I am sitting here on Martin Luther King, Jr.'s Birthday and wondering - "What do 1st time homebuyers need to Know about the Mortgage Loan Process?"
So here you go - My 15 Step List in Chronological Order to Home Ownership:
GET PRE-APPROVED. Not just prequalified. Pre-Approved means that the Loan Officer has pulled your Credit, taken a complete apllication, received your Income Documents and Down Payment verification, has had you sign the Disclosures for your loan, and the Underwriter has Approved all of it in order to give you a Pre-Approval so that only having the House approved by Satisfactory Appraisal, Marketable Title, Inspections per the Contarct completed, and obtaining your HomeOwner's Insurance are the only Condidtions left before you receive the Clear To Close.
Choose Loan Options - An experienced Loan Officer will give you a Comparison of Loan Options at this point. These options will include documenting how much $ You will bring to Closing if You or the Seller pay for Closing Costs and Pre-Paids, Options with and without Mortgage Insurance, Options to have and Adjustable Rate Mortgage or a Fixed rate Mortgage, and so on. With your Loan Officer's help, you choose the Option that best suits your family's needs.
Pre-Approval Letter - This letter is what Loan Officers give to the Realtor of your choice to explain what you have been Approved for (which Option you chose). It includes what the loan program allows - Such as: the type of home (Single Family Home, Duplex, Triplex, Quadraplex, Log Cabin, Mobile Home, ect.), the Maximum Sales Price, how much the Seller is allowed to pay toward Closing Costs and Pre-paids, and any special house requirements for that loan program (some programs require thicker insulation, maximum acres attached to the home, minimum # of bedrooms, ect.) so that the Realtor can help you write the best possible Offer to Purchase in your favor within the limits of your mortgage program.
Do Not Change Anything about Your Credit - I know what you are thinking - "I'm pre-approved so I can do anything I want now!"Actually, No you can't. What if it takes you more than a month to find your home and then another month to Close? Some mortgage programs will allow the Credit Report to be used for only 30 - 60 days. If you have bought a new car, added any new credit, or even ran up your Credit card balances - you could self-destruct your Pre-Approval when they pull your Credit report again
Do Not Change Anything about Your Finances- Do not change jobs, move down payment money around in your bank accounts, or Close Bank, 401k, or Retirement Accounts that we are using as Reserves - changing these things could make the process longer or even kill the loan.
Look for your Home - This is the fun part!! Tell your Realtor exactly that type of home and features you are looking for in your new home and hop into their Realtor-mobile with listings that fit your description of your 1st Home.
Writing the Offer - When you find the home you want - Follow you Realtor's advice when writing the offer - Your Realtor is the EXPERT AT THIS!! With your Pre-Approval letter in hand, your Realtor will write the best Offer to Purchase in your favor - being sure to include everything that the Seller can pay for within the limits of your Mortgage program (see #3). You will probably receive and write counteroffers back and forth between you and the Seller before you both agree and Execute the Contract. Don't be disappointed that the Seller did not accept your first offer - this is the way both sides come to an agreement of Contract.
Accepted Contract of Sale - Once you have an Accepted Contract of Sale signed by all parties, your Realtor will send a copy to the Loan Officer so that He or She can review and order the Appraisal - since the Appraiser needs the Contact of Sale to complete the Report. Usually the Realtor will order the Inspection Letters per the Contract of Sale(Home Inspection, Pest Inspections, Heat and Air Inspections, ect) Review steps #4 and #5.
