Guide to Residential Mortgages
The purchase of a home is probably the biggest purchase you will ever make. The advantages of home ownership include: investment, another way to save, and tax benefits. Although there are costs with a home purchase such as closing costs and possibly the purchase of major appliances, you may be able to purchase a home with no down payment. Before you start looking for a home, it is a good idea to see what types of loans you qualify for and what might be the best option for you. At this point you will want to talk to your lender and provide them with the following information:
Your lender will use this information along with checking your credit in order to pre-approve you. Knowing the affordable price range for your new home will make your search more stress free. The approval will still be based on an appraisal of the property. Your lender can provide you with a pre-approval letter to give your Realtor to submit with the offer to purchase.
Now you have the groundwork in place to search with confidence for your new home. Your Realtor will be able to focus on the homes in your price range. With the pre-approval letter in hand, the seller knows you are a serious buyer and you are qualified to purchase their home.
Your Realtor will guide you through the offer writing process which often includes not only the initial offer, but counter-offers until everyone agrees on the terms of the contract.
Once you have an accepted offer, you should contact you lender. The lender will then be able to fill in the property specific information on the application. You may need to provide your lender with up to date paperwork depending on the time frame between pre-approval and the offer being accepted. When you have an accepted offer, you can also lock into an interest rate. The normal lock periods are 15 days, 30 days, 45 days, and 60 days. The agreed upon closing date needs to be taken into consideration when determining the lock period.
Normally the approval is contingent upon an appraisal of the property because the property is the collateral for the loan. The bank will hire an independent appraiser to evaluate the value of the property based on similar recent sales in the neighborhood. Once your lender receives the appraisal and has confirmed they have all the other necessary paperwork, the bank can issue a commitment letter. This officially confirms that the bank will give you the financing to purchase your new home. The Realtors involved in the transaction will want a copy of the commitment letter too. The commitment letter also informs you how long you have until closing on the loan in order to receive the interest rates and terms previously agreed to.
The closing is normally conducted at a title company. Usually the buyer, seller, lender, Realtor, and attorneys will be in attendance. Prior to closing you will be informed of the exact amount you need to bring to the closing to cover the down payment and closing costs. The check will need to be in the form of a cashier’s check. You will also be asked to bring proof of homeowners insurance to closing if not previously provided to your lender. On the closing day you will sign your loan documents and other documents required by the title company. You will receive copies of everything you signed. Then you will receive the keys to your new home!
It is a good idea to check your credit report about 6 months before you apply for a home loan. Effective March 1, 2005, Wisconsin residents can obtain one free credit report per year from each of the 3 credit reporting agencies. You can go to www.annualcreditreport.com to receive your free report. Once you receive the report, you should make sure all the information is correct.
The following are the 3 credit report agency websites: