is. If your debt-to-income ratio is higher than 50% then a red flag is brought up. This means that you use 50% of your income to pay monthly debt. If you can add a monthly house payment to your current debt and still be under 50%, then you have a good chance of pre-qualifying for a home. (If your debt to income is higher than 50%, don’t panic. Some lenders can still work with you. This depends on individual cases.)
Once the lender has pre-qualified you for a sales price, he will be able to give you a Good Faith Estimate. These GFE’s will give an estimate of how much your closing costs, down payment, and monthly mortgage payment will be. Some lenders tend to OVERestimate their fees so that you are not sorely surprised with hidden fees in the end. Make sure to READ THE FINE PRINT BEFORE SIGNING the Good Faith Estimate. Signing this document means that you agree to the initial charges disclosed to you.
From here, the lender will give you a pre-qualification letter, if you qualify. This will state how much you are pre-qualified for and what conditions apply. This letter may be presented in order to start a purchase contract. The seller will sometimes require that you prove you have the pre-qualification before ever signing the contract. You can get the process started if you are still trying to work out the contract.
Most mortgage brokers will require the following documentation for your credit file:
- Three months of your most recent bank statements
- One month of consecutive paycheck stubs
- The last two years of W2’s (Make sure ALL are included)
- Copy of your Driver’s License and Social Security Card
- Two years history of rental information (landlord names and phone numbers)
*Note: your lender will more than likely require updated information, so don’t bother with the bank statement from four months ago.
Once the contract is received, the title commitment will be ordered. This comes from a title company assigned by the seller. This is done to be sure that the title on the home is clear of any liens, freeing you of the responsibility of paying them.
Appraisal is another item that will be ordered first. This is done to make sure that the home you want is worth the money you’re paying. The appraiser normally takes from one to two weeks to complete the appraisal and all research required, hence why this is one of the first steps. Sometimes the appraisal will require something hazardous or non-compliant be fixed on the property. In this case, a final inspection will have to be done before the deal closes to ensure that the repair has been made prior to closing. (i.e.: broken support beam, no air conditioning, mold, etc.)
While the appraisal is being done, the processor can work on items such as initial disclosure packets to be signed by you, or verifications of your employment and rental history. That is why they ask for a prompt return on the above listed documentation.
After the appraisal has been received, your file will be submitted to Underwriting. Lenders will vary. Some underwriters are actual people going over documents and credit to make sure that everything is included in your file and that you will indeed pay for the mortgage if they were to give it to you. Most national companies will use “underwriters” that enter the data from your file into a computer and the computer will say whether or not your file can receive final approval. Either of these methods are typical. Underwriting can take anywhere from 48 hours to two weeks depending on the company you use.
When the underwriting decision is made, a property survey will be ordered. A survey is an aerial sketch of the property that outlines the fence lines, any structures on the property, and any easements (driveways) onto the property. If a prior survey is provided by your seller and there have been no changes to the property lines, then you’ve just saved a minimum of $350.
In the state of Texas, FHA will require a termite inspection to be completed before your file can close. Take note of this when purchasing a home in Texas. If there are any previous or active infestations without treatment, then the property must be treated prior to closing.
After the survey is completed, termite inspection cleared, and final inspection conducted (if required), then your file is ready to close. Your lender, or realtor if you have one, will set up a time with you and the assigned title company to meet for the closing. Closings are conducted at the title company, and you will more than likely have to make your final cost cashier’s check out the the title company so they can disperse funds accordingly.
Mortgage companies all over the nation will vary, but in my experience as a mortgage processor in the state of Texas, this is a typical mortgage process.
If you have a question, please feel free to leave a comment and I will do my best to answer it for you. It would also help to refer to your local mortgage banker or realtor.