NCUA Consumer Report: Understanding the Basics of Obtaining a Home Mortgage

NCUA Consumer Report: Understanding the Basics of Obtaining a Home Mortgage


WELCOME TO THIS NCUA CONSUMER
REPORT ON UNDERSTANDING THE BASICS OF OBTAINING A HOME
MORTGAGE. THIS REPORT IS PART OF A SERIES
DEDICATED TO INFORMING YOU ABOUT IMPORTANT CONSUMER FINANCIAL
PROTECTION MATTERS. SECURING THE FINANCING FOR THE
PURCHASE OF A HOME IS ONE OF THE MOST IMPORTANT FINANCIAL
DECISIONS YOU WILL EVER MAKE. IN THIS VIDEO, WE WILL TAKE YOU
THROUGH THE BASICS OF OBTAINING A HOME MORTGAGE LOAN, SO YOU CAN
MAKE INFORMED DECISIONS AS YOU SEARCH FOR YOUR DREAM HOME AND
THE RIGHT LENDER. IT’S IMPORTANT TO NOTE THAT
BUYING A HOME AND OBTAINING A HOME MORTGAGE INVOLVES COMPLEX
FINANCIAL DECISIONS. WE WILL COVER ONLY THE BASICS
HERE TO HELP GET YOU STARTED. THE HOME MORTGAGE LOAN PROCESS
CAN BE DESCRIBED AS HAVING 4 BASIC STAGES: RESEARCH,
APPLICATION, UNDERWRITING, CLOSING. RESEARCH. IF YOU ARE INTERESTED IN BUYING
A HOME, DETERMINE WHAT LOAN AMOUNT IS
AFFORDABLE FOR YOU, GIVEN YOUR OTHER PRIORITIES AND
FINANCIAL RESPONSIBILITIES. YOU’LL NEED TO TAKE A HARD LOOK
AT YOUR INCOME, EXPENSES, AND SAVINGS
PRIORITIES, AS WELL AS THE COSTS OF HOME
OWNERSHIP. LOOK AT COSTS SUCH AS
MAINTENANCE AND REPAIRS, HOMEOWNERS’ INSURANCE, AND
PROPERTY TAXES TO SEE WHAT FITS COMFORTABLY WITHIN YOUR BUDGET. THERE ARE WAYS TO HELP YOU
DETERMINE HOW MUCH YOU CAN AFFORD TO PAY EACH MONTH TO OWN
A HOME. HUD AND HUD-APPROVED HOUSING
COUNSELORS PROVIDE INFORMATION TO HELP YOU DETERMINE THIS
AMOUNT. IT’S NOT JUST HOW MUCH YOU
QUALIFY FOR, IT’S HOW MUCH YOU CAN AFFORD. FINDING THE RIGHT LENDER WITH
THE LOAN PRODUCT THAT BEST FITS YOUR NEEDS IS THE NEXT STEP TOWARDS SECURING A
HOME MORTGAGE LOAN. BE SURE TO SHOP AROUND FOR THE
LENDER THAT OFFERS THE RATES AND TERMS BEST SUITED TO YOUR
FINANCIAL SITUATION. THIS COULD SAVE YOU MONEY IN THE
LONG TERM. YOU MAY WANT TO CONSULT WITH
YOUR LOCAL CREDIT UNION ABOUT WHAT HOME MORTGAGE LOAN OPTIONS
THEY HAVE AVAILABLE FOR MEMBERS. IF YOU ARE NOT A CREDIT UNION
MEMBER, AND YOU ARE INTERESTED IN
LEARNING ABOUT HOW TO BECOME ONE, VISIT MYCREDITUNION.GOV ONCE YOU’VE SELECTED A LENDER
YOU WOULD LIKE TO WORK WITH, YOU MAY CONSIDER REQUESTING A
PRE-APPROVAL LETTER. THIS IS A LETTER FROM THE LENDER
THAT SAYS IT IS GENERALLY WILLING TO LEND TO YOU, UP TO A
PREDETERMINED PURCHASE PRICE AND BASED ON CERTAIN ASSUMPTIONS. KEEP IN MIND, LENDERS WILL CHECK
YOUR CREDIT WHEN ISSUING A PRE-APPROVAL LETTER. APPLICATION. AFTER CONDUCTING A SEARCH AND
