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How Does the Mortgage Process Work?
The first step in getting a mortgage is filling out the application which can be found at the lender’s place of employment. At the time the application is submitted, fees are collected. These fees cover the cost of credit checks, underwriting, and appraisals. There may also be other fees so that the people who perform these jobs get paid. There are also fees known as “points.” A point is simply a percentage of the loan and they come as two different types: origination fees and discount fees. Origination fees are collected by the lender for finding the loan. Usually, it is only one point, or 1% of the loan. For a $100,000 loan, this is a considerable amount of money ($1,000). Discount fees are inversely related to the interest rate. The higher the discount fee, the lower your interest rate will be, and vice versa.
After all of the fees have been paid, the loan is processed by the lender. This entails a lot of phone calls and e-mails. Ultimately, the loan goes to an underwriter, where it is decided whether the loan is approved or not.
This seems like it should be the end of the process, but it’s not. When you first apply for a mortgage, you go to a lender, better known as a bank, credit union, or savings and loan agency. This is known as the primary market. But, as with what happened in the late 1970s, mortgages are often not available without the secondary market. These Federal organizations, such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), buy mortgages from the primary lender in order to avoid cash shortages on the lender’s part.
The secondary market has certain requirements that it looks for in loans that they buy. A borrower must have sufficient cash for a down payment, credit ratings that indicate future payment, regular income and employment, and sufficient property value. Because of this, the primary lender of the loan will often use the secondary market’s guidelines as their own. Credit is by far the most important of the four guidelines.
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