You’ll work closely with your loan officer after applying for a mortgage. This person can take your information for the application, review the Loan Estimate with you, and answer your questions. But your loan officer isn’t the decision maker—the underwriter is.

The underwriter is the unseen person in the application process, and it’s this person’s job to review your application and decide whether you’re a good candidate for a mortgage loan. The underwriting process isn’t a simple or quick process completed in 20 minutes. It’s a much more complex stage than some people realize. But if you understand how underwriting works, you’ll know what to expect from the lending process.

Getting Your Loan Estimate

The first step to getting a mortgage is getting a Loan Estimate from your loan officer. This is a new form that replaced the Good Faith Estimate and the Truth-In-Lending Disclosure. This three-page document provides information about your loan amount, the interest rate, your projected monthly payment, plus there’s an estimate of how much cash you’ll need at closing. With the estimate, you know what to expect with your mortgage.

You receive the Loan Estimate before an underwriter receives your loan package. Your loan officer will provide this document within three days of receiving your application, and you have 10 days to review the paperwork and decide whether to proceed with the loan.

The Loan Estimate isn’t an official approval. In fact, you get this form before you provide the lender with supporting documentation for the mortgage. You can get a Loan Estimate as long as you provide your name, stated income, Social Security number, address of the property, loan amount, and the estimated value of the property.

It’s only after you decide to proceed with a loan that the loan officer requests copies of your bank statements and most recent tax returns. Once you’ve provided supporting documentation, the loan officer sends your application to underwriting.

What Does an Underwriter Do?

An underwriter has one of the most important jobs in a mortgage office. Their job is to make sure there are no false claims, and to determine if you meet the qualifications for a loan.

The underwriter combs through your credit report and takes into account your credit score and how much you owe elsewhere. Affordability is important when buying a house. Typically, a mortgage loan should not exceed 28% of your gross income for a conventional home loan, and up to 31% for an FHA home loan. The underwriter must determine whether your income can support monthly payments for a home loan.

The underwriter will study your tax returns for the past two years, as well as contact your employer to confirm that you work for the company and to verify your income. The lender will also request your tax return transcript directly from the IRS. If you are self-employed, the underwriter may require additional information, such as a year-to-date Profit and Loss statement.

The underwriter approves the loan if you meet the requirements and qualifications, but the process isn’t over yet. The bank will also schedule an appraisal on the house you’re buying or refinancing. The purpose of the appraisal is to learn the value of the property. As a rule, the bank will not lend more than a property’s worth.

The Takeaway

The underwriting process can take a few days or several weeks, depending on how many applications are ahead of your. It’s also important to note that it isn’t unusual for the underwriter to have questions for you. Don’t panic. The good thing about getting a mortgage is that your situation doesn’t have to be perfect. If you respond to the underwriter’s questions in a timely manner, and provide all necessary documentation, you shouldn’t have a problem.

A mortgage is considered good debt, and having a mortgage on your credit report is a sign of financial stability. However, a mortgage only contributes to your financial health when you manage it responsibly. This includes borrowing what you can afford and making your payments on time. But even if you have every intention of being responsible with a home loan, you might submit a late payment.

Whether you accidentally forget about your mortgage, or you pay late due to financial hardship, a late mortgage payment has repercussions. Here is what you can expect from a late payment.

Your Lender May Charge a Late Fee

Mortgage payments are due on the first of every month with a 15-day grace period. If you don’t pay your mortgage within the grace period, you’ll be charged a late fee. The late fee can be as much as $40-$50, depending on the lender.

A late fee adds to your mortgage expense because you’re required to pay the late fee along with your monthly payment. But although a late fee is a financial blow, missing a mortgage payment by only a few days doesn’t affect your credit.

Because of how credit reporting works, mortgage lenders cannot report a late payment to the credit bureaus until a borrower’s payment is 30 days past due. For that matter, you don’t have to stress about your credit if you accidentally forget a payment.