DECIDING ON THE HOME THAT IS BEST FOR YOU, THE SECOND STEP
TYPICALLY INVOLVES COMPLETING A HOME MORTGAGE LOAN APPLICATION. THIS APPLICATION WILL GATHER
INFORMATION INCLUDING YOUR NAME, INCOME, GOVERNMENT ISSUED
IDENTIFICATION NUMBER, THE ADDRESS OF THE HOME YOU PLAN
TO PURCHASE, AN ESTIMATE OF THE HOME’S VALUE, AND THE LOAN AMOUNT
YOU WANT TO BORROW. YOUR SIGNED APPLICATION GIVES
YOUR LENDER PERMISSION TO OBTAIN YOUR CREDIT REPORT, SO IT CAN BEGIN ASSESSING YOUR
CREDITWORTHINESS. GENERALLY, FINANCIAL
INSTITUTIONS USE YOUR CREDIT REPORT TO MAKE AN INITIAL
DETERMINATION ABOUT THE AMOUNT OF FINANCING AND TYPES OF LOANS
FOR WHICH YOU MAY QUALIFY. IT IS IMPORTANT TO NOTE THAT
FEDERAL CONSUMER FINANCIAL PROTECTION LAWS APPLY TO CREDIT
UNIONS. THESE LAWS INCLUDE THE EQUAL
CREDIT OPPORTUNITY ACT, WHICH REQUIRES CREDIT DECISIONS
TO BE MADE WITHOUT REGARD TO SEX, MARITAL STATUS, RACE,
NATIONAL ORIGIN, RELIGION, AGE OR ANY OTHER
PROHIBITED BASIS. ADDITIONALLY, THE FAIR HOUSING
ACT MAKES MANY DISCRIMINATION PRACTICES IN HOME FINANCING
ILLEGAL. ONCE YOUR LENDER REVIEWS YOUR
COMPLETED APPLICATION, THE LENDER WILL EITHER DENY YOUR
APPLICATION OR CONTINUE TO EVALUATE YOUR APPLICATION AND
CREDITWORTHINESS. IF YOUR APPLICATION IS
ULTIMATELY DENIED, YOUR LENDER IS REQUIRED TO SEND
YOU A DOCUMENT CALLED AN ADVERSE ACTION NOTICE EXPLAINING THE REASONS WHY THE LENDER
DENIED YOUR LOAN. IF YOUR LENDER DECIDES TO
CONTINUE WITH YOUR APPLICATION, IT IS REQUIRED TO PROVIDE YOU
WITH A DOCUMENT CALLED A LOAN ESTIMATE WITHIN THREE BUSINESS DAYS OF RECEIVING
YOUR APPLICATION. YOUR LOAN ESTIMATE WILL PROVIDE
BASIC LOAN APPLICATION INFORMATION AND SPECIFIC LOAN
TERMS, INCLUDING THE FOLLOWING
ESTIMATED INFORMATION: YOUR TOTAL MONTHLY
PAYMENT; OTHER FEES, INCLUDING CLOSING
COSTS; AND THE AMOUNT OF CASH NEEDED TO
CLOSE THE LOAN AFTER YOU HAVE RECEIVED YOUR LOAN ESTIMATE YOU
SHOULD CAREFULLY REVIEW THE DOCUMENT TO MAKE SURE THAT THE
INFORMATION IS CORRECT AND MATCHES YOUR EXPECTATIONS. THIS INCLUDES CHECKING BASIC
ITEMS, INCLUDING THE SPELLING OF YOUR
NAME, AND MORE COMPLEX ITEMS, SUCH AS
WHETHER YOUR INTEREST RATE IS LOCKED, AND IS FIXED OR
ADJUSTABLE. IF YOU HAVE ANY QUESTIONS ABOUT
INFORMATION CONTAINED IN THE LOAN ESTIMATE, SPEAK TO YOUR LENDER OR A HUD- APPROVED
HOUSING COUNSELOR. THE LENDER IS
REQUIRED TO PROVIDE YOU WITH 10 BUSINESS DAYS TO ACCEPT THE
LOAN ESTIMATE. YOU CAN USE THE LOAN ESTIMATE TO
COMPARE LOAN TERMS AND PRODUCTS FROM OTHER LENDERS, WITHDRAW
YOUR APPLICATION OR DECLARE YOUR INTENT TO PROCEED WITH THE LOAN. THE LENDER CANNOT ASSUME THAT YOUR SILENCE MEANS YOU
