Find a Lender

Now that you have a basic understanding of mortgages, and know approximately how much you can afford, you're ready to find a lender. It's advantageous to find a lender as early in the home buying process as possible-even before you start shopping for your home. This way you'll already have done the groundwork and will be ready to apply for a mortgage the instant you find a home you want to buy.

So how do you choose a lender? Well, while you should always consider the different rates and fees offered by lenders, you should also research their history. Choose a lender with a good reputation and someone you'd be comfortable working with. You'll also want to make sure the lender offers the types of mortgages you're interested in. And it's always a good idea to use Mortgage Bankers Association (MBA) members because their high standards of conduct earned them a position in the MBA. Your real estate professional should be able to provide you with a list of lenders he or she recommends. Ask the lender about the company's standards for turnaround times on approving and closing your loan. This would be particularly important if you need to close quickly. Many lenders now offer approvals within 24 hours for the most credit-worthy borrowers. You might also want to ask about a firm loan approval before you locate the property you wish to purchase. With a loan approval in hand, you will have the negotiating clout of a cash buyer and the sellers will know you are a serious buyer.

Once you've decided on a lender, you're ready to gather the specific personal information needed to apply for your mortgage.

Applying For A Mortgage
The typical application is basically an outline of who you are, the property you want to buy or refinance, your financial assets and liabilities, and how long you expect to stay in your home.

Application Credit Check and Appraisals
The lender will initiate a credit check and arrange for an appraisal on the property you plan to buy. The appraisal assures you and the lender that the property has fair market value. The lender is investing in you, and in the unlikely situation of default on your loan, the property must be worth enough to settle the debt.

Approval and Commitment
Once your credit check, appraisals, and verification are complete, this "credit package" will be reviewed by an underwriter, who will make the loan decision.

If your loan is approved, your lender will issue you a loan commitment-a binding agreement-to lend you the money. The commitment spells out all the details of your loan, including all charges and fees, closing requirements and any important conditions including:

• A list of documents you need for the closing
• Information on when the commitment expires
• Important information you should know about when closing on your home

It also may have certain conditions you must meet before your loan is granted-bills you must pay off or special requirements of a homeowner association. In the case of a new construction, your lender will want the appraiser to inspect the home just prior to closing. This is to ensure that it is in accordance with the plans and specifications furnished by the builder or contractor.

You and an attorney (if you choose to consult an attorney) should review the commitment carefully. Since it is possible that the terms of the mortgage being offered may vary from the time of your initial application, you must make sure the terms are acceptable to you.
Assuming you and the lender come to terms, your agreement with the lender is now complete.

At the same time, your lender also checks the title to the property to make sure there are no outstanding liens or title problems. The lender requires and sometimes will arrange for title insurance to protect it against unforeseen problems. This is called a "lender's" title insurance policy. You may want to obtain title insurance to protect your own interest in the property. This is called an "owner's" title insurance policy.

If the down payment on your home is less than 20%, your lender will normally require that you get private mortgage insurance (PMI). This insurance will insure the lender against your possible default on the loan. If you do default, PMI will pay the lender the amount due on your home. In other words, PMI will pay the lender the difference between the amount you've paid into your home (down payment + mortgage payments) and the amount for which your home was purchased.

Closing Costs
Closing costs and procedures will vary from state to state, and from county to county. In some jurisdictions, an attorney represents the lender. In others, the title company represents the lender. There may be state or county transfer taxes to be paid. There may also be fees to be paid for recording certain documents. There are also standard charges which are paid at all closings, some of which are appraisal and credit fees, title insurance premiums, and interest on the loan prorated from the closing date to the end of the month.