12-Step Home Mortgage Process

The Home Lending Plan in 12 Quick Steps
summarizes in quick bullets the home lending process.

 

Our 12-Step Review:

You should review your credit report for any errors before submitting your mortgage application.

Your credit report is used by banks and other lending institutions to determine your creditworthiness. The report can be a factor in a lending institution's decision to approve or decline your mortgage application.


 

Your home purchase price should be in the income range that you can afford

You need to analyze how much house you can afford before blindly submitting an application with too high of a mortgage amount.


  • Use our "how much you can afford" calculator
     for a quick estimate on how much home you can afford.

    Note: applicants living in markets where home prices are high will consider minimum-payment mortgage plans that place your loan qualification within an income affordability range.

    (links open new window to our mortgage unit at www.PickMyMortgage.com)

 

Additional monthly costs such as real estate taxes, hazardous insurance, and other home ownership related fees

can add to your total monthly payment and reduce the amount of home your can afford.

Many times buyers ignore these costs when figuring how much of a home they can afford.


 

 

Your capacity to repay your mortgage loan is a key factor for lender approval

These ratios determine the level of debt you can consume based on the amount of income you have.


 

How much of a down payment do you have?

Most lenders require at least 5% of the home purchase price plus Private Mortgage Insurance (unless you qualify for government sponsored programs).

But to avoid Private Mortgage Insurance (PMI), which can add to your total monthly cost, you will need at least 20% down.

Your down payment can be in the form of cash or the resale equity value of a prior home.


 

So how much up-front cash will you need:

  • cash for a down payment:
    you need at least 20% of the home purchase price to avoid PMI or other fees

  • cash for closing costs:
    you should estimate about 3-7% of the home purchase price


    Note: having enough money for a down payment and closing costs prevents many first-time home buyers from entering the market. There are 100%+ LTV mortgages that allow buyers to get into homes without the necessary cash on hand. Link to our Mortgage Loan Center for information on zero-down mortgages

    (links open new window to our mortgage unit at www.PickMyMortgage.com)

 

Now let's add up the numbers.

This will help figure out what parameters you need to change to fit within your budget and income ratios.


Calculation Notes:

the amount of available cash / equity is the cash you have on hand for your down payment and closing costs.

Equity refers to the resale equity value of your existing home if any, that will be available to you once you sell your home.

  • Closing costs is calculated as percentage of the estimated purchase price of the home — this percentage can range between 3-7% depending on your location and number of points.

  • The American Housing Survey shows that the median taxes paid averaged $10 per $1,000 in home value. The property insurance paid averaged $30 per month.

  • You can lookup your property tax assessments by community: www.statelocalgov.net
  • Any percentage LTV that is greater than 80% may require private mortgage insurance, which can add to the total cost of your loan

    — if your LTV% (calculated below) is greater than 80%, enter 0.005 in the PMI field and recalculate

    you can find information about PMI
 
Estimated Purchase Price of the Home: Enter the Cost per $1000 for Property Tax:
Amount of Available Cash / Equity: Enter the Monthly Cost for Insurance:
Allocated Percentage for Closing Costs: Enter 0.005 if the borrowing percentage is greater than 80%: (i.e., your down payment is less than 20%)
Enter your mortgage loan rate (APR): %
Enter the number of months to repay:  
Amount Allocated for Closing Cost: $
Amount Available for the Down Payment: $
Mortgage Loan Amount to Borrow: $
Borrowing Percent of LTV%: %

 
Monthly Mortgage Payment: $  
Monthly Taxes:
Monthly Homeowners Insurance:
Monthly PMI:
Your Total Estimated Monthly Payment: $

 

Having your loan pre-qualified will strengthen your negotiating position with the seller


  • Ask at least one lender to pre-qualify you for a mortgage.

    There is no obligation on you to obtain a loan from that lender, nor does it obligate the lender to provide a mortgage loan.

    The lender will analyze your credit position, current income, and outstanding debts to give you a reasonable estimate of your borrowing amount.

    You may begin your pre-qualification search through our national network of lenders and brokers: click for the mortgage application


    Note: before you begin your lender search, have on hand the mortgage comparison sheet to keep track of your loan quotes: open and print the mortgage comparison sheet

 

We have a number of important notes that will summarize the mortgage lending business:

(all links open new window to our mortgage unit at www.PickMyMortgage.com)

mortgage 101:
review how mortgage loans work and the players in the mortgage lending business

understanding escrow:
review the total cost of a mortgage loan and calculate escrow payments

getting qualified:
discusses the parameters lenders use to qualify an applicant for a mortgage

mortgage management:
discusses how to manage your mortgage loan with tips on prepaying your mortgage early

 

Determine which mortgage loan fits your financial objectives:

There are fixed rate loans, adjustable loans, special financing loans, and a number of mortgage loan variations. We have notes on each one of them.

Empower yourself with knowledge to see which one will work for you:

(all links open new window to our mortgage unit at www.PickMyMortgage.com)

fixed-rate loans:
fixed 30-Yr and 15-Yr loans

adjustable rate loans:
adjustable rate mortgages and notes on the components

hybrids / combo loans:
combination of fixed rate and adjustable rates

 

interest-only loans:
pay only interest on your mortgage loan to afford a higher-priced home

minimum-payment loans:
where the initial payments are low to help you build equity value

zero/low down payment loans (100+ plans):
mortgage loans for homebuyers with limited down payment - closing costs

 

balloons and other special loans:
balloon mortgages, pledge-asset mortgages, RIMs, others

jumbo mortgage loans:
non-conventional jumbo loans for expensive homes

home construction loans:
special financing for home construction

 

government loans:
FHA, VA, and RHS loans

less than good credit loans:
notes for home buyers with less-than-good-credit

reversible mortgage loans:
mortgage equity loans for retired home owners

 

Watch Your Rates
They change daily. If rates decline, you might be able to afford your home purchase:

 


The quoted rate you see may not be the actual rate you receive.

Your actual mortgage rate will be determined by your overall credit score, your credit ratios, your location, and your negotiation skills to shop best rate.

Search rates and view negotiating steps for best rate and term: how best to negotiate mortgage rates

 

You are now ready to submit your mortgage application

With the confidence to negotiate best product and terms. Three important notes:


 

Once your submit your application,

compare the offers and terms from multiple lenders. You should have at least 3-4 offers.


  • Select 2-3 lenders of your choice and begin negotiating best rate, terms, points, and closing costs. Consider the various mortgage loan products to design a mortgage plan that works for you.

  • Depending on your credit strength, you can negotiate a reduction in rate or points, closing costs, terms, penalty clauses, etc. If you have a strong credit rating, lenders will work hard to keep your business.

 

We have information about negotiating tactics:
click for information

After you select and sign the lending agreement with your lender of choice, your lender (or closing agent) will arrange closing where the title ownership of the home transfers to you.

 

We have information about closing and settlement:

click here for closing and settlement

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