INTEND TO PROCEED. IF YOU DECIDE TO MOVE FORWARD
MORE THAN 10 BUSINESS DAYS AFTER RECEIVING A LOAN ESTIMATE, THE
LENDER CAN REVISE THE TERMS AND ESTIMATED COSTS AND PROVIDE YOU
WITH A REVISED LOAN ESTIMATE. THE LENDER IS ALSO REQUIRED TO
GIVE YOU A REVISED LOAN ESTIMATE OFFER IF IMPORTANT INFORMATION
CHANGES. COMMON REASONS WHY YOUR LOAN
ESTIMATE MIGHT CHANGE INCLUDE IF YOU CHANGE THE AMOUNT OF YOUR
DOWN PAYMENT, IF YOUR CREDIT SITUATION HAS
CHANGED, OR IF YOUR LENDER COULD NOT
DOCUMENT YOUR OVERTIME, BONUS OR OTHER INCOME. UNDERWRITING. AT THIS POINT YOU WILL BE
REQUIRED TO PROVIDE ADDITIONAL FINANCIAL DOCUMENTATION TO YOUR
LENDER. THE LENDER WILL THEN UNDERTAKE A
MORE RIGOROUS EVALUATION OF YOUR APPLICATION, CALLED THE
UNDERWRITING PROCESS. THIS IS TO DETERMINE WHETHER THE
INSTITUTION WILL SUPPORT THE SPECIFIC TERMS OF THE REQUESTED
LOAN PRODUCT, YOUR ABILITY TO REPAY THE LOAN
AND IF IT WILL BE APPROVED. YOUR LENDER WILL BE IN TOUCH
WITH YOU IF ANY ADDITIONAL DOCUMENTATION IS NEEDED. DURING THE UNDERWRITING PROCESS,
THERE ARE ADDITIONAL STEPS THAT MIGHT NEED TO OCCUR BEFORE YOUR
LOAN IS APPROVED, DEPENDING ON YOUR SPECIFIC LOAN
APPLICATION. THESE MAY INCLUDE: OBTAINING AN
APPRAISAL OF THE MARKET VALUE OF THE PROPERTY; REQUIRING HOME
OWNERSHIP COUNSELING BY A HUD APPROVED HOUSING COUNSELING
AGENCY; OBTAINING AN INSPECTION OF THE
INTERIOR OF THE PROPERTY; OR PROVIDING COPIES OF FINANCIAL
DOCUMENTS SUCH AS TAX RETURNS, PAYCHECK STUBS AND EMPLOYMENT
REFERENCES. WHILE YOUR HOME MORTGAGE
APPLICATION IS UNDER REVIEW, YOU SHOULD: CONTINUE TO SAVE
FUNDS FOR CLOSING COSTS; MAINTAIN YOUR CURRENT FINANCIAL
POSITION BY MAKING GOOD CREDIT DECISIONS; AND THINK CAREFULLY
ABOUT MAKING ANY DECISION THAT COULD ADVERSELY IMPACT YOUR
FINANCES OR CREDIT REPORT. CLOSING. ONCE YOU’VE MADE IT THROUGH THE
UNDERWRITING PROCESS AND YOUR LOAN APPLICATION HAS BEEN
APPROVED, YOU’VE REACHED THE FINAL STAGE
OF THE HOME BUYING PROCESS. THIS IS THE CLOSING STAGE. IF YOU CHOOSE TO PROCEED WITH
THE LOAN, IT IS TIME TO SHOP FOR MORTGAGE
CLOSING SERVICES, WHICH MAY INCLUDE SERVICES SUCH
AS PEST INSPECTION, TITLE INSURANCE AND A SETTLEMENT
OR CLOSING AGENT. YOUR CLOSING COSTS MAY ALSO
INCLUDE RESERVES FOR PROPERTY TAXES, HOMEOWNERS’ INSURANCE,
TITLE TRANSFER TAXES AND PRIVATE MORTGAGE INSURANCE PREMIUMS. DURING THIS STAGE, THE ROLE OF A
CLOSING AGENT IS TO GATHER AND FINALIZE ALL THE LEGAL AND
FINANCIAL DOCUMENTS AND HANDLE THE MONEY INVOLVED IN YOUR
PURCHASE. IN SOME STATES, A SETTLEMENT
AGENT OR ESCROW AGENT DOES YOUR CLOSING. IN OTHER STATES, AN ATTORNEY MAY
