A mortgage loan can be a very helpful thing, but it can also be very risky. A mortgage loan is any loan in which you put your property on the line as collateral. For those involved in real estate, this can be a convenient way to use one property to buy another. Some others use a mortgage loan to obtain emergency funds, although this is not always the smartest idea. Whatever your purpose, you need to do your research and learn everything you can. Consider this article to be a good introduction to that research.
Step 1: Pre-Approval
Before you get started, you need to see if your credit and income are good enough. For a start, you will need to get pre-approved. To do this, you obtain a full credit report from three different bureaus. This will show your credit score, your credit history, as well as any other debts on your record. They will be able to see if you paid your bills on time and whether you are the kind of person who pays your debts. More importantly, it shows the lender that you are serious and prepared.
Now you are going to need documentation of your income and assets. Tax returns, pay stubs, and bank records are all good ways to provide this. For valuable assets, you can show the receipt. You could also show warranty information if the receipt is not available. Any investments that you have made should also be documented and presented.
You will also need to decide what you will put up as collateral. Most people will use an existing piece of property that they own, but you could technically use any asset that is valuable enough to cover the balance of the debt. Your lender will want all the information that you can give regarding the property and anything within its boundaries. Property deeds or a bill of sale are also good things to gather. Either way, you can bet that your lender will want to have at least one inspection done.
Your lender will look at all this information and see if you would qualify for a mortgage loan under normal circumstances. They will also be able to see how much money you can realistically expect to repay. Based on this report, they will present you with a borrowing limit (among other things). You don’t necessarily want to borrow the full amount because that means it will take longer the pay back the debt. That means more interest and more cost overall.
Step 2: Find A House
Once you can see that your credit is decent enough to get this kind of loan, it is time to go house hunting. This is probably the most enjoyable part of the process, but it can also be one of the most time-consuming. We recommend that you start by deciding where you want to live. Once you have decided on a general location, you can narrow your search and make your decision a lot easier.
Online real estate sites, like Zillow and Realtor.com and the others, can be helpful. Nevertheless, there are several flaws with these sites. First of all, their prices and listings are not usually up to date. The housing market is always changing, and it is very hard for any site owner to keep up with all of that. We would recommend that you use these sites to get a general idea of the average home price in your chosen area. That will help you to determine if you are paying too much.
Once you have done all this, you need to get in the car and drive around the area. Any home for sale will usually have a sign that indicates as much. Homes that are clearly vacant are another thing that you should seek out. If you come up empty-handed, call a local realtor, and they should be able to point you in the right direction.
Step 3: Apply For The Mortgage Loan
You are now ready to get the loan. Because you have already been pre-approved at this point, your chances of denial are fairly slim. Still, there is always the chance that you will be denied, and you will then have to start again with a different lender or abandon the idea entirely.
When you fill out your application, make sure that you bring all the same documents that you brought to the pre-approval meeting. If your lender requires any additional information, they will probably ask. The application will require information about your employer, your income, your property, and any other financial information that you can provide.
You will need to choose between a fixed and variable interest rate. The difference is very simple. Interest rates are set by the Federal Reserve, and they change quite frequently. If you are getting this loan at a time when the interest rate is relatively high, you should get a fixed-rate loan so that you can keep that lower rate. If you are getting this loan at a time when interest rates are relatively high, you should get a variable-rate loan so that your price isn’t locked at a higher rate. If you want to know how much difference your interest rate will make, try this handy online calculator.
Step 4: Get A Home Inspection And Make An Offer
Once you have been approved for the loan, it is now safe to make an offer on the home that you want. If the home you wanted has already been sold while you went through step three, you will need to find something different. If you searched thoroughly enough, you probably had one or two “second choices” on your list, so these are good places to begin.
Before making an offer on your new home, you should get an inspection done. Although it represents a small expense (usually $50-$100), it is well worth the trouble. Without a competent inspection performed by a neutral third party, you will have no way to know if the home is full of problems.
When you’re ready to make an offer, contact your lender and ask for their advice. Since they are the ones loaning you the money, they will be motivated to give you very conservative and cautious advice. For a risky sort of deal like this, that is probably the best approach. As with any sort of haggling, you should make your first offer a little bit on the low side. The seller will probably reject that offer, so offer them a little bit more. It may take a little time to resolve all the offers and counter-offers.
Your lender will probably want to do an appraisal. That means they will send their home inspectors to check the place thoroughly and see if it’s really worth what the seller is asking. If they find the property to be overpriced, it may be possible to use this as leverage to negotiate a lower price. Still, extensive damage is always a deal-breaker.
At some point, you will surely be dealing with a person called an underwriter. This person’s job is to verify everything and monitor all aspects of the process for compliance with regulations. They are the people who will actually do the legwork to verify the information that you provide. They will also decide how much money you can be loaned. They can also deny your application at will. Naturally, you don’t want to irritate these people by giving them false or incomplete information.
Step 5:Close The Sale
At this point, there isn’t much left to do except hold a meeting and make everything official. Most of the time, your real estate agent will order title insurance ahead of time so that you can take possession right away. There will definitely be a lot of paperwork associated with this process, so make sure you keep all those documents.
At some point, you will be provided with a form called the “closing disclosure.” This is the final bill of sale that shows the total cost of the property, as well as all the relevant taxes, closing costs, etc. By law, you can take up to three days to review this closing disclosure bill. Thus, you need to make sure that you get this document at least three days before the closing meeting.
You should also do a final walk-through, which is also guaranteed by law. This is just a quick tour of the property to ensure that everything has been represented correctly. If there were any repairs stipulated in the sale, this is your chance to verify them.
Conclusion
This is a complex and lengthy process, but that is to be expected when so much money and risk on the line. We would strongly advise those who are not financially sound to avoid mortgage loans. These things can be very helpful, but don’t gamble anything that you can’t afford to lose. That’s an old gambler’s law, and it is generally a good idea. If you have enjoyed our expert wisdom, feel free to fill out that contact form below so that we can provide you with more of our expert wisdom.
