Buyers Tutorial

The purpose of this section is to provide a step-by-step explanation of the main steps that happen when you buy a home and finance it with a mortgage. Once you're familiar with the basic steps in the buying process, then you can avoid getting lost in all the details and you can look at it with a "big picture" perspective. This helps eliminate a lot of potential stress and head-aches, and makes the whole process much easier.

Overview of the Buying Process

  1. Get prequalified or preapproved for a mortgage loan

  2. Select a home

  3. Negotiate a final price for the home with the home's seller

  4. Schedule an appraisal for the home (if required)

  5. If you were not initially preapproved, then select a loan with a loan originator

  6. Complete a 1003 applicatio

  7. Submit the loan to processing

  8. Address any issues that arise during processing

  9. Sign final loan docs at closing

Explanation of the Purchase Mortgage Process

1. Get prequalified or preapproved for a mortgage loan

In general, the first step in the buying process should be to speak with a mortgage company and get prequalified or preapproved. This is especially true for first time home buyers, who might not otherwise be sure about what kind of loan and loan amount they can afford. The difference between getting prequalified and getting preapproved is explained below.

A mortgage banker or broker prequalifies a potential borrower by going over basic credit, debt and income information that they have been told by the borrower. Borrowers can typically get prequalified with one phone call. After they've given the mortgage banker or broker their basic info, the mortgage banker or broker will then give them a maximum loan amount they could qualify for based on the information they've given.

A mortgage banker or broker preapproves a potential borrower by verifying their credit, debt and income information. This involves running a credit report on the borrower, and it may also involve filling out and processing a complete 1003 application form.

The mortgage banker or broker than gives the borrower a letter stating that they have been preapproved up to a certain amount, as long as standard conditions are met. Standard conditions include items like the property appraising for enough money and having a clear title report, and the borrower being able to document income and employment.

Note: If you're interested in getting preapproved for a mortgage with Arizona Mortgage Group, simply fill out our Quick Application. One of our loan originators will then call you within 1 business day and get you started on the preapproval process.

2. Select a home

Once you know how much money you can afford (and have already been approved for, if you're preapproved), then you can begin looking for a home. It's generally a good idea to work with a real estate agent to find a home, as a good real estate agent will be knowledgable about homes that are available in your area and what they're currently selling for. The real estate agent's commission for the services they provide is paid by the seller at closing, so there is no cost to a buyer for using their services.

3. Negotiate a final price with the seller

Unless you're interested in an area or a specific home that is in very high demand, then the final price of a home is negotiable. Typically, the potential buyer will submit an initial offer to the seller through the buyer's real estate agent. This initial offer will usually be somewhat lower than the asking price. The seller will then make a counteroffer that is between the original asking price and the buyers inital offer.

This process continues back and forth until both parties agree on a final selling price. Once a final selling price has been agreed on, then both parties sign a standard contract that specifies the home being sold, the parties involved and the agreed-on sales price.

4. Schedule an appraisal for the home (if required)

In general, the mortgage lender who will be lending the mortgage amount will want a current appraisal of the home before they make the mortgage funds available. The appraisal verifies the home's value to the mortgage lender, and ensures that the home has enough value to adequately secure the mortgage loan.

It is generally the buyer's responsibility to schedule and pay for an appraisal, though the mortgage company you're working with may credit the appraisal money back to you when the loan closes. Appraisals typically cost several hundred dollars, though the exact amount varies for each mortgage company and appraiser.

5. If you were not initially preapproved, then select a loan with a loan originator

If you were not originally preapproved, then you will still need to select a mortgage loan and get formally approved. (If you were originally preapproved, then you will be able to skip steps 5 and 6 and go straight to step 7.) Whether the mortgage company you're working with is a mortgage banker or mortgage broker, the person who will help you select a loan will be a loan originator (also called a loan officer).

A loan originator's job is to help borrowers select mortgage loans that are suited to their unique situations. Good loan originators are familiar with all the different types of mortgage programs available in today's mortgage market, and the pros and cons of each type of loan program. To help select the right mortgage loan for you, a loan originator will request basic income, asset and debt information from you (and the coborrower, if applicable).

The loan originator will then check your credit, and use the credit information and the information you've provided to select several loan programs that would be suited for your situation. The final choice of which loan program you go with will be up to you, but the loan originator can be a helpful consultant if you're unsure about a program or if you've got any questions.

6. Complete a 1003 application.

The 1003 (pronounced "ten-oh-three") is the standard, four-page mortgage loan application form. The purpose of the 1003 is to collect complete information about the borrower and co-borrower (if applicable), including employment information and asset/debt information. It also collects information about the property being purchased or refinanced, and the type of mortgage loan being used.

The 1003 is typically filled out over the phone or in person with a loan originator at their office. Some mortgage organizations, including Arizona Mortgage Group, also offer online 1003 that borrowers can fill out from their homes or any computer with Internet access.

Some mortgage companies require borrowers to fill out a 1003 as part of the preapproval process, while others do not. So if you were preapproved at the beginning of the process you may have already completed a 1003. If you haven't completed the 1003 yet, then you'll need to complete one at this point whether you were initially preapproved or not.

7. Submit the loan to processing

After you have completed the 1003, then your loan officer will collect any additional documents that are required by the lender for the selected loan program (W2's, bank statements, pay stubs, etc.) and submit the loan to processing. During processing, the borrower and co-borrower's (if applicable) credit history, employment history and debt/asset values will be verified.

In addition, the property being purchased or refinanced will also have its information verified. To make sure that the property has enough value to secure the mortgage loan (s), the mortgage lender will typically request an appraisal for the property. If the lender request an appraisal, it will need to be completed during processing and before the loan funds. (If you scheduled the appraisal right after signing the purchase contract, then you shouldn't run into any problems here. If you wait to schedule the appraisal, it might hold up the loan from closing.)

8. Address Any Issues that Arise During Processing

If any issues arise while your mortgage loan is in processing, then the processor (the person responsible for taking the loan through processing) will contact you to help you address them. Typical issues include requests by the mortgage lender for additional asset or debt information.

For instance, a mortgage lender might want to see bank statements that show where a certain amount of money came from and how it was put into an account. It is important to respond promptly to any requests for additional documents. This is especially true if your mortgage rate has been locked or if you want to close by a certain date.

Note: It is also a good idea to refrain from making any major purchases while your mortgage loan is in processing. This is because anything that increases you debt could potentially hold up your loan application.

9. Sign Docs at Local Title Company

The last step in the loan process is to sign the final loan documents (or docs). This normally takes place at a local title company in front of a notary public. If you're going to be making a down payment or paying closing costs, then you'll want to bring a cashier's check for the total amount (personal checks are generally not accepted).

It is important to review the documents at this point and make sure that all the information is accurate. Things to look for include: mortgage type, interest rate and closing cost fees. You'll also want to make sure that your name and address (and the co-borrower's name and address if applicable) are accurate.

Once all the mortgage loan documents have been signed, then the loan can close and the loan money will become available. Loans typically close shortly after signing.

Note: For refi and home equity loans, it is required by law that the borrower (and co-borrower if applicable) have three days to review the loan documents before the loan can close.


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