Every process has a life cycle, and so does the process of acquiring a mortgage. It particularly is of vital importance, especially for those who are planning to buy a home.
The mortgage life cycle starts when an individual decides to purchase a house and approaches a financial institution for the loan. It continues till the borrower repays the final payment to the mortgage provider.
Among the common money lending institutions that offer mortgage services, there are banks, credit societies, and mortgage companies. Mortgage is only offered to those individuals who can successfully prove their financial capability to repay the loan. The interest to be charged on the mortgage is then decided by the lender and depends on the various documents provided by the borrower endorsing his or her financial status. These documents usually include the income certificate, the credit score, and documents pertaining to any other loans that have been borrowed. The duration to pay back is chosen by the borrower which can also influence the rate of interest. The longer the duration, the lesser is the interest and vice versa.
The borrower is allowed to pay back the loan in easy installments, usually on a monthly basis and the property that is mortgaged is usually held as collateral. While there are different types of mortgages, all of them follow a similar life cycle as described below.
- Once the application for the loan is submitted, it has to go through various processes to attain the final approval. The mortgage application has to be signed by the applicant and has to be submitted to an underwriter, which is usually a bank. The loan officers at the bank would then put it forth for processing. Subsequently, the financial institution, which the borrower wants to get the mortgage from, would then consider the loan in earnest.
- The underwriting agency checks the credit score of the applicant and also evaluates the risk of issuing the loan. Various factors ranging from the type of the property, its value, location, etc., are taken into account. Risk factors are evaluated on other aspects concerning the applicant. They can range from the income sources of the applicant to the other properties that belong to him or her. The size of the applicant’s family is taken into consideration apart from the other loans that are acquired on his or her name. Evaluation of risks also include analyses of the defaults, if any, and much more such things are all taken into account. All the information provided by the applicant is verified and the value of the property is also appraised. If the individual has another existing mortgage, then the lender of that loan would also be consulted.
- Once the loan is approved and the property is mortgaged, the borrower becomes the legal owner of the estate. However, the property acts as the collateral and the documents of the ownership are in the custody of the lender. These documents would be handed back once the individual repays the entire loan. The repayment period can last for as many as 30 years, and also depends on the amount that has been borrowed. There would be certain clauses that the homeowner has to abide. He or she would not be allowed to rent the property they have mortgaged and have to be regular in paying the monthly installments. Unless a bimonthly payment is agreed upon, the borrower is responsible for making monthly payments, pay the homeowner’s insurance and other stipulated taxes. Once the full amount is repaid, the lien is removed from the property and the borrower becomes the legitimate owner of the house in totality.
- The closure of the loan is also a detailed process. When the lender secures the funds of the mortgage and approves the application to close the loan, the closing process begins. Most of the mortgages have a closing cost and could include expenses such as title insurance, attorney’s fees, application fees, etc. When the mortgage closes, the debt becomes the legal responsibility of the borrower. Also, the house would have a legal lien attached on it on the name of the lender.
Several things happen once the loan is closed, and it usually depends on the lender. The common action taken by the lender upon the closure is to sell off a part, or sometimes the entire loan, to other lenders. This action can offset the expenses of the lender but the right to collect the loan might still be retained.
- Understanding the mortgage life cycle is vital for those who are planning to buy a home.
- Once the application for the loan is submitted, it has to go through various processes to attain the final approval.