House hunting can be an exhilarating process, as you try to pick that perfect property. Applying for a mortgage, while not quite as exhilarating, does not have to be difficult, if you work with the right lender or broker. Following is an overview of how the mortgage industry works.
An Overview of the Mortgage Application Process
You have a nice chunk of money saved for a down payment. You have started shopping for a home or have found the perfect property. It is time to enter the world of financing, better known as getting a mortgage. Before entering the this new world, it might help to get an overview of how the mortgage process works.
A mortgage simply is a debt instrument that acts to secure a cash loan to you on a home. In exchange for giving you the money, the lender puts a first lien on the prospective home for the loan amount. If you default, the lender can foreclose and sell the home to recover the debt amount.
In mortgage industry terms, applying for a mortgage is known as originating a loan. To originate the loan, you will first have to find a lender you are comfortable with. Many will find it advisable to use a mortgage broker to shop for the loan that best meets their needs. Different lenders offer different loans and terms. A good mortgage broker can make things that much easier for you.
As part of the mortgage application process, you will fill out a loan application. Depending on the nature of the loan, you probably will also be required to submit documentation supporting your claims of income and so on.
Once your application is submitted, a lender may ask for additional information or documentation. Depending on how the review, known as underwriting, goes, the lender may decline or approve your application. Often, the lender will add a stipulation to the loan that cover issues it is concerned about.
Once you are granted the loan, you will close on the residence you are purchasing or refinancing. Inevitably, your mortgage lender will most likely sell the loan to another entity. To raise cash to issue more home loans, lenders sell their current stock of mortgages on the secondary market.
Your mortgage will be terminated at some point in time. Positive reasons can be the sale of the home, refinancing or simply paying off the balance. Negative reasons can include default or bankruptcy. Regardless, the above represents the basic structure of the mortgage application process and what follows after closing.