The Mortgage LoanNow that you have a signed contract in hand, you are ready to make formal application for your mortgage loan. If you have already been pre-qualified or pre-approved, a good portion of your work is done.
Your lender's work continues. Your loan originator will order and gather the results of your credit report, employment verification, title search, appraisal, location service, tax duplicates, and inspection reports. All these documents, in some way, establish the value of the property as collateral for the lender and as an investment for you. It is a process that protects you as much as your lender. Let's look at these activities in greater detail, so you will understand the purpose and significance of each one.
The Title SearchThe title gives legal evidence of your ownership. Your lender protects its interests and yours by making sure the sellers are able to convey good title, a term that describes a title that is free and clear of all liens and encumbrances that may affect your rights of ownership. To do that, your lender will arrange for a title search to make sure the sellers truly own what is about to be conveyed to you. Any person holding an interest in the property you are about to purchase must be involved with and agree to the transaction. A property owned by two or more people cannot be conveyed by one of them. Ask your Realtor® to use the same title company that performed the last search on the property. It may save you some money and speed up the process. During the title search, the title company examines the history of ownership to make sure each prior transfer of title was handled properly. Besides confirming the right of the sellers to transfer ownership, the title search will reveal any claims on the property, including all liens, encumbrances, restrictions, and easements.
Title InsuranceJust in case the title company overlooks some defect in the title (or a long lost heir shows up after final closing), your lender will arrange for title insurance to protect its interests in the property. You may also want to consider purchasing additional title insurance that will cover your interests as well.
The AppraisalThe value of the home determines the maximum value of the mortgage. For this reason, your lender will arrange for an appraisal on the property to evaluate its worth. The appraisal report figures heavily in the loan approval process. Most appraisers will compare the property you want to purchase to similar homes that have sold recently in the same market. If you shopped wisely, evaluated your location, and negotiated a fair price, the appraisal should present no problem. However, if it comes back lower than the contract price, you may have to make up the difference by increasing your down payment.
The Location ServiceThe location service confirms the physical boundaries of the property, helping protect both buyer and lender. Among other assurances established by the location service, you know that the neighbor's concrete driveway doesn't extend three feet onto your property or that your fence doesn't extend three feet onto your neighbor's property. As you did for the title search, ask your Realtor® to use the same location service company that performed the last study of the property. It may save you some time and money.
The Tax Duplicates
The title company will obtain a tax duplicate to discover if there are any delinquent taxes on the property. The tax duplicate may also be used to prorate taxes between you and the seller on the date of closing.
The Mortgage Loan
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