Fannie Mae Foundation: How to Buy a Home

Step 3. Processing the loan

1. If you can, get copies of a sample property appraisal, survey, and/or
commitment letter. If you have bought a house, you might bring in your own or copies provided by another teacher. It makes a big difference to have
students see what the real documents look like.

2. Point out that most mortgage loans take from four to eight weeks to process. Discuss at what point students think it might be a good idea to call the lender to see when
a decision might be reached.

If your application is rejected
Go over the reasons why a mortgage loan might be rejected. Make sure
students understand that just because they were rejected by one mortgage lender does not mean that they will be rejected by another lender.

A person who has his or her loan rejected may want to schedule an appointment to speak with the lender to find out exactly why the loan was rejected. It may be that some information on the application was simply incorrect or misunderstood.

Point out that there have been cases where a loan was initially rejected, but after a second interview, the lender was persuaded to reconsider and grant the loan, or find another kind of loan product that would qualify the potential home buyer.

This is also a good time to talk further with students about special loan
programs.

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!

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.

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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