A mortgage is a loan utilized to purchase a land, home or any other real estate property. It’s a legal agreement where a building society or bank lends money with interest in exchange for taking title of the debtors property, with the standard condition that the change of title becomes nullified upon payment of the debt owed.
People and businesses make use of mortgages to purchase real estate without paying the complete purchase price initially. The individual who borrows the loan pays off the debt over a couple of years until they complete the debt repayment. In the advent of a situation where the borrower stops or refuses to pay the mortgage, the lender can choose to foreclose the property.
We have documented a step by step process you’ll need to take to get approved for a mortgage. The following sections are extremely important, so ensure you follow it in detail so you can get the best mortgage lender to help fund your real estate investment.
What Is the Mortgage Approval Process?
Trying to get real estate loans for investors isn’t an easy feat. Most investment property mortgage lenders have a set of rules and regulations and also a due process for borrowers to follow. There are lots of mortgages to select from; however, you’ll need to gather different documents for their approval. Don’t forget to also think about the monthly cost of your mortgage.
However, there’s a standard process to follow when applying for a mortgage so you can get the best out of it.
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Meet Your Lender
The first thing you need to do after finding the best mortgage lender is to book a meeting with your bank or lender, depending on which is applicable to you in this situation.
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Prepare Documents
Before taking investment loans for rental property, your mortgage lender will require you to provide some documents from a list which would be given to you. Necessary documents might differ from one mortgage lender to another. Documents like tax statements, pay stubs and bank statements are often required.
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Pre-approval
The best way to get pre-approved for a mortgage is to reach out to your bank or mortgage lender and go through a client questionnaire where the mortgage lender tries to get a financial snapshot of where you are. In the application, there would be a credit check.
A credit check helps the mortgage lender certify you to be qualified for a house you want to purchase. Most mortgage lenders for rental properties always do a good background check on details such as your credit score.
Most people start looking for properties to purchase long before they’re pre-approved for the mortgage.
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The Loan Process
When you’ve been issued a pre approval, the next thing to do is to partner with your realtor, then go searching for homes you would like to purchase. When you discover the house you love, write a contract for that property and give your mortgage lender a copy of this contract.
The loan process involves filing your loan application and the documents already submitted to an underwriter. An underwriter is any party that assesses and assumes another party’s risk for payment. Note that the underwriter might request for more documents beyond these mentioned here.
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The Appraisal
Consider opting for an appraisal early because it usually takes a week or two for the appraiser to go out, check out the monetary value of the property and give the report back.
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Loan Estimate
A loan estimate is a three page form that displays home loan information in an easy to read format, filled up with relevant explanations. When you receive a loan estimate, it’s valid for ten business days, therefore you have to accept the loan offer during that time frame or the mortgage lender can decide to change the terms.
The loan estimate puts every feature of your loan into detail. There are various types of loan products, and if you select the wrong one, you might end up paying so much money during the course of repayment.
The loan estimate features certain questions like:
- What is the down payment going to be like?
- What is mortgage insurance looking like for you?
This loan estimate details homeowners insurance, mortgage insurance, taxes, start-up capital and interests along with all the other loan costs such as title fees and recording fees.
The loan estimate gives you a vivid idea of what your loan is going to look like in the next couple of months before it’s sent to underwriting. After that, the underwriter checks the file to ensure everything meets the federal guidelines for different types of mortgages.
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Conditional Approval
A conditional approval basically tells you a couple things you need to clean up in the file. It might be the fact that you mistakenly didn’t print out page 5 of your bank statement or you need to shop for home insurance quotes. It’s normal to have a few conditions on top of a loan after it’s out of underwriting. You’d need to work with the lender and their team so they can issue a closing disclosure.
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Closing Disclosure
A closing disclosure contains all the details of the loan terms and conditions. It’s similar to the loan estimate since it’s still an estimated fee, a high estimate but more accurate to the actual loan when you get to the closing table.
The loan estimate is often a bit overquoted and the closing disclosure a bit less. However, the final closing disclosure that the mortgage company works on will likely be accurate.
After the closing disclosure is sent out, you get a “clear to close“, a term meaning that you’ll get the keys to your house, loan will be funded, checks dispersed and you’ll become a verified home owner.
Conclusion
Getting a mortgage isn’t something that should be done without doing prior research, especially if you’re a newbie. Consider following the steps we prepared for you in this guide before going ahead to get that mortgage to make that home purchase.
Make sure you use the best mortgage lender to ensure a smooth sailing mortgage application process. Always remember that buying your dream home will make you absolutely happy.
