Mortgage Prequalification, preapproval, closing

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Mortgages

I. Does the mortgage fit your budget
II. What is a Mortgage?
III. How much will it cost?
IV. Pre-Qualification to Closing

Pre-qualification and Pre-approval

Pre-qualification can occur over the telephone just by informing the lender of your income, credit history, any long term debts you may have, the amount you can afford as a down payment, etc. Information provided by you during the mortgage pre-qualification phase must be verified during the pre-approval period.

The following financial records must be gathered for the pre-approval part of the mortgage loan process:

2 to 3 months worth of pay stubs

The past 2 years W-2 forms

Detailed information regarding long term debts, if any exist

Recent statements from you bank

The past 2 tax returns

Proof of additional sources of income, if any exist

Once past the pre-approval stage, the lender has commited itself to lending you money.

Closing

Typically, it can take up to a month and a half for a lender to finish processing your loan application. Once all information has been verified -- several requests for additional information from the lender may occur before this happens -- you will be told whether your application has been approved. If so, a settlement date (also called closing date) will be set.

(Note: A lender discriminating on the basis of race, color, nationality, religion, sex, familial status, or disability is not allowed. If you suspect you have been discriminated against at some point during the loan process, contact HUD's Office of Fair Housing at 1-800-669-9777)

On the day of closing, usually, only two steps remain:

1.) Sign all legal documents
You will be asked to sign all documents that involve transferring ownership from the seller to you, including the grant deed. Also, you will need to review and finally agree to the conditions and terms of the mortgage. (Note: a tactic used by some predatory lenders is to leave certain lines in key documents empty, to be filled in later. If you are an inexperienced borrower, make sure you have a lawyer present to go over each document before you sign it. If you cannot afford a lawyer, call your local bar association, which should be able to help you locate low cost legal services. Some non profit senior organizations will go over home equity loan contracts for you and offer advice.)

2.) Pay items in escrow and all closing costs.
One way this can be done is by adding all you owe (escrow items and closing cost) to the principal of the mortgage loan. The option of accepting a higher interest rate that will cover the fees associated with getting the mortgage and the property ownership transfer is also available to you.

The documents you receive at closing will most likely include:

The Mortgage

TILA statement
Early in the mortgage loan process, a borrower will receive a TILA statement. A final updated TILA statement will be given at closing that will reflect any changes to the loan cost and the annual percentage rate (APR) since the first statment was issued.

Mortgage note
A document that states what your reponsiblities are as a borrower and what can happen if you fail to live up to them. Specifically, it includes your promise to repay the mortgage loan, and the options available to the lender if you default. It may also include the size of the loan and its terms.

HUD-1 statement
A document listing all closing costs on a real estate purchase. Federal law requires that you receive this document a full day before closing -- giving you a chance to review it before signing. The closing costs listed in the HUD-1 should be pretty close to what was specified in the Good Faith Estimate (GFE)

After you -- and, if present, your lawyer -- have gone over each document and you have signed all of the paper work, the lender's agent will provide you with a settlement statement, if you have payed all closing costs. Next, the seller will at some point give you a signed deed (the title to the house). Finally, the deed and mortgage will be recorded in the state Registry of Deeds, and then house will officially be yours.

Updated: Nov 2005