The Mortgage Process
Whether you’re buying your first home or a seasoned homeowner, purchasing a vacation home, moving up down or sideways, investing in properties, or looking to refinance, or desire reverse mortgage information, your local non-profit mortgage company, Helping Hands, is here to help you better understand the mortgage process so that you’ll be able to make the best decisions to achieve your goals.
“Our mission is to better educate homeowners and, when appropriate, arrange the financing.”
The lending guidelines are constantly changing and it’s critical for you to have current and accurate information, and to understand how the mortgage process works.
Our goal is for you to obtain the best mortgage program for your situation. For purchase transactions, the first step to achieving your housing goal is to get a better of how much you can afford.
Your Mortgage Calculator
Your total monthly payment
DISCLAIMER: The information provided by the calculator above is for illustrative purposes only. The figures shown are hypothetical and may not be applicable to your individual situation. Consult a financial professional prior to relying on the results of this calculator. The calculated results are intended for educational purposes only and accuracy is based on factors that may not be represented in calculator.
What are the Two Most Important Questions?
We’ll explain in detail what is included in your housing payment and how that amount is calculated. For example, you’ll understand how different interest rates and mortgage programs impact your monthly payment; when real estate taxes and homeowner’s insurance are required as part of your payment; what’s included in condominium fees; if flood insurance is necessary; and when mortgage insurance is mandatory and how it can be avoided.
There is nothing worse than to be surprised about how much money you need the day of purchase. We want to make sure you understand that buying a home is not just about how much money you need to put down but also the other costs that can add up to a real number. We’ll explain clearly each cost and identify which ones are mandatory and optional. Just as importantly, we’ll explain who pays for them – you, the seller, the lender, or a combination.
What Can You Expect?
Here is a “play-by-play” of how a typical mortgage application and approval process works.
For our initial conversation, we will ask several questions and review various scenarios to determine your best options. Think of this as taking a financial snapshot. It’s a starting point.
Once we identify the best course of action, we will issue you a Loan Prequalification Certificate that is usually needed when making an offer on a home. We’ll also discuss the merits of obtaining a formal loan approval certificate.
Once you have an accepted offer on your new home, we’ll prepare the mortgage application and provide you with the proper disclosures required by law.
An official mortgage app is complete when we have these 6 elements:
- Verified I.D
- Verified Income and assets
- Credit Report
- Purchase property address
- Estimated value of the purchase property
- Sought after mortgage loan amount
Once the Application is approved, it will go into Underwriting.
The underwriter is the person who examines your application and documentation to determine whether the loan meets the lender’s rules and guidelines. The underwriter analyzes a borrower’s finances to determine if he or she is an acceptable risk for the mortgage lender to guarantee the funds to purchase the home.
In Underwriting the underwriter will:
- Make a title search
- Get appraisal on property
- Arrange homeowner’s insurance
Title Search: We will order a title search to make sure the ownership of the property is clear. A title search identifies any liens that have been recorded against the property, searches the records at the courthouse to make sure the seller of the property has sole ownership and the legal right to sell the property, and verifies that all title and deed conveyances are in order.
Appraisal: The appraiser’s job is to determine the fair market value of the home you are buying or refinancing. Appraisers do this by verifying the physical characteristics of the house and land. This will be done through a personal inspection of the property to verify its condition, square footage, room count, construction materials used, and acreage. The appraiser contacts the listing agent for a purchase. The cost of an appraisal is usually in $500-$550 range for a single-family home. This amount must be paid in advance, as appraisers are independent of the loan process.
Homeowner's Insurance: You’ll need to arrange homeowner’s insurance coverage in advance of the purchase and it is advisable to gather quotes at the beginning of the process. We’ll explain what type of coverage is required.
Because gathering all the data and reports involves many people (such as title companies, appraisers, closing attorney, and Realtors) your cooperation is most appreciated. The key is for you to provide any requested documentation as soon as possible. This saves a lot of time on the back end of the process. “We hold your hands not just shake them.”
The underwriter will issue a conditional approval which will list the remaining items needed for the lender to issue funds to close the loan. Often the underwriter will have questions regarding the appraisal, title, or information provided by the borrower. We work closely with all parties to satisfy any conditions.
