Whether you’re buying your first home, considering a second mortgage, refinancing, or considering a reverse mortgage the loan process can be confusing and complicated. As you embark on one of the biggest financial decisions you’ll make in your lifetime, use this Guide to understand and to help navigate this process.
Washington State is a leader when it comes to passing and regulations that protect consumers and ensure sound business practices in the mortgage industry. This booklet was updated in April 2009. Visit dfi.wa.gov/consumers/education/home.htm to verify you have the most recent information regarding the mortgage industry. Educating yourself can help you avoid common pitfalls and assist you in determining what type of home loan is best for you.
The Department of Financial Institutions licenses and regulates a variety of Washington State Financial Service providers such as banks, credit unions, mortgage brokers, consumer loan companies, money transmitters, payday lenders and securities broker-dealers and investment advisors. DFI also works to protect consumers from financial fraud.
BUILDING A STRONG FOUNDATION
Imagine building your house on the sand. When the first rainstorm blows through, your new house will most likely be washed out to sea. Without placing your house on a solid foundation you can not weather a disaster. Building a foundation of knowledge about the loan borrowing process is equally important. Here are five steps to help you begin your journey:
Beginning Your Journey
- Before you buy a home, attend a free homeownership education course offered by a HUD-approved housing counseling organization or agency.
- Gather all your financial documents; check your credit history and fix any blemishes on your credit before you apply for a loan.
- Determine how much home you can truly afford.
- Keep accurate notes; make a file and keep all loan documents and correspondence in that file.
- Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender. Contact the Washington State Department of Financial Institutions to ensure that you’re working with a licensed professional.
Construction Crew
Whether you’re buying a home for the first time or refinancing a loan for the third time, it’s important to know who the main players are and what roles they play in the transaction.
Here are Some Initial Introductions:
Borrower: a person who has been approved to receive a loan and is then obligated to repay the loan, and any additional fees according to the loan terms.
Selling Agent: the real estate agent obtaining the buyer rather than listing the property The listing and selling agent may be the same person or company.
Listing Agent: a real estate agent who represents the seller or buyer and works to find a listing.
Mortgage Broker: any person who, for compensation or gain, makes a residential mortgage loan or assists a person in obtaining or applying to obtain a residential mortgage loan.
Loan Originator: a person working directly for a mortgage broker or mortgage banker who takes a residential mortgage loan application or offers or negotiates terms of a mortgage loan, for direct or indirect compensation or gain.
Lender (a Bank, Credit Union, or Mortgage Bank): any person or entity loaning funds which are to be repaid.
Loan Officer: a person working directly for a bank or credit union who takes a residential mortgage loan application or offers or negotiates terms of a mortgage loan, for direct or indirect compensation or gain.
Title Company/Title Insurance Company:
a company that issues an insurance policy that guarantees an owner has title to real property and can legally transfer it to someone else. A title policy may protect the mortgage lender, the home buyer, or both.
Appraiser: a qualified individual who uses his or her experience and knowledge to determine the value of a home and prepare the appraisal estimate.
Inspector: a designated agent who inspects and documents the physical condition of the property as described and verified in an inspection certificate.
Escrow Agent/Agency: the person or organization having a fiduciary responsibility to both the buyer and seller to see that the terms of the purchase/sale (or loan) are carried out. Often referred to as “closing” the loan, independent escrow agents, title companies, attorneys and even the lender may serve in this role.
Understanding Your Credit
Credit provides a way to acquire merchandise or money with the understanding that you will repay the loan. Your history for paying your bills on time is collected by credit bureaus or credit-reporting agencies. These businesses gather, maintain, and sell information about consumers’ credit histories. They collect information about your payment habits from banks, credit unions, finance companies, or retailers.
Why is it Important?
Generally lenders look at several things: your income, your down payment or equity, your credit history, how much money you’ve saved, and the property you plan to purchase or refinance. When studying your credit history, almost all lenders look at your credit score and your debt-to-income ratio. Lenders use credit scores, known as FICO scores or VantageScore, as an important factor in the decision whether or not to offer credit. The scores can range from 300 to 900+ points.