But what if you’re having ongoing financial hardship and your mortgage becomes 30 days past due? What can you expect?

Credit Damaged Caused By a Late Payment

Unfortunately, being 30 days or more late on your mortgage will have an impact on your credit score. The gravity of the impact depends on different factors, such as the number of days you’re late and your credit score before defaulting. Typically, the higher your credit score, the more points you’ll lose. For example, if you had a 780 credit score before you were 30-day past due, your FICO score might drop as much as 90 points. But if you had a 660 credit score prior to being 30 days past due, your FICO score may only drop 60 points. Either way your credit score suffers and it’ll take time to recover.

It might take as long as three years to recover from damage caused by a mortgage that’s 30 days past due, and seven years to recover from damage of a payment that’s 90 days past due.

What Can You Do?

The best way to protect your credit is to avoid a late mortgage payment. Of course, we’re sometimes victim of circumstances. But you can reduce the likelihood of mortgage payment problems by purchasing a home within your means—even if it means spending less than your pre-approved amount. This way, you can have a financial cushion and build your cash reserve, which can help keep your head above water during hard times. Ideally, everyone should have at least three to six month’s income in reserves. If you can’t save this much, aim for at least three month’s of mortgage payments in reserves.

A mortgage loan is a major commitment. It’s not like a credit card which you can pay off and cancel the account, nor is it like an auto loan which can be paid off in only five years.

Home loans are a 30-year commitment, on average. The only way to get out of a mortgage is to sell the property or refinance the loan, which aren’t simple processes. So before agreeing to a mortgage, you need to be absolutely sure about your decision.

Here are five questions to ask before committing to a mortgage loan.

1. What are my mortgage costs?

Recent changes in the mortgage industry now require loan officers to provide borrowers with a Loan Estimate, which removes any surprises about mortgage-related costs. This document explains all the figures you need to know, including the mortgage amount, your interest rate, the down payment, and what you can expect to pay at closing. You’ll review the document with your loan officer. From this meeting, you can decide whether you’re prepared for the cost of buying a home, and if you are, you can expressed your intent to proceed with the home loan.

2. How does this mortgage compare to other types of loans?

There are different mortgage loan products available, and it’s important to know how these loans compare to each other. You might automatically pick a conventional loan thinking it’s the best choice. Yet, an FHA, USDA or a VA home loan might be a better fit, if you’re eligible for these programs.

Your loan officer can provide information on different loans, and the requirements for these programs. This includes down payment requirements, credit requirements and other requirements, such as those related to seller concessions. If you don’t have money to pay your own closing costs, you can ask the seller to pay these expenses for you. However, each mortgage program limits how much sellers can contribute to a buyer’s closing costs.

3. Is there a way to lower my costs?

If mortgage-related costs are higher than anticipated, ask your loan officer about ways to lower your costs. The lender will assign an interest rate based on your down payment and credit history. But you might qualify for a better rate—which can reduce your overall mortgage costs— if you put down a larger down payment, or if you improve your credit, such as by paying off credit card debt to improve your credit utilization ratio.

4. Can I afford the monthly payment?

This is a question only you can answer. It’s true that the bank determines the max you can borrow for a house. But this doesn’t mean you should borrow at the top of your budget. Take a look at your entire financial picture and decide what you can reasonably afford. Remember, the loan officer and underwriter aren’t paying the mortgage every month—you are. Borrowing more than you can afford increases the likelihood of experiencing mortgage payment problems.

5. Can I lock my rate?

Mortgage rates can change at any hour, minute and second of the day. For that matter, your mortgage lender will give you an opportunity to lock your rate. This guarantees that you’ll receive a particular rate at closing. There is, however, a right and a wrong time to lock your rate.

Since rate locks expire within 45 to 60 days, you don’t want to lock the rate too soon. You should only lock your rate if you plan to close on a property within the rate lock period, or else you may have to pay to re-lock the rate. Rate lock fees vary by lender.