Though rare, if the underwriter determines an applicant does not meet the lending guidelines, they will issue a denial, and we may need to look at alternative lending options. Why are loans denied? The most common reasons are low appraised value, income or assets are lower than what the applicant stated, additional debts payments such as child support or a purchase of a new car during the process that were not disclosed and the inability to source large deposits. The key is for you to be transparent with our loan officers to ensure that we have accurate information.
Once we have satisfied any remaining conditions, the underwriter will issue a "clear to close" which means we may then schedule your loan closing.
Once the underwriter has cleared your file and the title search and appraisal have been reviewed and accepted, a closing can be scheduled. A closing attorney (or closing agent) will conduct the closing process. The attorney will prepare all the necessary documentation to complete the purchase. During the closing you are asked to read and sign many documents concerning the transaction. The closing attorney explains each document, but be sure to ask questions if there anything you do not understand. You will receive a copy of all the documents that you sign at the closing.
Now that you own your new home, we enter the next and most important part of our relationship. Our goal is to continue to build upon our trusted relationship with you. We'll stay in touch and occasionally check-in to make sure all is ok. We also encourage you to contact us if you ever have any type of financing questions or need any other business services. We have an extensive referral network and are always happy to refer you to other competent caring professionals.
And, of course, we are never too busy to help any of your friends and family members with their purchase, refinancing, or reverse mortgage needs. Just give us a call and we'll take great care of them.
Our Helpful Purchase Mortgage Document Checklist
To better serve you and to give you more accurate information, below are the typical documents that we would like to review:
- Recent paystub(s) showing the past 30-days of employment
- Most recent federal tax returns for two years (all pages, all schedules)
- Most recent W2’s for two years
- For self-employed, please contact us
- Certificate of Eligibility and DD-214 (for VA loans)
Verifying and sourcing the cash to be used for the purchase of your new home is a critical step and may cause stress if not fully understood. Examples of sources of borrower funds include:
- Investment accounts (stocks, bonds, mutual funds)
- Loans or withdrawals from retirement accounts such as a 401(k)
- Gifts (must be documented)
- Sou-sou money (must meet guidelines)
We will provide you with a “Where Will Your Cash Come From?” worksheet.
Below is the list of usual requested documents. Please provide all pages, even if blank.
- Past two month’s bank statements
- Past two month’s investment accounts
- Recent quarterly retirement statement
- Will you be receiving a gift or utilizing sou-sou funds? Additional information will be requested
- Additional information will be requested if you own other property
We will review your mortgage credit report with you. To do so, we will need your:
- Current home address
- Legal name
- Date of birth
- Place of birth
- Social security number
A mortgage credit report is a more detailed report than the available free consumer credit reports. The credit scores may be different for various reasons. Also, the mortgage credit report also checks for fraud and public records. You will receive a copy of your mortgage credit report. We will help you understand your credit report and make sure there are no errors on your report. Studies show that over 20% of credit reports have wrong information.
Our team has closed thousands of purchases. The key to a smooth transaction is organization and communication. We help each of our clients to be well prepared, to gather the necessary documentation, and to understand the mortgage application process.
Please contact us to better understand the buying mortgage process.
Down Payment Requirements
Down payment amounts can vary based on many factors from loan programs to credit qualifications. In today’s market a 5% to 20% down payment is typical. But there are options to purchase a home with a lower down payment. Some mortgage programs, such as a VA loan for military members, are available with no down payment. USDA loans also allow for a no down payment option. FHA loans have only a 3 ½% down payment which may come from a gift. There is also a new loan program that allows the lender to provide towards the down payment.
The best answer to how much money down is it depends are your goals and financial situation. Please contact us to better understand what options are available for you.
There are many different types of loan programs. For conventional loans (“regular” loans), the advantage of putting 20% down is you will avoid paying mortgage insurance. Other loan programs may require mortgage insurance regardless of the percentage down while VA loans have no ongoing mortgage insurance even with no money down.
We’ll be happy to provide you different examples and the associated cost for different down payment options.
Depending on the loan program, gifts can be used to meet the cash requirement towards the down payment and closing costs. Gifts must be accompanied by a letter specifying that no repayment is expected, and the source of the gift must verified by usually providing copies of the gift donor’s bank statements.
Our friendly suggestion is to allow us to share the guidelines for gifting with the person who will be giving you the gift. This will minimize any miscommunication or misunderstanding between you and the donor.
