An Overview of the Mortgage Process

House hunting can be an exhilarating process as you try to pick that perfect property. Applying for a mortgage isn’t nearly as much fun. Following is an overview of how the mortgage industry works.

An Overview of the Mortgage Process

You have a nice chunk of money saved away for a down payment. You have started shopping for a home or have found the perfect property. It is time to enter the world of financing, better known as getting a mortgage. Before entering the labyrinth, it might help to get an overview of how the mortgage process works.

A mortgage simply is a debt instrument that acts to secure a cash loan to you on a home. In exchange for giving you the money, the lender puts a first lien on the prospective home for loan amount. If you default, the lender can foreclose and sell the home to recover the debt amount.

In mortgage industry terms, applying for a mortgage is known as originating a loan. To originate the loan, you will first have to find a lender you are comfortable with. You may have a close relationship with a bank that will suffice. Many will find it advisable to use a mortgage broker to shop for the loan that best meets their needs. Different lenders offer different loans and terms.

As part of the origination process, you will fill out a lengthy loan application. Depending on the nature of the loan, you probably will also be required to submit documentation supporting your claims of income and so on. There are no document or partial document loan applications, but most people don’t qualify for them. Once your application is submitted, a lender inevitably will ask for more information or documentation. Depending on how the review, known as underwriting, goes, the lender may decline or accept your application. Often, the lender will add a stipulation to the loan that cover issues it is concerned about.

Once you are granted the loan, you will close on the residence you are after. Most people are then very surprised by what happens. Inevitably, your mortgage lender will sell the loan to another entity. To raise cash to issue more home loans, lenders sell their current stock of mortgages on a secondary market. Your lender may continue to handle the administration of the loan, but will often just hand the entire thing off.

Your mortgage will be terminated at some point in time. Positive reasons can be the sale of the home, refinancing or simply paying off the balance. Negative reasons can include default or bankruptcy. Regardless, the above represents the basic structure of the mortgage industry and how your loan moves through it.

Can I Pay My Mortgage With A Credit Card?

Yes you can. There are two ways to make a mortgage payment with your credit card.

The first way is to use the convenience checks that credit card companies send out every so often. These checks work like those you would write from a checking account, but they draw against your credit rather than available bank funds. You can write, sign and mail these off to mortgage companies.

The second way is to use an online billpay feature (such as the type available at MBNA). This allows you to pay a certain amount to the specified company. The amount will be drawn out of your available credit and paid to the mortgage company similar to a check.

The downside to these two methods?

You won’t receive any cashback, miles, points or other credit card rewards for these transactions; which is the main reason for paying with a credit card anyway.

So, is there a way to pay with a credit card and still get the bonuses?

Yes there is. Well, there was.

There was a time when you could purchase Charter One gift cards using your credit card. These worked just like ATM/Debit cards and could be loaded with up to $500 each.

Basically you just needed to purchase these gift cards, take them to an ATM and pay the withdrawal fee (around $3) and pocket the $497 cash, while still receiving your credit card bonuses. You could then deposit enough cash to pay your mortgage and write a check to cover the payment.

Of course, this all required a lot of planning, but being able to get cash from a credit card without paying huge cash-advance fees AND still getting your bonus rewards is a huge plus.

Naturally, this program was abused in this way, and when they realized they weren’t going to make much money from it, the program was cancelled.

But be on the lookout for another loophole like this, because they come up all the time!