Both buyers and sellers have expenses in a real estate transaction. As the home seller, your biggest cost is the real estate agent’s commission, plus you’ll have to cough up cash for attorney fees, the title transfer fee, and the termite and moisture report. But since these costs are typically deducted from the profit, chances are you won’t need to bring cash to closing. It’s a different story for home buyers.

Buyers pay a variety of closing costs, which can range from 2% to 5% of the sale price. These include the loan origination fee, the appraisal, credit report fee, title search fee and a host of other mortgage-related expenses. Some buyers also pay their own closing costs, but others ask home sellers to cover this expense.

You may feel it’s not your responsibility to pay a buyer’s closing costs. They’re the ones purchasing the property and getting the loan, so it only makes sense that they pay their own costs, right? Your feelings are just. But don’t quickly reject the idea of paying a buyer’s closing costs. Here’s why.

1. Paying the closing cost increases interest

Buying a property is expensive. And saving money for both a down payment and closing costs is too much for some buyers to handle. They go into the process with the intent of asking the seller to cover their costs.

You’re not required to pay a buyer’s closing costs. However, agreeing to pay these costs can result in a faster sale. If you don’t offer this type of assistance, the buyer will move on and find a seller who will. Of course, if you’re not in a huge rush to sell the property, you can always hold off and wait for a buyer that doesn’t need assistance. But if you need a fast sale, offering this concession can peak a buyer’s interest.

2. You have plenty of equity

In most cases, offering to pay a buyer’s closing costs isn’t an out-of-pocket expense for you. The money is taken directly from your profit. So if you have plenty of home equity, paying this expense shouldn’t create too much of a financial hardship. However, before agreeing to pay closing costs, do the math and assess how much you need to walk away with. This is especially important if you’re putting the profit toward a payment on your next place. Remember, the sale price of the house must be enough to cover the mortgage payoff and the realtor’s commission. If you agree to paying a buyer’s closing costs prematurely, your net profit could be less than anticipated, and you could end up paying the buyer’s expense out-of-pocket.

3. You don’t have to pay all of the closing costs

Agreeing to assist a buyer with closing costs doesn’t mean you have to pay “all” of their expense. The more you offer, the faster your home may sell. Still, only offer what you can afford. A borrower may ask for $6,000 in closing cost assistance, but you can counter and only offer $3,000 in assistance. The good news is that different mortgage programs limit how much you’re allowed to contribute in seller concessions. You can contribute up to 4% with a VA loan, up to 3% with a conventional loan and up to 6% with an FHA loan.

As you explore mortgage options, you may think a conventional loan is the only way to go. There are, however, a plethora of loan programs available. Getting a mortgage approval can be a complicated process, especially since it involves adhering to strict lending standards. FHA home loans make it easier to realize your dream, but there are some misunderstandings about this home loan program.

1. FHA isn’t a mortgage lender

FHA home loans are guaranteed by the Federal Housing Administration. It’s important to know, however, that the FHA does not lend money. To get this type of loan, you will have to submit a home loan application through a mortgage lender. The key is choosing a mortgage lender that offers FHA financing. The bank underwrites your application and lends funds, but the FHA protects your lender if you default on the loan.

2. FHA home loans require a high credit score

Some people do not apply for a mortgage because they think their credit score isn’t high enough to qualify. You can get a conventional loan with a credit score as low as 620, although you’ll need a credit score of at least 680 to 700 to get a favorable interest rate. The good news is that you can get an FHA home loan with a credit score as low as 500 to 580, depending on the lender. So even if you’ve made a few credit mistakes in the past and you’re slowly rebuilding your credit history, you may qualify for financing as long as your credit has been outstanding for the past 12 months.

3. FHA home loans require 20% down

If you believe buying a house requires a 20% down payment, this misconception will keep you on the sidelines and delay a home purchase. Although 20% is the traditional down payment amount for a home, there are programs that require much less. FHA is one of these programs. These loans only require 3.5% down.

