Financial Services

Home Purchase Timeline

Feb 10, 2005 4:26 PM

Before You Start the Loan Process...

• Estimate maximum or minimum cash you can provide for the down payment and closing costs.
• Do some calculations such as how much you will be able to birrow and what price home you can afford. Vist the website www.freddiemac.com/calculators/ for help.
• Shop for real estate broker (if desired).
• Begin looking at homes.
• Shop for best interest rate and prices with different lenders and/or mortgage brokers.
• Shop for attorney (not required but highly recommended) to represent you as a buyer.
• Shop again for the best interest rate and pricing if these have changed since you began the process. Recalculate loan amount you can afford to borrow.

During the Loan Process...

• Decide on lender and ask for:
  • List of estimated and itemized closing costs.
  • Information on rate lock.
  • What documentation you’ll need to provide.
  • Information on turnaround time for all phases of the loan process.
  • Amounts of checks you’ll need to start loan process.
• Request loan application from the lender.
• Complete loan application.
• Compile all documents/information required by the lender - income, asset and credit verification.
• Submit loan application, required documents and checks for processing (credit report and other fees required by the lender to be paid up front).
• Receive Good Faith Estimate (GFE) and Truth-in-Lending (TIL) from lender or mortgage broker, if you’re using one. The GFE lists all estimated closing costs associated with your loan. The TIL displays full disclosure of the terms of the loan.
• Review GFE and TIL to make certain that the information on the documents is correct. Some lenders require you to sign and return the GFE; others do not. So make sure to ask the lender about anything on the documents that you either do not understand or disagree with - before you sign any documents!
• Lender will contact you via telephone or mail to inform you of their decision on your loan. If your lender asks for additional documentation or information before making its decision, don’t panic. This is common.
• If your loan is approved, you will receive a loan commitment letter that describes all the terms of the approval. If a mortgage broker is involved, he/she will receive the loan commitment from the lender and will contact you. Review the loan commitment and provide your attorney with a copy. Once again, be sure to review and understand the entire document before signing and returning it to the lender.
• The effective period for the loan commitment is stated on the commitment letter. While the commitment is active, you should consider whether to lock in the interest rate and, if so, for how long. A closing date or estimated closing date can determine when and for how long to lock in your interest rate.
• Consult with your attorney and/or mortgage broker to decide on:
  • Estimated closing date.
  • Title company (if applicable).
  • Hazard insurance company/homeowner’s insurance (if applicable).
  • Termite inspection and certification (if applicable).
  • Survey or plot plan (if applicable).
  • Water and sewer certification (if applicable).
  • Flood insurance (if applicable).
  • Certificate of occupancy or building code compliance letter (if applicable).
  • Other applicable documentation set forth in the commitment letter.

During the Closing Process...

• The actual closing will take place at a mutually agreed time and location. Generally, the closing is held at the office of the lender’s attorney. The parties at the closing will be you, the seller(s), the seller’s attorney, your attorney and the lender’s attorney/closing agent.

• The closing agent will have received closing instructions from the lender on how the loan is to be documented and how funds will be disbursed. The closing agent will also have collected all necessary information and documentation from you, the buyer(s), seller(s) and the lender. All necessary papers are signed and recorded.

• Bring a certified check for the closing costs, including the balance of the down payment. You will be told the exact amount a day or two prior to the closing from the lender or the closing agent. Remember, you are going to need the funds for closing to be available so if you are selling assets to raise the down payment, do it in plenty of time.

• Bring your checkbook. You may have to write checks for miscellaneous amounts, such as for the value of the fuel oil left in the house’s tank.

Attachment 1

Depending on the lender’s guidelines, the determination of whether a borrower qualifies for the loan amount and term is based on his/her ability to carry the housing expense of the financed property and total debt, as expressed in ratios.

• Housing Expense includes:
  • Mortgage Principal.
  • Mortgage Interest.
  • Property Tax.
  • Insurance - on the house.
  • Mortgage insurance premium (if applicable).
  • Common charges (for condominiums and cooperatives).
  • Other expenses tied with subject property, with the exception of utilities.
• Total Debt
  • Total of housing expense.
  • Credit cards.
  • Mortgage payments of homes already owned by borrower (if applicable).
  • Housing expenses of current homes owned, if not included in mortgage payments.
  • Auto loans.
  • Installment loans. (Typically, installments with less than 10 payments are excluded)
  • Child support/alimony payments.
  • Other recurring debts.

Remember: Conventional lenders usually allow a housing expense of 28 percent of the gross income, and a total debt of 36 percent of the gross income, which is how they arrive at the 28/36 ratio. FHA loans have qualifying ratios of 29/41. Depending on the maximum your lender allows, simply multiply your gross income by the qualifying percentages and this will determine the maximum housing expense and total debt which you are able to carry.

Income qualification for housing expense: Gross Income x Housing Expense percentage allowed.

Income qualification for total debt: Gross Income x Total Debt percentage allowed.