Buying a home may be the most exciting, confusing and stressful financial transaction you ever undertake. Even if you have done it several times you can still find the process complicated and intimidating, particularly when it comes to getting a mortgage loan. Countless loan documents, unfamiliar terminology and uncertainty serve to temper the joy of buying a new home. As soon as the sales contract is signed, obtaining the financing for the purchase becomes paramount for all but a very few buyers. If you understand the steps required to qualify for a mortgage loan, howwever, much of the stress can be avoided. The following explanation of the loan application process is intended to help you through the complexities of obtaining a mortgage loan.
The Loan Application Interview
Once you have selected a lender, the next step will probably be a meeting with a loan officer or other lender representative, whose job is to begin the collection of information the lender needs to approve the loan. They will explain the types of mortgage e loans available to you, the interest rates and fees for each type and the qualification requirements. During the meeting, the loan officer will fill out, or assist you in filling out, the loan application form.
By this time you should have a good idea of the general interest rates and fees being charged in the area. The total cost of a mortgage loan consists of the interest rate on the loan, origination fees, discount points, and miscellaneous other charges. One point is equal to one percent of the amount of the loan and is usually collected at the loan closing, or settlement. The interest rate affects the amount of the monthly payment, while points affect the amount of cash you must have at closing.
Most lenders will offer a range of interest rate/point combinations to meet the borrower needs. In general, the higher the interest rate, the lower the points. For example, if the current market provides for an 8.5 percent interest rate with 2 points, a nine percent rate may be offered at no points. If you are a first-time home buyer, the larger monthly payments on the 9 percent loan may be easier to handle than the 2 points that will require additional cash at settlement. If you are a corporate transferee, however, your company's relocation policy may pay all or part of origination costs and the lower rate will have more appeal. The loan officer is prepared to explain all of your options to you.
When discussing the terms of the loan, make sure you understand how and when the rate and fees on the loan are going to be set. Most lenders will quote a rate and fee at the time the application is taken and then will guarantee, or "lock" the rate quote for a specified length of time. A rate lock protects you from rising interest rates while the loan is being processed, but it also typically commits you to close the loan at the rate and the fee even if rates decline prior to closing. Lock periods may run from 10 to 60 days, with longer periods available in some cases at an additional fee. The lock period must be long enough to get you through the estimated closing date. A 30-day lock affords you no protection if closing is at least 60 days away.