The general rule is no. The concern is this could result in an inflated selling cost or loan fraud. However, a home seller is usually allowed to pay the buyer’s settlement charges including closing costs, real estate taxes, property insurance, escrows, and prepaid items, which may help free up more funds to contribute toward the down payment.
We are available to discuss with you and your real estate agent about how best to structure your purchase transaction.
For certain qualified home buyers, a VA (Veterans Administration) backed loan can be a great way to afford to purchase or refinance a home. Helping Hands Community Partners has experienced licensed loan officers who will be happy to explain how each one works.
Veterans of United States military service, active duty military, certain reservists and National Guard members, and certain surviving spouses may be eligible for a home mortgage program that is backed by the federal government through the Veterans Administration (VA). Helping Hands is approved to educate and, when appropriate, arrange VA home loan financing.
Some of the advantages offered by a VA home loan include:
- No down payment (so long as the sale price does not exceed the appraised value)
- No annual mortgage insurance required
- Closing costs may be paid by the seller
- No penalty for early payoff of the loan
- You do not have to be a first-time homebuyer
- You can re-use the VA benefit for future mortgages
- VA-backed loans are assumable so long as the person assuming the loan qualifies
- No up-front VA funding fee for disabled veterans
For certain qualified home buyers, an FHA (Federal Home Administration) backed loan can be a great way to afford to purchase or refinance a home. Helping Hands Community Partners has experienced licensed loan officers who will be happy to explain how an FHA loan works.
The government insures FHA loans to allow a greater number of homeowners to own or refinance a home of their own. A variety of FHA mortgage programs are offered to fit your needs. There are several different types of FHA loans. We can analyze your current lifestyle and financial situation and help you determine which is the best choice for your needs.
Some of the advantages offered by a FHA home loan include:
- Low down payment of 3 1/2% (so long as the sale price does not exceed the appraised value)
- Closing costs may be paid by the seller
- No penalty for early payoff of the loan
- Down payment and settlement charges may come from a gift
- Lower credit scores are generally accepted compared to conventional loans
- Higher debt-to-income ratios are generally accepted compared to conventional loans
- You do not have to be a first-time homebuyer
- Non-occupant co-borrowers are allowed
- May purchase up to a 4-unit multifamily with no prior landlord experience with only a 3½% down payment
- Renovation loans for purchase (with only 3 ½% down) or refinancing allowed under the FHA 203(k) streamline and full FHA 203(k) renovation programs
- FHA loans benefit many first-time buyers who have not been able to save money for large down payments such as recent college graduates, and newlyweds
No two homes are alike, and no two homebuyers or refinancing scenarios are the same. Our mission is to provide information and education about the myriad of available home loan programs. And, when appropriate, we can arrange the mortgage that fits your goals and budget. Your choice of mortgage financing will make a difference in your monthly housing payments.
For first-time buyers or families just beginning to think about moving, our home buying workshops are an excellent approach to get ready to get ready to purchase.
Not sure you’ll qualify? Have you been denied? Don’t despair! Contact us and we’ll do our best to implement a plan that will meet your housing needs.
Below is a sample of the many loan programs and property types that are available. The best advice is to contact us and let us help you determine which one is best for you.
In today’s lending market, there are literally hundreds of different loan variations. Instead of promoting a particular loan option, we believe it is better to review your unique financial situation and homeownership goals. Then we discuss which loan programs you would qualify for and then identify the one that meets your needs.
No two homes are alike, and no two borrowers are the same. Click here for a sample of the myriad of Loan Programs.
Below is a sample of available loan programs. Please note, not all loan programs are available to all borrowers. We are happy to explain each loan program’s lending guidelines and determine which one(s) will best meet your goals. which we are happy to review with you.
