The process of applying for a mortgage can seem like a daunting task, especially for first-time buyers. This is because the process involves confusing and jargon-filled documents that use financial and legal technicalities. These documents tend to be very long. But you can avoid anxiety and headaches by taking the time to know how the process works and what you can expect. Below is an overview of the process when you want to apply for a mortgage in Michigan.
When you break down a complicated and confusing process into steps, it becomes easier to understand and manage. The steps can vary depending on your unique position, but below are the major steps involved when applying for a mortgage (this is also going to include what is going to come after you have completed the process).
The first step when applying for a mortgage in Michigan is getting approved. This is where the lender looks at your financial situation (they are going to look at your assets, income, and debts) so they can determine whether you are a good candidate for the mortgage. The lender is also going to let you know how much they can give you. You are going to be given a pre-approval letter detailing this.
This is an important first step because it is going to save you a lot of time and effort. When you know how much you can get, it narrows down your search because you know the price range to look at. Sellers will see you are serious, and you will have more negotiating leverage when you have the pre-approval letter.
2. Purchase Agreement
Now that you have the pre-approval letter, you can get started with the house-hunting process. You will have more bargaining power and confidence. When you find a good option and the offer has been accepted by the seller, the next step is drawing up the purchase agreement. The lender is not yet involved at this point, it is just all about the buyer and seller. It is good to talk to a local agent because they will advise you on making an offer.
3. Loan Application
The next step when applying for a mortgage in Michiganis going to involve the lender. This is the loan application process. The process is simple because the lender is going to use the same standardized form. Lenders use the Fannie Mae form 1003 which is also known as Uniform Residential Loan Application (URLA). You will need to complete this form and you have to provide information about the kind of loan you want, information about the property, and your financial information.
This is something your local real estate agent can help with. This process is going to be easier when someone is helping you. The real estate agent can help you prepare and gather all the important documents and information.
4. Loan Processing
Once the loan application process is done, the next step is processing the application. The first part of this step is going to involve the loan processor collecting documents relating to you and also the property you want to purchase. This will include tax records, bank statements, the purchase agreement, employment letters, and more. They will then review the file to make sure all the documents needed are there.
The lender is also going to order an additional credit report to verify your assets and income, then have an appraisal done. The aspects of the loan process process vary from lender to lender and it is also determined by the kind of loan you are applying for. The basics will still be true for almost all cases.
The next step is underwriting. The key decision-maker in the approval process is the underwriter. The underwriter will look at the documents provided and make sure it has met and complied with all the lending requirements and guidelines. The underwriter has the power of rejecting the loan if you have not met the criteria.
The underwriter is going to assess the risk involved in giving you the loan. They usually look at three elements when doing this:
- Capacity – Are you in a financial position to handle the loan payment and other obligations and debt?
- Credit – Do you have good credit and debt repayment history to warrant getting a loan?
- Collateral – Is the value of the property you are interested in high enough to be collateral for the loan?
If the underwriter determines that you have met all the three elements, you are going to get the loan. If there are some issues, there might be conditional approval granted, which means resolving those issues before you are approved.
6. Approval and Closing
This is the final process that comes after applying for a mortgage in Michigan, it remains part of the process because it is the final result of the entire process. How does this work?
When the loan has been approved, the file is going to be transferred to the closing and funding department. The department is then going to notify the broker and closing attorney about the loan being approved, and also verifies closing and broker fees. The closing attorney then starts planning for the borrower to sign the document. This is the final goal of the process.
The closing is where documents are signed and the money is transferred to the seller. The deed of trust and mortgage note is recorded at the county office, then the fees are paid. When you are done with this, you are now a homeowner.
It is not a good idea to do this alone. The process of applying for a mortgage in Michigan has become understandable, but it is still a complex process legally and financially. This is one of those things you need to do with an experienced professional, don’t try doing it on your own.