Obtaining a mortgage can be long and somewhat confusing, especially for first-time homebuyers. As a real estate professional, you’re well aware of the industry jargon that comes along with the process and it’s your job to clarify any questions these ‘first timers’ may have about it along the way. Review this list of handy key terms and share them with your clients to keep them up-to-date on everything going on during the financing process.
Before Making the Offer
Appraisal Contingency: This is the period by which your client’s lender needs to get the property appraised. If the property doesn’t have the same value as the contract price, inform them that they have the option to renegotiate or cancel the contract.
Loan Contingency: Loan contingency is the time frame that a seller has given your client to obtain full, formal loan approval. Remind them that it’s key to include a financing contingency offer because it makes the transaction dependent on receiving the loan they’ve applied for. More importantly, it specifies their cancellation rights if they are unable to obtain the proper financing.
Contract Period: The contract period is the time frame in which all due diligence must be completed, including obtaining loan approval, property appraisal, home inspection reports, etc. Make sure that they allow themselves ample time to complete all of these steps because there should be no loose ends heading into the biggest purchase of their lives. Common purchase contracts are written for a period of 30, 45, or 60 days; these times will vary depending on each client’s situation.
Searching for Rates
Points: These are expressed as a percentage of the loan amount. Just to clarify, one point is equal to 1% of the total loan amount. This is a fee that their lender may charge for loaning the money.
APR: Annual Percentage Rate is designed to illustrate the “true cost of a loan” to your clients. This is expressed in the form of a yearly rate to keep lenders from “hiding” fees and up-front costs behind low advertised rates. Keep in mind that Homes.com offers a mortgage calculator to give your clients a better idea of their total loan cost and to help find a lender that best works for them!
Closing Costs: When applying for a home loan, there will be several costs charged by the lender, escrow/title company, etc. These costs will also include government fees like transfer tax and recording fees. Make sure that your clients consider these closing costs when making their final offer.
Prepaids: Prepaid items are amounts required by the lender to be paid at closing, in advance of their due date. Property taxes, accrued interest, associated dues, MIPs and home insurance premiums are all costs that clients can expect to see here. These items are added to the total amount of the loan’s closing costs and will have to be paid at closing.
During the Loan Process
Loan Application: Also called Form 1003, this details your client’s personal information and includes their employment history, income, assets and debts. Furthermore, it will list their loan program, interest rate and proposed payments. Completing this application is usually the first step your clients will take in the loan process.
Conditional Loan Approval: The lender’s underwriter will review your client’s income, assets, credit, employment history and property condition to issue a conditional loan approval. This approval will provide all the conditions that need to be met before a final approval can be issued.
Final Loan Approval: Once all the underwriter’s conditions have been met, he/she will issue a final loan approval. At this time, the closing department prepares the loan documents that your clients must sign in the presence of a notary/attorney.
Loan Funding: This is the big day! The actual funds will be transferred from the lender to the closing agent. The closing agent then disburses the funds to the seller and all the agents involved.
Share this list with your clients to help them prepare for the tedious mortgage process and to illustrate why you’re the local expert! If you’re looking to provide even further value, download the Homes.com Mortgage Checklist. This editable resource provides insight into what lenders will be looking for when reviewing a loan and what clients can do to help streamline the financing process.To find even more articles like this, check out Homes.com’s featured author Shashank Shekhar![cf]skyword_tracking_tag[/cf]