Hi, Don Thompson, you local real estate expert advisor here again to talk to you about the mortgage application process that you’re about to go through.

At this point in the home buying process, you’ve found a home and come to an agreement with the seller regarding the price and terms of your home purchase.

If your ability to buy this home is dependent on you being able to get a mortgage, you should have a mortgage contingency clause in your agreement. This clause will specify the type of loan you are applying for, the amount of the loan required and the date by which you should have received a loan commitment from your lender. Each of these details are critically important for the successful transaction.

I know you’ve been pre-approved for your mortgage but now you have to make a formal application to your lender for a loan, which now includes the property.

You’ll now have to give your lender a wide range of documents to verify and confirm all the information you gave them for your pre-approval. You may have given them some documents already, like pay stubs and bank statements...these will have to be updated. Your credit may be pulled again and your debt obligations reevaluated. As a word of caution… DO NOT CHANGE YOUR FINANCIAL STATUS for anything during the application process.
Don’t buy or lease a new car! Don’t take out a new credit card, even if you get one of those offers with no interest for a year for transferred balances and don’t go off and charge a bunch of furniture for your new home. The bank will check you credit and debt levels right up to the time of the closing, checking to make sure that you haven’t gone out and borrowed more money, which can change your debt obligations and maybe change your ability to get the mortgage.

I repeat, DO NOT do anything especially without checking with your loan officer to see what the ramification might be.

OK enough preaching about that.

In addition to the lender reviewing all of your paperwork, they are going to hire an appraiser, you’re going to pay for the appraiser, but they hire them. The appraiser's job is to visit the property and report back to the lender with their opinion of the value of your new home. They’re going to compare your new home with similar properties that have sold recently. They will make adjustments to the sales prices of these properties to reflect any physical differences between the homes, like numbers of bedrooms or baths, square footage of house, size of yard and several other categories

The lender uses the appraisal to determine if there is enough value in the property to give you the amount of the loan you requested and to determine if there are any obvious physical deficiencies or safety issues that might be of concern. This is especially true with government loans, FHA, VA, for example.

Regarding the amount of loan, the bank will lend you based on the purchase price or the appraised value, whichever is lower. If the appraisal is higher than your purchase price, your loan will be based on the price you’re paying and if the appraisal comes in lower than you sale price, the lender will want to adjust your loan amount down to reflect that value. Doesn’t mean you can’t buy the house, just means that the seller will have to lower their price, which they are not obligated to do, or you can come up with extra cash.

The loan process can seem painful at times, the lender asking for this piece of paper then that one.
Update this bank statement and now you need to give them a new pay stub. It’s just the way it is and you need to respond to any request from your lender in a timely fashion. If you don’t your file can just be sitting on someone’s desk waiting for you to give them what they want.

This is a hurry up and wait type of process. Now you just wait for your loan approval

I will cover what to look for in your loan commitment and what happens next in my next video.

Call or text me at 413-221-9981 and I will be happy to advise and guide you through the home buying process.
Thanks for watching and have a great day.