BE REQUIRED. YOUR LENDER MAY ALSO GIVE YOU A
LIST OF COMPANIES OR AGENTS THAT PROVIDE CLOSING SERVICES. AT CLOSING, YOU WILL RECEIVE AND
BE ASKED TO SIGN SEVERAL IMPORTANT DISCLOSURES, INCLUDING
THE CLOSING DISCLOSURE, THE PROMISSORY NOTE, THE INITIAL
ESCROW STATEMENT, AND THE MORTGAGE OR SECURITY
INSTRUMENT. THE CLOSING DISCLOSURE, WHICH
CONTAINS THE ACTUAL TERMS AND COSTS OF THE TRANSACTION, AND
THE DETAILS OF WHO PAYS AND WHO RECEIVES MONEY AT CLOSING. THIS NOTICE MUST BE GIVEN TO YOU
AT LEAST THREE BUSINESS DAYS BEFORE CLOSING. THE PROMISSORY NOTE, WHICH DESCRIBES WHAT YOU
ARE AGREEING TO. IT WILL INCLUDE DETAILS SUCH AS
THE AMOUNT YOU OWE, THE INTEREST RATE OF THE HOME
MORTGAGE, THE LENGTH OF TIME FOR
REPAYMENT, AND THE DATES WHEN THE PAYMENTS
ARE TO BE MADE. THE INITIAL ESCROW STATEMENT
LISTS THE ESTIMATED TAXES, INSURANCE PREMIUMS, AND OTHER
CHARGES THE LENDER ANTICIPATES PAYING FROM YOUR ESCROW ACCOUNT DURING THE FIRST
YEAR OF YOUR LOAN. THE MORTGAGE OR SECURITY
INSTRUMENT EXPLAINS YOUR RIGHTS AND RESPONSIBILITIES AS A
BORROWER. THIS INSTRUMENT ALSO GRANTS THE
LENDER THE RIGHT TO FORECLOSE ON YOUR HOME IN THE EVENT THAT YOU
FAIL TO MAKE PAYMENTS. YOU MAY ALSO RECEIVE ADDITIONAL
STATE AND LOCAL GOVERNMENT DOCUMENTS, AS WELL AS DOCUMENTS
ADDED BY THE LENDER. YOU SHOULD REVIEW ALL DOCUMENTS
CAREFULLY AND POINT OUT ANY INCORRECT INFORMATION, CONCERNS OR QUESTIONS YOU HAVE
TO THE CLOSING AGENT. REMEMBER, RECEIVING THESE
DOCUMENTS DOES NOT MEAN YOU ARE OBLIGATED TO ACCEPT THE LOAN. YOU HAVE A RIGHT TO UNDERSTAND 100 PERCENT OF WHAT
YOU ARE SIGNING. ASK QUESTIONS UNTIL YOU FEEL
COMFORTABLE WITH EVERYTHING. WALKING AWAY AT CLOSING MAY BE
BETTER THAN SIGNING A DEAL YOU’RE NOT COMFORTABLE WITH. ONCE ALL THE DOCUMENTS HAVE BEEN
SIGNED, AND YOUR CLOSING AGENT HANDS
OVER THE LOAN PROCEEDS CHECK TO THE SELLER’S AGENT OR VERIFIES
THAT FUNDS HAVE BEEN WIRED, YOU NOW OWN A HOME! THANK YOU FOR TAKING THE TIME TO
LEARN MORE ABOUT HOW TO OBTAIN A HOME MORTGAGE LOAN. WE HOPE THIS INFORMATION IS
HELPFUL IN YOUR PURSUIT TO BECOMING A HOMEOWNER. THE NATIONAL CREDIT UNION
ADMINISTRATION PROVIDES ADDITIONAL RESOURCES FOR
POTENTIAL HOME BUYERS THAT ARE AVAILABLE AT MYCREDITUNION.GOV. THESE RESOURCES INCLUDE
ADDITIONAL INFORMATION ABOUT HOME OWNERSHIP AND
HOME MORTGAGES, CREDIT REPORTS AND
CREDIT SCORES, AND OWNING VERSUS RENTING. THE BUREAU OF CONSUMER FINANCIAL
PROTECTION ALSO OFFERS HELPFUL RESOURCES FOR HOME MORTGAGE
BORROWERS. FOR MORE INFORMATION AND VIDEOS
LIKE THIS ONE, VISIT MYCREDITUNION.GOV.

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