Home Mortgage Process
A home mortgage is a loan a bank issues to an individual to purchase a house, condominium, town home or other residential property. People typically use mortgages as a way to purchase homes for which they do not have enough cash to pay out of pocket. These loans, which typically last for 30 years, include the total value of the home, plus interest and fees. Although millions of Americans have home mortgages, getting a loan is a complicated process.
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Mortgage Application
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The first step in the home loan process is filling out a mortgage application. Banks and mortgage lenders use this document to determine whether a prospective buyer is a good fit for a mortgage. This document includes a prospective buyer's name and Social Security number, as well as information on his residence history, employment history, and current workplace, assets and debts. Additionally, the application includes information on the house the prospective buyer wishes to purchase, such as location, age and value.
Credit Check
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Next, the bank or mortgage lender will check the applicant's credit file to ensure she does not have a negative credit history. Typically, banks check Fair Isaac Company -- FICO -- credit scores from Equifax, Experian and TransUnion, the three major credit bureaus. According to the U.S. Federal Reserve Board, mortgage lenders look for applicants who have a lengthy history of on-time bill payments, responsible credit card use and a lack of bankruptcies or foreclosures. Additionally, as of December 2010, banks will not give mortgage loans to applicants with credit scores under 620.
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Calculating Mortgage Amount
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After a prospective homebuyer passes the application process and credit check, a bank will calculate the loan amount she is eligible to receive. Additionally, the mortgage lender will determine the amount she must pay per month. These amounts are based on the prospective buyer's credit history, current income and assets. The lender will also send an appraiser out to the home to determine its value. The Federal Reserve Board states lenders often loan 80 to 90 percent of a home's value and expect the prospective buyer to pay the rest in cash.
Mortgage Signing
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After the prospective buyer passes all the requirements and the lender appraises the home and drafts terms for the loan, both parties will schedule a meeting to sign the mortgage document. At this meeting, the lender presents the mortgage contract to the prospective buyer, who will read and sign the contract.
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