In 2021, people submitted more than 23.3 million mortgage loan applications. Of course, applying doesn’t guarantee a loan, but it’s the first step in the home loan process.
This process can be time-consuming and overwhelming, especially for first-time borrowers who don’t know what to expect. But you can learn what to expect to reduce the stress that accompanies this process.
Here is a guide to help you learn three vital things about the requirements and legal aspects required during this process.
1. Lenders Use Rigorous Evaluation Procedures
Lenders use many home loan processes before responding to loan applications. So if you want to get a home loan, you can begin by applying.
When the lender receives your application, they’ll begin processing it. Processing an application requires multiple steps.
One step is a credit check. This step involves pulling a credit report to see where the borrower stands. The lender will reject the application if the person’s score is too low.
Next, lenders evaluate a person’s financial state.
For example, how much debt does the person have? Can they afford a mortgage loan payment? Additionally, lenders perform income verifications and other rigorous steps.
The purpose is to determine the risk level of issuing a loan to this person. Another objective is to ensure the person meets the legal loan guidelines.
2. Closing Requires Legal Work
The home loan process also requires legal work, which must be completed before closing.
An example is title work. The lender must verify the ownership of the home before transferring the title from the seller to the buyer. Transferring the deed is another vital step in the home loan process.
Applying for a home loan initiates this process, but the lender can’t begin working on these legal steps until you choose a house and have a contract with the seller.
Lenders also review the home’s appraisal as part of the legal steps. They must ensure the home is worth the amount the person is paying.
3. You Can’t Close Until Underwriting Approves It
One additional step to understanding a home loan is underwriting. Many people have trouble understanding what the underwriting department is, so it’s a good thing to learn when you apply for a loan.
When your lender completes all the required steps of processing the loan, they send the loan file to underwriting. Underwriting is a department that scrutinizes every loan detail before the parties close on the home sale.
They perform the same steps as the lender but delve even deeper into the details. If there is a problem with anything, they’ll find it.
If they don’t find any problems, they send the file back to the lender with the message “cleared to close.” When this occurs, you can close on your home loan and house purchase.
Learn More About the Home Loan Process Before Applying
Learning about the home loan process before applying reduces confusion and stress. Thus, you should learn as much as you can before contacting a lender to initiate the process.
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