The Five Things You Need to Know Before Purchasing a Home – Step 5 – Get a home loan
The purpose of this guide is to introduce you to the process of purchasing a new home. It simplifies the process by breaking it up into five steps:
1. Figure out exactly what you want
2. Get pre-approved for a loan
3. Should I hire a real estate agent?
4. Find the right home
5. Get a home loan
By the end of this guide, you will have a deeper understanding of the home buying process.
5. GET A HOME LOAN
Once you are pre-approved for a home loan, you can start looking for a new home. Once you have found a home and made an offer to buy it, you would then go back to your lender with the signed purchase agreement to start the loan process.
The loan process consists of four steps:
A. Origination and Processing
B. Underwriting
C. Satisfying Additional Conditions
D. Closing
A. Origination and Processing
The loan process starts after you have found a home and made an offer to buy it. You would then go back to your lender with the signed purchase agreement, which is a document that shows your lender how much you are offering for the home, and formally apply for the loan. At this stage your loan officer “originates” your loan by combining your application with the other documents you submitted during pre-approval. All you need to do during this step is to stay in touch with your loan officer and provide any additional documents he may request.
B. Underwriting
At this stage your lender passes your application file along to an underwriter. The underwriter determines if you represent an acceptable level of risk for the lender.
Every lender has a set of parameters that limit the amount of risk they are willing to accept. The underwriter will look at your credit score, your income level, your debts, and your down payment and determine if you fall within these parameters. During this stage, you may be asked to provide additional documents. For example, if you have transferred money out of your savings account recently, the underwriter may ask you to justify it in writing. The underwriter may also establish other conditions for loan approval, which we discuss next.
C. Satisfying Additional Conditions
At this stage, a computer program known as an Automated Underwriting System will analyze your loan application and generate a list of conditions you must meet in order for the loan to be approved. Some common conditions for approval include:
• Additional documents to prove your income
• Lowering your debt-to-income ratio by paying off debts
• Proof of your homeownerʼs insurance
• Cash reserves in the bank to cover your first few payments
These requirements may vary from one lender to another. You will receive them in writing after the initial underwriting process. The underwriter will also have the home appraised to make sure it is worth the amount you are offering to pay for it. An appraisal provides written proof of the home's actual value, which the lender uses to determine the amount you can borrow.
D. Closing
This is the final step in the loan process. At this stage, all of the funds are distributed and all of the paperwork is finalized and signed. The seller receives any proceeds earned from the sale, and the buyer covers the closing costs with a cashierʼs check. The deed is transferred from the seller to the buyer. Everything is managed by a title company.
