Buying a Home Is an Investment: What to Tell Loan Applicants About the Process

A home is one of the largest investments a borrower will ever make. As such, the process involved with buying a home can be stressful. From getting preapproved to reviewing and signing stacks of closing documents, there are many steps a loan applicant must take.  

As a lender, you’re likely to receive a lot of questions from individuals and couples who are buying a house. You can easily answer those questions or potentially avoid them altogether by explaining the process to applicants in detail. This article clarifies what you should tell applicants who want to know the process of buying a home.  

Get Pre-Qualified First

As a lender, you should explain to borrowers what a mortgage pre-approval letter is and why it’s important. It shows applicants how much they’ll qualify for when applying for a mortgage loan. Getting pre-approved is wise because it helps borrowers set the parameters for their home-buying budget. It can also help them determine how much they should save for a down payment before buying a home.

Borrowers should know the factors that determine pre-approval outcomes, including credit profile, income, and savings. Most pre-approval letters are valid for up to 90 days from the date of issuance. Be sure to let applicants know how long your pre-approval letters last. You should also inform them of the specific types of financial documents they’ll need to present during the pre-approval process. Examples include income tax returns, income verification, and a qualifying credit score. A well-informed loan applicant is less likely to have questions or concerns throughout the application process.

Understand the Different Types of Mortgage Loans

When borrowers come to you for mortgage loans, they may not understand how many mortgage loan types are available. To help them make the best loan decision for their circumstances, plan to tell them about the various loan types. Most lenders classify these loans under four main categories: conventional, non-conventional, conforming, and non-conforming.

Explain that conventional mortgage loans are the most common type recommended to home buyers. Since they have a fixed rate, buyers don’t need to worry about unpleasant surprises down the road. But you should also explain the other loan types so buyers are at least familiar with them. It might be helpful to help them assess their situation and pick the best option for themselves. If you can empower them during this part of the process, they can take that instilled confidence with them as more decisions arise.

Know the Real Costs of Buying a Home

Approximately 70% of recent home buyers regret underestimating the total cost of buying a home. You can help avoid buyer’s regret by clearly detailing the real costs of buying a home to borrowers. Explain that loan applicants should plan to pay more than the amount appearing on the home’s listing. The loan estimate you provide should include all estimated costs associated with the applicant’s mortgage loan.

Many factors determine the final cost of buying a home. They can include real estate property taxes, mortgage interest rates, closing costs, and homeowner’s insurance premiums. Borrowers should calculate and prepare for all these extra costs when buying a home. That way they won’t be surprised when it’s time to review and sign closing documents.

Become Familiar With the Loan Underwriting Process

Many borrowers don’t know what happens after they submit their full loan applications. You can appease their curiosity and avoid unnecessary questions by explaining the mortgage processing and underwriting stages. Let the borrower know a loan processor will prepare their file for the underwriting process. As part of this preparation, the processor orders credit reports, tax transcripts, and a title search.

All of the borrower’s application information is verified by the processor during this stage. If there are any judgments, late payments, or collections on the applicant’s credit profile, a written explanation may be required. Once the processor is finished with the borrower’s documentation, the verified file is sent to an underwriter. The underwriter checks for possible red flags and ensures the borrower is capable of making the loan payments each month. If the underwriter approves, the closing documents will be sent to the title company or closing attorney.

Prepare to Sign a Stack of Closing Papers

First-time home buyers are often surprised by the large stack of closing papers they must sign when purchasing a house. The closing process can be intimidating even for seasoned home buyers. Carefully go over these documents with loan applicants and make sure they’re comfortable before signing.

Clearly explain any costs in the closing disclosure that may differ from the loan estimate you previously provided. You don’t want the buyers to think you’re intentionally withholding information from them during this process. Explain that once the buyers sign the closing documents, the deal is official, and they are the new homeowners. They should receive the keys to their new home from the seller at this time.

The home-buying process may seem simple to you as a lender, but it’s anything but simple to most buyers. Keep that in mind when you’re walking borrowers through the high-stakes process of purchasing a new home. Your straightforward approach and clear instructions can go a long way toward helping borrowers feel more comfortable.