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Unit 3 : Lesson
2: How to shop for a mortgage loan
Step 3. Processing the loan
Once Tom and Mary completed their application,
the lender started to process the loan. To process the loan,
the lender looked at two things: whether the Millers could
afford the loan and whether the house they intended to purchase
was worth its price compared with other properties in the
neighborhood.
One of the first things the lender ordered
was a property appraisal to determine the market value of
the house. The appraisal compared the market value of the
house the Millers wanted to buy with the market value of
other nearby houses to make sure the house was worth what
the owners were asking.
At the same time, Mr. Harris ordered a
credit report on both Mary and Tom Miller. (The Millers
will have to pay for both the credit report and the appraisal
at the closing.)
A month later, Tom Miller contacted the
lender to check on when he and Mary could expect to hear
from them. “I was just getting ready to call you,”
he told Tom. “Your loan has been approved.”
Mr. Harris said a letter formally offering
them a loan, called a commitment letter, was
in the mail. The letter told Tom and Mary the amount of
time they had to accept the loan offer and close the loan.
Mary and Tom showed the letter to a real
estate attorney. Everything looked good. Mary and Tom signed
the letter and mailed it back. Now, they were ready to go
to closing!
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If your application is rejected
If your loan application is rejected,
you will need to learn why. Lenders are required to
explain in writing their decision to deny you credit.
Go back to your lender to find out the specific reason
your loan was rejected. You may be able to persuade
them to reconsider your application.
If not, ask for suggestions about
how you can improve your ability to get a mortgage.
Also, remember that just because your loan was rejected
by one lender does not mean that it would be rejected
by other lenders.
There are many reasons your loan
might be rejected. If it was rejected because you
don’t have enough income or savings, you may
be able to look into some of the special loan programs
mentioned in Lesson 1.
If it was rejected because the lender
feels the house is not worth what you are paying,
you may be able to go back to the seller to ask for
a lower purchase price or to ask for repairs to be
made.
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Getting a fair appraisal
After you apply for a mortgage,
every piece of information that you gave the loan
officer is verified (checked to see if it is true).
This includes checking to see if the home you are
buying is worth the price asked by the seller. The
value of your home is stated in a document called
an appraisal.
The lender hires an appraiser. The
appraiser will look at recent home sales in the area
near your new home. Generally three recent sales are
selected. They are called comparables. Based on these
comparables, the appraiser will determine what your
house should sell for. If the appraiser determines
your future home is worth less than what you have
agreed to pay, the lender may turn down the loan.
No two homes are exactly alike.
One has more bathrooms. Another has a porch or a finished
basement. The value of a house next door to a park
may be considered higher than the value of a house
next to a convenience store. There is a lot of room
for judgment in appraising the value of a house.
Federal law gives the borrower a
right to see a copy of the appraisal. It is a good
idea to get a copy and review the information.
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