The Mortgage Process - Step by Step

Know what budget range you can afford.
The rule of thumb is 2.5 times your gross annual income is the price range you should stay in. For example, if you make $40,000 a year, you should look at houses in the price range of $100,000.

Types of Mortgages.
Know the type of mortgage you are applying for. The two most common are fixed-rate mortgages, where the rate is fixed for the lifetime of the loan. and Ajustable Rate Mortgages (ARM) is a mortgage that will adjust the interest rate depending on the contract. It depends on the lender and the loan how often it will adjust, ome adjust every three years, others adjust every five, etc. If you have an ARM, make sure you know the the adjustment period and that there is a cap that will only allow the rate to adjust up to a certain interest rate.

Submitting the application.
When you apply for a mortgage, you will have to provide many documents. You will have to provide the last two years income tax returns, pay stubs for the past 60 days, last two bank statements, a copy of the sales contract (if you have already made an offer) the address and description of the property. You will also be signing many documents. You will sign a Verification of Employment (VOE) a verification of Deposit (VOD) and a release for them to pull your credit. They will look at your credit score and determine your Debt to Income Ratio to decide if you are eligible for the loan and how much you are eligible for. Credit is such a big issue for just about everything you do. If you try to rent a place, they pull your credit. So, it is a good idea to check your credit at least once a year. You can do this free of charge by going to www.annualcreditreport.com . You can pull your credit from each of the three reporting companies once in a twelve month period. So, you can pull from all three at once, or one at a time. It will not give you your credit score, but it will show you what is on your credit. If you have a dispute with anything on your credit, you can dispute the issue online while on the site.

Approval
If your loan is approved, you will get a truth in lending statement. This document has 5 primary elements, the Annual Percentage Rate (APR), fiance charge, amount financed, total amount of payments and your payment schedule. You will also be required to pay for the first year's home owner insurance on the house and will need to take the insurance binder to the closing with you.

Closing
At the closing you will feel like you are signing your life away. There will be many documents you are required to sign. Make sure your real estate agent informs you before the closing if you are required to bring any money to the closing and how much. The Title Company will review all of the documents with you at the closing and have you sign off on them. They will also give you a binder with all of the information in it before you leave. A few of the most important documents you will sign include the HUD1 Settlemet Statement. (This document will show line by line where all of the fees originate from and who is responsible for them. This will also show exactly what your loan total is and how much the seller will be receiving that day.) And the Mortgage and Promissory note. You will also be signing the Addendum to HUD-1 (stating you received a copy of the HUD-1), Escrow disclosure (if applicable), Encroachment Affidavit (stating there are no encroachments on the property) and they will also offer you title insurance. This is a safety net for you should the title company decide to take off with your money and not complete the transaction. This is not a requirement, but it will be offered.

This is just a brief overview of the mortgage process. There are many other items I did not touch on, but you can always go online and study up on the process before you attempt to apply for a mortgage. It is always a good idea to research anything you are going to be paying on for any length of time. There are also agencies and lending institutions that provide Homebuyer Counseling Classes to help you to prepare for becoming a home owner. A little insite on what you should expect makes the process go a lot smoother.