You've taken the first steps to applying for a mortgage. You've gathered your financial documents and submitted the application. What happens next? Here's what you can expect as your mortgage application is reviewed by the lender and you move toward closing on your new home!
About mortgage underwriting and loan disclosures
Once your loan file is submitted, underwriters will examine your documentation including your credit, income, financial history and assets as well as the value of the property. The lender will come up with your debt-to-income ratio (DTI), which is based on your monthly expenses and income. Lenders use DTI ratio as a criteria to help determine your ability to make your mortgage payment in addition to your other monthly expenses. In addition, an appraiser will assess the home's value to ensure the sale price is aligned to market conditions.
Once your application is approved and a closing date is scheduled, you'll receive a Closing Disclosure that states the final details about your mortgage loan. The Closing Disclosure includes the loan terms, your projected monthly payments, and how much you will pay in fees and other closing costs to get your mortgage.
About home inspections and pre-closing
Most homebuyers request an inspection of the home they want to buy. A home inspection is different than a home appraisal. A home inspection identifies any problems with the house that need to be addressed before the sale closes. These problems can include structural problems, issues with the electrical, plumbing, or heating and cooling systems, a leaky roof or termite damage. Once these issues are addressed, your loan will move into processing and pre-closing.
Prior to closing, a title search will be performed to examine the history of the home's ownership to verify that the seller is the legal owner of the property. This search will also confirm whether there are any liens against the property securing the mortgage. The title search helps make sure that no one else can claim to be the legal owner of the house after you buy it. A "lien" is a legal claim on a property as a result of an unpaid debt. For example, local governments will file a lien against a house if the owner does not pay his or her property taxes. Lenders typically insist that all liens on a property must be resolved before they approve a mortgage application.
This is also a time that an escrow account could be set up to ensure the things like property taxes and hazard insurance on the house are paid in full and on time.
What happens at closing
At closing, you'll be asked to sign a number of documents and pay any closing costs. You'll need to submit a check for the down payment and closing costs, including any taxes and insurance which may due shortly after closing. You will also need to provide the necessary funds to establish the escrow account. Once the transaction is complete, that money will be transferred to the appropriate parties. That is called disbursement and generally a lawyer or title agent will coordinate that process with the seller and/or the seller's attorney.
After the funds are disbursed, all mortgage payments throughout the life of the loan will be handled by a mortgage servicer (which may be the same company you received your mortgage from). Each month, you will receive a statement from your mortgage servicer that shows your principal, interest, and escrow payments as well as your loan balance and any changes to your payment.
If Freedom Mortgage is your mortgage servicer, you can see your loan details on your paper statements or through your online account. You can also call our Customer Service representatives at 855-690-5900 with questions. We will be happy to help!