An Overview of the Mortgage Process

House hunting can be an exhilarating process as you search for that perfect property. However, applying for a mortgage is often less enjoyable. Here’s an overview of how the mortgage industry works.

An Overview of the Mortgage Process

You have a good amount saved for a down payment and have started shopping for a home or found the perfect property. Now, it's time to enter the world of financing, also known as getting a mortgage. Understanding the mortgage process can help you navigate this complex journey more effectively.

What is a Mortgage?

A mortgage is a debt instrument that secures a cash loan to you for purchasing a home. In exchange for the loan, the lender places a first lien on the home for the loan amount. If you default, the lender can foreclose and sell the home to recover the debt.

Originating a Loan

Applying for a mortgage is referred to as originating a loan. The first step is to find a lender you are comfortable with. You may have a relationship with a bank, but many people choose to use a mortgage broker to find the best loan and terms to meet their needs. Different lenders offer different loans and terms.

Loan Application

As part of the origination process, you will fill out a detailed loan application. Depending on the loan type, you may need to submit documentation supporting your income claims and other financial information. While there are no-document or partial-document loan applications, most people do not qualify for these. Once your application is submitted, the lender will likely request additional information or documentation. This review process, known as underwriting, determines whether the lender will accept or decline your application. Often, the lender will add stipulations to address any concerns they have.

Closing the Loan

Once your loan is approved, you will close on your new home. Many people are surprised by what happens next. Typically, your mortgage lender will sell the loan to another entity to raise cash for issuing more home loans. While your original lender may continue to manage the loan administration, they often hand it off entirely.

Terminating the Mortgage

Your mortgage will eventually be terminated, either for positive reasons such as selling the home, refinancing, or paying off the balance, or for negative reasons like default or bankruptcy. Regardless, this overview outlines the basic structure of the mortgage industry and how your loan moves through it.

Understanding the mortgage process can help you better prepare for the journey ahead and make informed decisions when financing your new home.