Appraisal Received -Once the Appraisal is received - the Loan Officer reveiws it for a number of key factors - but none as important as the Appraised value of the Home. If the Appraised value is the same or higher than the Contract Sales price then we continue to step #10. If the Appraised Value is lower than the Contract Sales Price - then you go back to step #7 and renegotiate the Sales price on the Contact down to the Appraised Value (which may result in the Seller no longer being able to pay Closing Costs and Pre-paids). If the renegotiation results in the Contract Sales Price being equal to or less than the Appraised Value then we proceed to step #10. Review steps #4 and #5
Title Report is ordered - In South Carolina this is ordered from the Real Estate Attorney you chose when you signed your Disclosures in step #1. The reason we wait until now to order Title is - if anything on step 9 fell thru and we ordered the Title at the same time as the Appraisal - you could owe fees to an Attorney and not be able to Close the Loan. This Title report, first of all, verifies if the Seller is the only legal owner of the property by going back 50 -60 years in courthouse records to document when the property transferred ownership and if it was done properly. 2nd, the Title report will verify the property lines recorded at the courthouse and will let us know if we need a new survey or if the survey of record will suffice.
Conditions Obtained - At this point, your Loan Officer or his Processor will receive a list of remaining requirements the Underwriter has sent after he has reviewed all the information from the previous steps. Most of the time, the Processor can obtain what is needed on her own; however, some of these Conditions(or Requirements) may require you to supply more documentation to the Loan Officer. Please obtain this documentation as soon as possible to ensure that your loan Closes on time! Review steps #4 
Final Conditions Sent to Underwriter - Your Loan Officer and Processor will send all of the remaining Conditions at one time to the Underwriter so that we will receive a Clear to Close on your file.
Clear to Close means that the file is leaving the Underwriter's desk and going to the Closing Department. Here the file is reviewed for accuracy, verifications are made that you- 1) still work at the same job - 2)Still have the same amount of money in the bank - 3) your credit has not changed if the first Credit Report has expired - (See steps #4 & #5) and the package is prepared for email or overnight to the Attorney's office for the Closing Date.
Package Received at Attorney's Office and the HUD is prepared - which is the Settlement Statement of your Loan documenting who is paying the Closing Costs, Pre-paids, Inspection fees, Realtor Commisions, and last-but-not-least how much Money you are bringing to the Closing Table. The HUD is sent to you and the Seller to prepare you for the Closing Date and your Loan Officer and Realtor check it for accuracy. This is the point in time where I call my Client (Homebuyer) and I go over everything there is to know about the loan -Rate, Term, loan amount, Money to bring to closing, mortgage insurance (if applicable), pre-payment penalty (if applicable), how much the Seller is paying towardthe Closing Costs, ect. Now, Mr. & Mrs. Homebuyer, you are reminded of everything you had agreed to weeks before - so there is no confusion at the Closing allowing you to sign the paperwork Stress Free!
Closing Day is Finally Here!! That's right - the day is finally here! You have set up the time for the moving truck and you brought anything your Loan Officer or Realtor told you to bring -Especially the Down payment and any Closing Costs you agreed to on the Contract of Sale. You get to the Closing table - everyone is happy and you sign the paperwork. The Realtor hands you the keys to your new home and you are Officially a HOMEOWNER!!
Brian, yet another practical and helpful resource to provide to 1st Time Buyers. Georgle Souto just recently finished his series and I have a 10 part series for 1st Time Buyers. An excellent addition to our 1st Time Buyers Group. Thanks!
Brain, I want to thank you and Rich for mentioning my series of Posts on here. This Post is very good and even though is a condenses what I covered in my series, also gives provides more detail in some areas that I covered but did not mentions some of the points that you make on here. Between my series and this Post, 1st time Homebuyers should be well prepared for what they will face.
Thanks for stopping by my post and making me aware of this one. Rich does a great job in the material that he covers, so I am looking forward to the 10 part series that he mentioned in his comments.
George - You are welcome and Thank you for stopping by. I remember back when I bought my first home and how I wished I knew what was going on. That's one of the reasons why I became a Loan Officer. I'm sure your clients appreciate how you educate them before the process begins.
This is a very useful comprehesive list of To Dos. Thanks for taking the time to present this. Wonderful information, and a good review for Realtors as well.
Kenneth - Thank you for stopping by. I like keeping my clients and Realtors well informed. My new Perfect Loan Process allows me to keep both Realtors, the Buyer, and Seller informed each week so that everything runs smoothly.