- Conventional loans
- FHA loans
- VA loans
- Fannie Mae loans
- Freddie Mac loans
- USDA loans
- DU Refi Plus loans
- HARP loans
- HEMP loans
- High loan balance
- Jumbo loans
- Single family homes
- Multi-family homes (1-4 units)
- Vacation homes
- Second homes
- Investor properties
- FHA approved condominiums
- VA approved condominiums
- Manufactured or mobile homes (must own land)
- Non-warrantable condominiums
- Renovation loans
- FHA full 203(k) loans
- FHA streamline 203(k) loans
- FHA 203(b) single family loans
- FHA 203(b) multi-family loans
- FHA 203(c) condo loans
- Home Equity Conversion Mortgages
- Reverse mortgages
- Fixed rate reverse mortgages
- Adjustable rate reverse mortgages
- Adjustable Rate Mortgages (ARMSs)
- 1/1 ARMs
- 3/1 ARMs
- 5/1 ARMs
- 7/1 ARMs
- 10/1 ARMs
- Fixed Rate Loans
- 30-year fixed rate loans
- 25-year fixed rate loans
- 20-year fixed rate loans
- 10-year fixed rate loans
- High debt-to-income ratio loans
- Challenged credit loans
- N0 money down loans
- Low or no closing cost loans
- Commercial property loans
Your Credit Score
Having good credit is essential because so many of the things that we buy are financed or purchased on credit. A network of credit reporting agencies keeps track of every person who buys on credit. Each time you apply for credit, the prospective lender will check your credit report with at least one of these agencies to obtain your “credit score.” Your credit score is a numeric grade of your credit history.
Getting a mortgage loan these days without a credit score can be difficult. And obtaining a home mortgage in Massachusetts or Rhode Island with a low credit score may result in paying higher interest rates on the loan.
The amount of interest you pay on a fixed rate fully amortizing loan is a function of three things: 1) the amount you borrow; 2) the term of the loan; and 3) the interest rate, which is expressed as a percentage. Lenders take in account many factors, including employment, salary, savings, and debt-to-income ratio when they determine your mortgage rate. However, your credit score is a key indicator of the rate you will likely receive.
Many borrowers are confused when they discover that the credit score used by a mortgage lender is not the same as the consumer credit score they may have received from one of the free on-line credit reporting offers. It can be quite frustrating to learn that a lender is using a lower credit score than you feel you have earned!
The primary reason for the credit score differences is a mortgage credit report is based off a maximum score of 850 whereas the consumer credit report score is based on a maximum score of 950.
Other reasons for credit scores differences is a mortgage lender uses unique scoring formulas that are weighted for mortgage-related factors. For most of us, a mortgage loan will be the largest debt we ever incur, and lenders are very careful in assessing whether a borrower will be able to handle the financial responsibility of a mortgage.
The three major U.S. credit bureaus ¬– Equifax, Experian and TransUnion — provide a “generic” three-digit credit score. When mortgage lenders obtain a “hard” mortgage credit report, the three scores take into account your personal history with prior and current home loans as well as payment histories for vehicle, installment, student, consumer loans and credit cards. These numbers can be higher or lower than the generic consumer credit report score.
While your consumer credit score can give you a good feel for where you might fall on the credit scale, it is not the final score on which you’ll be judged for a mortgage loan.
Despite the discrepancies, it’s still important for prospective homebuyers to review both their mortgage and consumer credit reports for accuracy. Studies have shown that credit reports may have errors.
One question everyone asks when seeking a home loan in Massachusetts and Rhode Island is, "What's the rate?" The correct answer is “it depends.”
The loan rate you pay depends on many variables. In fact, NO lender can truly quote a rate or closing costs without additional information. On top of that, interest rates change daily, adding even more confusion and stress when shopping for a mortgage.
Helping Hands Community Partners will help educate you about all the variables that impact the specific interest rate for different situations. Such variables include:
- Type of transaction: purchase, refinance, or reverse mortgage
- Owner occupied, second home, investor
- Mortgage credit scores
- Debt-to-income ratios
- Amount of down payment or equity
- Type of loan
- Existing or new construction
- Employment history
- Co-signor or co-borrower involvement
- Gift funds used
Interest rates that you see advertised should have a footnote explaining exactly what assumptions are being used to determine the rate. In many cases, the advertised interest rate is just a marketing technique to generate a lead call.
Helping Hands is determined to explain what factors are used to calculate the interest rate and to share different loan options with you. We utilize a proprietary technology that allows us to search loan products and lending guidelines from nationwide and local lenders giving us hundreds of different options. By asking you a series of questions, we can identify which loan programs you may qualify for and then choose the best options to determine the exact available interest rates and closing costs. This takes the guesswork out of the process and prevents surprises later.
What is PMI?
Mortgage Insurance (MI) is insurance that protects the lender in case a loan goes into default for lack of payment. It is required on most home mortgages when the borrower does not have a minimum of 20% down payment.
Anytime you have less than a 20% down payment on a purchase or less than 20% equity on a refinance, it is considered a higher risk loan for the lender, which is why mortgage insurance is generally required.
