Northampton Real Estate: How Mortgage Loans Work

Mortgage loans are used by people throughout the country to buy homes or invest in real estate property.  But, how many people actually understand how their home loans work?  Here's some helpful information that sheds light on the inner workings of mortgages as you prepare to buy Amherst-area or Northampton real estate.

A long time ago, when you borrowed your home loan from a financial institution, the institution would actually lend you the money out of its own funds.  Now, however, most home loans are backed by three major governmental institutions: The Federal Home Loan Mortgage Corporation, The Government National Mortgage Association and The Federal National Mortgage Association. 

Today, banks, credit unions and mortgage bankers act as "middle men", selling your loan to one of the larger three governmental institutions and earning a regular fee for managing your mortgage loan.  Your loan is then used by these governmental institutions to form mortgage-backed securities, like "Ginnie Mae Bonds", which are traded and sold on Wall Street.  Home loans in excess of $333,700 are an exception to this and are owned by different investors.

The mortgage loan origination process can take from 30 to 60 days and follows similar steps for all loan service providers.   Upon receipt of an application, the lender validates the application and researches the credit score of the borrower.  Next, the lender requests information from third parties like the land title office and insurance company.  After risk analysis and pricing, the loan is underwritten.  Finally, all the terms and conditions of the loan are established and the service provider offers you an agreement.

While it sounds like a straightforward process, there can be bumps along the application road.  In order to avoid potential problems and to help the process of securing a mortgage on your New England real estate run smoothly, follow the steps outlined below.

1.  Before submitting your loan application, request your credit score and copies of your credit reports.  Check the reports for errors and make sure your score is strong enough to receive the loan of your choice.

2.  Know the loan amount you can afford to repay.  Prepare a detailed financial statement, including tax return information, verifying this amount is reasonable for your budget.

3.  Consider choosing a lender with whom you already have accounts and an existing relationship.  Knowing your history, they may be more likely to offer you a great loan.

4.  Finally, when submitting your mortgage loan application, ask a service provider representative to verify that you have completed all required forms.

With a better understanding of mortgage loans and how they work, you should be able to effectively navigate the loan application process.