That list is pretty nice, but for a new agent you would not have a list that states drop dead dates or a checklist would you? Such as 5 days after contract is signed buyer needs to show proof of qualifying for a loan, within 10 days lead paint test, etc.... Thanks.
Carl -that's a great question. Before I send a client out with a Realtor to look for a house, they already have a Pre-Approved letter in step #3 which takes care of having to prove they are qualified ahead of time and it shows how much the Seller is allowed to pay for Closing Costs and Pre-Paids. In step #8 I have included that the Realtor orders Inspection Letters per the Contract. Since I only take care of the finance potion of the Real Estate Transaction - I do not know what checklists or timelines that a Realtor must follow - I just make sure that the Contract is fulfilled and if a certain timeline is in the Contract -I make sure we meeet those dates. I'm sorry I wasn't more help.
Maybe one of our South Carolina Realtors here on Active Rain can answer that better for you. Welcome to Active Rain - a wealth of knowledge awaits you.
Thank you very much; I just thought that I would ask. I know last friday we had our newcomers meeting with the BIC and she was going over specific dates that needed to be hit. Another Realtor suggested it and I thought heck that would be a great idea and make things easier (especially for those of us just starting out.) In the military we use Inspections / Checklist all the time and they insure that something is not missed. I am sure there is a high speed Realtor out there that has one.
Great informational post for 1st timers. In my opinion this is a great tool to provide to your clients when you are just starting the process. I have a very similar "do's and don'ts list that I provide to my clients. Most don't realize just how easy they can self-destruct during the homebuying process.
Carl -you are welcome. I work for First Covenant Mortgage in Sunny(today anyway) Lexington SC. Ask any mortgage question you need - if I don't know the answer, I'll find it for you. ERA Wilder is a great company. Is there a certain part of Columbia you are specializing in?
Ron - Thank you - you are exactly right. Sometimes First Time Homebuyers are just so exited about their first house that it goes by in a blurr - I know my first time did and i don't remeber most of it.
This is a really good list. We always try to keep our borrowers up-to-date and on task. One of the most frustrating things is finding out that the borrowers score has dropped! It's like they think now that they've been pre-approved everything is smooth sailing. How wrong is that idea. Some borrowers really just don't understand the process buying a home can be. That's why we really try to keep our clients informed of all the stuff that can happen from beginning to end.
Tonisha - I cound not agree with you more. It is very frustrating when you have a subprime file ready to close and their scores have dropped b/c they've been shopping for furniture and a car. Thanks for sharing your thoughts.
This a a great checklist for the first time homebuyer. I like the reminder about not going out to buy stuff once you have been pre-approved. I have heard of people who get approved then go out and purchase a car which resulted in lowering the amount of motgage money they could get.
Thank you Jennifer - yes, unfortunatley when you have a Non-Prime borrower the UW will always pull credit again right before the Clear to Close to ensure nothing has changed for the worse.
As usual great post Brian, I have been doing this for a long time, but am going to print this one off and keep it handy just as a reminder and something to help other L.O.'s just coming into the business. Thank you!
This is an excellent post! Great for 1st time homebuyers and NEW AGENTS, like myself. I am preparing a buyer packet for clients and this will make a great addition for information. Thanks!
I do have to say that it was a GOOD thing that the process took longer than expected to find a home for my client. I had to repull her credit and BOOM didn't qualify anymore because she added new debt. So I call her up and ask her "so what is this new installment loan I see on your credit report, what did you buy?" she was dumbfounded by it and it turned out that she was the victim of identiy theft! So I'm glad that it happened and I was able to save her from a lot of problems down the road.
Thank you so much for your post. I've been working with first-time homebuyers recently and this will be a great tool for them. Keep up the great posts!
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I am sitting here on Martin Luther King, Jr.'s Birthday and wondering - "What do 1st time homebuyers need to Know about the Mortgage Loan Process?"
Brian, yet another practical and helpful resource to provide to 1st Time Buyers. Georgle Souto just recently finished his series and I have a 10 part series for 1st Time Buyers. An excellent addition to our 1st Time Buyers Group. Thanks!