Once you’re preapproved, find a home, research comparables, get a home inspection, ask the seller to agree to seller concessions, figure out how much money you’ll need to have in escrow and how much of your monthly payment may go toward PMI, you’ll be ready for title work so you can get to closing.

Did any of that make sense?

If not, it will by the end of this article.

So you want to start looking for a house, but you think the mortgage process may be intimidating or maybe you’re not familiar with how a mortgage works. Either way, there’s plenty of jargon you’ll encounter along the way, so here’s a beginners guide to some terms that will help you before and during closing.

Before you start house hunting, you should know what your budget is, so you’ll want to get a pre-approval. It’s not unusual for a real estate agent to require a preapproval letter before they’ll start showing you homes. A pre-approval will determine how much you’re eligible to borrow before you apply for the actual loan. Part of that process includes verification of income and an assessment of your assets, which includes your bank accounts, investment accounts, retirement funds and any real estate.

Along with assets, your lender will also take into consideration your debt-to-income ratio (DTI). Your DTI is the comparison of your gross income (before taxes) to your monthly expenses. The ratio is used to determine how easily you’ll be able to afford your new home. For example, the FHA usually requires your monthly mortgage payment to be no more than 29% of your monthly gross income.

Once you know how much you’re preapproved for, you’ll want to get an estimate on all of the costs you’ll likely have to pay at closing. You do this by getting a Good Faith Estimate (GFE) or Loan Estimate. A GFE estimates the expenses associated with a home loan, including inspections, title insurance, taxes and more. Additional costs may apply depending on your state, loan type and down payment amount.

When you’ve found a home you want to make an offer on, you should do some research oncomparables. Comparables are properties similar to the house under consideration, have reasonably the same size, location and amenities, and have recently been sold. Knowing a fair market value will help you decide on a price that you’re comfortable to offer.

Comparables are also used by lenders during the appraisal process. A home appraisal is a written analysis of the estimated value of the property and is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The appraisal will protect you from owing more on your loan than your home is worth, which is known as being underwater.

Another process that will help protect you financially is a home inspection. A home inspection is exactly what it sounds like – a complete and thorough inspection by a professional who knows what to look for. It will reveal any issues from small to large that the property may have so you know what you’re getting into before purchasing a home.

If there are any glaring issues, you can request that the seller fix them or lower the price to offset the cost of repairs – these are two kinds of seller concessions. A concession is when the seller agrees to cover some, or all, of the costs associated with buying a home. Another popular seller concession is help covering closing costs.

Closing costs, also known as settlement costs, are fees charged for services that must be performed to process and close your loan application. These are the fees that were estimated in the GFE and include the title fees, appraisal fee, credit report fee, pest inspection, attorney’s fees, taxes and surveying fees, among others.

Another term that might come up is private mortgage insurance (PMI). If your down payment on the home is less than 20%, you’ll have PMI on your loan. If you’re obtaining an FHA loan, a mortgage insurance premium (MIP) is required. This kind of insurance doesn’t help you out, but rather protects the lender in case you default on your loan.

Another part of your monthly mortgage payment involves taxes and insurance. An escrowaccount is an account that a lender uses to hold a borrower’s monthly payments toward property taxes and homeowners insurance so you don’t have to worry about coming up with a large lump sum when they’re due.

One of the most important parts in the process is title work. The title is the actual document that gives evidence of ownership of a property and indicates the rights of ownership and possession of the property. Individuals who’ll have legal ownership of the property are considered “on title” and will sign the mortgage and other documentation. Before your closing, a title search will be conducted to ensure that a proper chain of ownership for the property is documented, and that its not subject to any unacceptable liens (loans) against the house.

So let’s try this again…

Once you’re preapproved, find a home, research comparables, get a home inspection, maybe ask the seller to agree to seller concessions, figure out how much money you’ll need to have in escrow and how much of your monthly payment will go toward PMI, you’ll be ready for title work so you can prepare for ownership of the property and get to closing.

Now does it make sense?

Comment below to ask us about anything else you may find confusing!

Posted by: Carlson Mortgage – a St. Louis mortgage broker providing home loans in the state of Missouri. We can be reached at (314) 329-7314 seven days a week. Let us be your source for some of the lowest mortgage interest rates in St. Louis on conventional, FHA, Veterans (VA), USDA, Jumbo and condominium (condo) financing. We have 11 years of experience providing home loans and mortgage services in St. Louis that are tailored individually to your unique needs and to your financial situation. We speak English, Spanish and Russian. Call us today to inquire about home loan interest rates. to get pre-approved for a purchase or a refinance mortgage, or if you have any general mortgage questions.

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