First-time and experienced buyers alike may find themselves overwhelmed by
the mortgage process. With so many options -- each offering unique
advantages and disadvantages -- determining the early steps to take can be
Before initiating the mortgage process, you'll want to be fully educated.
Whether you peruse Web sites or attend a mortgage seminar, there are many
ways to find out what to expect. And as always, your REALTOR® can answer
any questions you may have, as can financial planners, mortgage brokers, or
What's in a Price?
As you initiate the mortgage process, you'll want to ensure that your
monthly payments fit into your budget. Are you aware that the price isn't
the only factor contributing to the amount of your monthly payments? In
actuality, the price is comprised of principal, interest, taxes and
insurance, which combined, are commonly called PITI. To determine your
average monthly payment, lenders suggest devoting no more than 28 percent
of your gross income to PITI. Of course, how much home you can afford
depends greatly on other factors as well: your income, credit, savings and
financing, to name a few variables.
A ratified sales contract is proof that both buyer and seller have agreed
on the final purchase deal. It serves as the final contract subsequent to
the purchase agreement and any counteroffers. This contract specifies the
amount of your downpayment, the purchase price, the type of mortgage you're
seeking, and your proposed closing and occupancy dates.
When you visit your lender, you'll need to complete a Uniform Residential
Loan Application. This document asks detailed questions about you, your
income, your assets and liabilities, your credit history, and the property
you plan to buy. Check with your lender about the additional documentation
you'll be required to supply, which can include paycheck stubs, tax
returns, bank account statements and other articles.
Decisions to Make
Once you've arrived at the application stage, you'll need to know what
mortgage you want and the mortgage amount.
Keep in mind that the type of mortgage you select directly affects the home
price you can afford and the amount of your mortgage payments. Your
ratified sales contract may depend on your ability to secure approval for
the kind of loan you choose.
You've probably already estimated how much money you want to borrow. The
best way to determine the exact amount of your mortgage is to base the
figure upon the purchase price of the home and the amount of your
downpayment. If you're using your pre-qualification from a lender to
determine the amount of your loan, remember that pre-qualification is only
a ballpark figure and not equivalent to being pre-approved.
Know Your Rights: The Real Estate Settlement Procedures
Under the Real Estate Settlement Procedures Act (RESPA), you're protected
from abuses during the residential real estate purchase and loan process.
You're also entitled to better information because the law requires the
involved parties to disclose costs of settlement services.
RESPA is intended to assist you in obtaining fair settlement services
through the disclosure of applicable costs and information, protect you by
eliminating kickbacks and referral fees that would unfairly increase the
costs of services, and prohibit other practices that increase the cost of
Your REALTOR® can inform you of RESPA's provisions in more detail. If you
encounter any practices that seem unethical or in violation of RESPA,
consult your REALTOR®.