Even if you have an excellent credit record and the financial resources to handle your expected mortgage payments, a lender may still require mortgage insurance for any loan with a down payment of less than 20%.
MI can be good for buyers by giving them the flexibility of getting a mortgage with a much lower down payment. Some home buyers can’t afford a 20% down payment. MI allows a buyer to purchase property that they otherwise would have been unable to buy.
We have found it helpful to compare Mortgage Insurance (MI) to facial tissues. Facial tissue is the generic name while Kleenex is the brand name. In the mortgage world, MI is the generic name while the most recognized MI brand is PMI which stands for Private Mortgage Insurance. There are other MI brands including MIP (Mortgage Insurance Premium) for FHA loans. Just like Scotties or store brand facial tissues, three are also loan options where the lender pays the MI known as LPMI (Lender Paid Mortgage Insurance).
The key here is to get educated about when Mortgage Insurance is required, the cost, and the options on how to avoid it.
It depends. Your housing payment will comprise of the mortgage (principal and interest), real estate taxes, homeowner’s insurance, and applicable condominium or association fees. When required, mortgage insurance will be added to your monthly housing payment.
The cost of MI is typically based on the down payment percentage, loan program, debt-to-income ratio, property type, and the mortgage credit report score. There can be a wide range in the cost up-front and ongoing cost of MI. Please contact us and we’ll be happy to explain the various MI options and related expense.
Typically, MI is required on conventional loans for a minimum of 24 consecutive payments. After that time, if the borrower has built up 20% or more equity in the property and meets certain other conditions, the borrower may request to have MI removed.
For government insured loans such as FHA and VA loans, the mortgage insurance requirements are different. FHA loans have an upfront “mortgage insurance premium (MIP)” charge and an ongoing MIP fee. VA loans have an upfront “VA funding fee” unless the Veteran is disabled. There is no ongoing mortgage insurance fees for VA loans.
There are other variations of MI for different loan options including "self-funded MI" and "Lender Paid Mortgage Insurance (LPMI).” Please contact us for a more detailed explanation and the opportunity to determine which, if any, MI will meet your home financing goals.
Please contact us for information about Mortgage Insurance options.
Get Approved in Advance with Our "Good-As-Cash" Education Loan Program
Getting formally approved before finding a home gives you a tremendous advantage as you shop for your first home or search for a new home for your family.
When you make an offer to purchase property almost every Realtor or seller will ask if you are "pre-approved" or “pre-qualified” for your loan. Unfortunately, many times a borrower is denied during the loan process after being told that they were pre-approved or pre-qualified. This happens because sometimes lenders review upfront only a borrower's credit report and verbal information regarding income and assets. They issue a pre-approval with a proviso that states the pre-approval is subject to formal review or underwriting of income, asset, and credit documentation.
This wastes your time and money, not to mention causing emotional stress.
At Helping Hands Community Partners, we want to educate you about the home buying process and will invest our own time and resources to collect the necessary documentation and submit your information for formal underwriting by one of our many lenders. You will be approved for a certain monthly mortgage payment which will save you time once you find your new home.
That means when you make an offer on your new home your loan will already be approved! We call this "Good-As-Cash" and your formal loan approval certificate can accompany your purchase offer. This saves you time, minimizes stress, and will make your offer stronger than someone with only a pre-approval. Only an appraisal and legal review of the property you’re purchasing will be required.
Some of the advantages of having our "Good-As-Cash" approval in hand are:
- You are APPROVED for a home mortgage before finding a home (subject to appraisal and title)
- Shows proof you are not just pre-qualified or preapproved
- Know exactly how much you can borrow
- Speed the purchase process dramatically
- Realtors® and sellers will pay closer attention to your offer
- Go to the head of the home buying line!
If you just want to know approximately how much you can afford, pre-qualification is all you will need. If you’re a serious buyer, ready to shop for a new home and prepared to commit, then it is helpful to take the next step and get APPROVED for your Massachusetts or Rhode Island home loan through Helping Hands’ "Good-As-Cash" program. You’ll be well on your way to finding and purchasing your new home.
There is no cost to you to become educated and apply for your “Good-As-Cash” formal loan approval.
Today’s mortgage guidelines require all lenders to verify the identity, income, and sources of cash used in home financing. We will explain what is needed to make sure you understand the process. Helping Hands is ready to help you navigate through every step of the mortgage process.