Home Loan Process
You may have a dream to own a home or property by a certain time in your life. However, as life would have it, you may find it difficult to afford the piece of property you desire. Your bank accounts may be screaming for help because of the pending bills to be paid and obligations to be met. Well, fret not. Mortgage financing can help!
Defining Mortgage Financing
A mortgage is a loan taken out to finance the purchase of a home or piece of land. Most banks give you a mortgage based on the value of the property you want to purchase. The same property is used as collateral for the mortgage, which means they can repossess the property if you do not pay the mortgage. There are different ways to pay back the mortgage loan.
When you apply for a mortgage, the mortgage lender draws up papers to show the amount you will receive, the terms that will be agreed upon, and the mortgage term. For the most part, mortgages go for as long as 30 years, but some can run longer depending on the agreement.
Factors To Consider When Getting A Mortgage VA Home Loan
Before you decide to get a mortgage, you need to consider several factors. For starters, consider the amount you can afford. As previously mentioned, you will need to make monthly payments on your mortgage. You need to consider how much income you expect every month. Then take out general expenses like food, utilities, fuel/transport, and general bills. Then take out an extra 10% of that for unexpected occurrences that may cost money. Use this figure as your guiding principle. This will play a big role in determining the kind of property you can purchase. Alternatively, you can bargain with your local mortgage lender to give you a longer mortgage period to allow you more time to pay the loan so you can still get your dream property.
Secondly, You need to consider the amount you can put down as a deposit. Most mortgage brokers will push for a high deposit amount. This is a major factor to determine if you are worthy of their loans. You see, when you get a mortgage, you are required to make a deposit. This is part of the amount that goes into the purchase of the property. The deposit amount does matter!
The larger your deposit, the lower your mortgage interest rates, generally. This also plays a role in determining your loan to value or LTV. LTV defines the level to which you own the property against the loan taken. For instance, if you are purchasing a property worth $500,000 and you put down a deposit of $50,000, then the Loan to Value is the remaining $450,000. This gives you a 10% outright ownership of the property. This helps when you want to get a home refinance loan from the same or different mortgage lender as it will help build your equity faster.
Finally, consider your source of income. This goes into helping you determine how long you can keep paying for your mortgage. If you are a paid employee, consider how long you will be working. Factors like retirement, job loss, and even resignations come into play. If, for instance, you get a twenty-five-year mortgage yet you have twenty years before retirement, then you need to figure out a way to pay out the remaining five years before retirement or a retirement plan that earns you as much as when you were still working. If you are in a field where job loss is common, you may need to consider an alternative source of income as your main source of financing the mortgage.
How the Home Loan Process Works
Let’s break this down for you.
When you get a mortgage, the money your lender loans you is termed ‘the capital.’ This is what you need to repay in the specified time. However, you do not pay back the exact amount. That would not be smart business for a lender now, would it? You will be charged a mortgage interest rate on the capital, which you have to pay every month, on top of the percentage of the capital. This, however, may vary depending on the type of mortgage you get.
Mortgage Loan Options
There are three main types of mortgages that your mortgage broker is likely to recommend:
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How To Get A Mortgage: Step By Step Process
The home mortgage loan process can seem daunting, but it solely depends on your perspective and the type of local mortgage lenders or mortgage brokers you choose. Generally, the process follows these steps:
1. Check your credit-worthiness
Before any lender loans you money, they check your credit score. Do you have a history of unpaid loans? Do you pay your bills on time? To get a loan, get ahead of this and ensure that your credit score is favorable to avoid disappointment once you start the process. Ensure that you have a credit score above 620 with a clean borrowing record. Also, it is necessary to ensure that you have valid employment or a source of income.
2. The paperwork
The process begins with filling out an application. The application will require you to give such personal details as your name, phone number, and address. You also need to state your monthly or annual income, along with your employment details, if any. This helps to show how much you are able to pay back per month or year. You may also be required to state your educational information. Then come the details about the property or home you want to purchase. These include its location, the estimated cost of the property and current means of paying for the property.
All this information needs to be backed up by hard proof. For your identity, you will need to attach a copy of your passport or driving license. You will need to attach proof of income like a salary slip or bank statement for your income and employment details. For your address, you will need to attach a billing slip that shows your name and address. Finally, you will need to attach any document that shows the property in question.
Once you fill out the application, it has to be processed by the bank or lender. This normally is accompanied by a fee that the mortgage lender stipulates. The fee ranges between 0.25% and 0.50% of the total amount required to purchase your home. Please note that this does not go into your deposit.
4. The patience stage
Once you are through with your application and have submitted it along with the required documentation, you will then have to wait until the bank or mortgage lender evaluates and approves your application. In some cases, the lender will ask to have a one-on-one meeting with you. They then commence the authentication of the documents you have submitted to prove their validity. All these are done to ensure that you can indeed pay for the loan.
Before approval, the lender will look into your qualifications, experience, and age. They will then look at the transactions made from the given bank account as well as monthly and yearly income. This is in line with your employment or business details.
5. Loan approval
Once you are evaluated and found trustworthy, the mortgage lender then approves your application. You will receive an offer letter carrying details such as the amount of loan to be given, the mortgage interest rates, and the type of interest rate and whether it is fixed or variable. It will also bear details of the mortgage tenure, mode of repayments, and other terms and conditions that the lender may state.
6. Legal processing
After you are done with signing the offer letter, the lender will now take up the process of looking over the property you want to purchase. You are, therefore, required to submit all documents on the property. The lender will keep these documents as collateral against your mortgage loan. The lender then runs a legal check on the property in collaboration with their lawyer.
This is to ensure that everything is validated. They will run a property evaluation check to ensure that the property is of the value you deem. For this, the lender sends a property expert to check on the property physically.The legal side will check for any evidence that could show that the property has been sold to a different buyer or if it is still up for sale, a background check on the owners.
7. The Loan deal
Once the lawyers and property experts give the go-ahead, then the deal is registered. The lawyers draw up the paperwork and you will be asked to go over and sign the final loan agreement. Most lenders will require you to submit post-dated checks for the first few months’ payments. You will then be required to hand over the original property paperwork to the bank or lender to hold as collateral. You will be required to sign papers stating that you have handed over the property documents to the bank, just as a security measure.
8. Disbursal of the loan
Finally, with the paperwork done, the loan amount is then disbursed to you by the lender. This is done in the form of a check. It is important to state that this process may take six days to thirty days, depending on the details.
Great Home Loan Process Benefits
There are several benefits of getting a home loan for your home purchase. Top on this list is that you do not have to come up with the full amount to own a property. You can enjoy your property long before you pay for it fully. Another benefit is that once you gain a bit of equity, you can use a home refinance loan for anything.
If you are in Holly Springs, NC or anywhere near the Triangle and considering buying a home, call Lighthouse Lending – Austin Herbert at 919.523.2505 now. Austin and his team will make sure you have the best experience throughout the entire home loan process.