4. You have to be a first-time homebuyer

Since FHA home loans have lower credit score and down payment requirements, some people think these loans are only available to first-time homebuyers. This couldn’t be farther from the truth. These loans are an excellent match for first-time homebuyers and repeat homebuyers. You can also refinance from one FHA mortgage to another FHA mortgage, or refinance from a conventional mortgage to an FHA mortgage.

5. FHA doesn’t have income limits

Additionally, there are no income limits with FHA home loans. There’s also a misconception that these loans are specifically for low-to-moderate income borrowers. However, anyone can apply for financing regardless of their income level, providing they meet the bank’s lending requirements and earn enough to afford the mortgage payment. There are FHA loan limits, however. These limits vary by state and depend on the type of dwelling (i.e. one-family home, two-family home, etc.). The limit for a one-family home can be as low as $271,050 or as high as $625,500.

Selling a home can result in a big payday. But although profit from a sale can increase your net worth and provide a nice down payment for your next home, it’s important to understand the costs associated with selling a home.

Real estate transactions can be expensive for both buyers and sellers. As the seller, your real estate closing attorney will provide a HUD-1 settlement statement a few days prior to closing which explains your costs. The good news is that settlement expenses are typically deducted from the profit. As long as you have enough home equity, you don’t have to dip into your bank account. If you don’t have sufficient equity, you’ll need to bring cash to the closing table.

Here is a list of costs you can expect as a home seller.

1. Real estate commission

As the seller, it’s your responsibility to pay the realtor commission. The typical commission for real estate transactions is 6% of the sale price split evenly between the buyer’s agent and your agent. You might be able to negotiate a lower commission, such as 4% or 5% split evenly between both agents.

2. Loan payoff

Your closing expenses also include the mortgage payoff, at which point the buyer’s mortgage lender transfers funds to your lender. This amount may be higher than the actual remaining balance because you’re responsible for paying prorated interest. The sale price must be enough to pay off the first mortgage and any second mortgages, such as a home equity loan or a home equity line of credit.

3. Transfer and recording fees

The buyer pays the majority of the settlement fees, such as the title search fee, the loan origination fee, the home inspection and the appraisal. But in some cases, you may be responsible for the transfer and recording fees. These fees are necessary to transfer ownership of the property to the new buyer, and to record the transfer in city records. The fee for both varies depending on your city and state.

4. Attorney fees

Real estate transactions are complicated, and in addition to working with a real estate agent and a mortgage lender, you’ll need a real estate attorney or closing agent to handle the settlement. After there’s a signed contract between you and the buyer, the real estate attorney steps in and manages the escrow, which can include negotiating contingencies and working with the title company. Real estate attorney fees vary, but can range from $300 to $1,000.

5. Prorated property taxes and homeowners association dues

You’re responsible for any real estate taxes and property owner association dues up until the date of settlement. If there are any outstanding balances, these amounts are included on the HUD-1 statement and must be paid at closing.

6. Termite and moisture inspection report

A termite and moisture inspection report is typical in real estate transactions. At some point before closing, your real estate agent will schedule an inspection. A company inspects the property for wood destroying insects and signs of excessive moisture, such as water stains on ceilings and rotting wood. The company that conducts the inspection can identify problems and recommend a solution so that you can move forward with closing. A termite and moisture inspection report may cost between $60 and $125.

6. Home warranty premium

Some homebuyers ask sellers for a home warranty. A home warranty provides coverage of the home’s main components, such as the electrical system, plumbing, appliances and HVAC. If a problem arises after closing, new buyers can contact the home warranty company and request a service call for a flat fee. Annual premiums for home warranties average between $400 and $500.

Not everyone qualifies for a mortgage loan, and if you think there’s a chance you won’t qualify, you might be tempted to exaggerate or fudge information to become a more desirable candidate. A little white lie may result in an initial approval, but the lender will learn the truth. And unfortunately, the truth can jeopardize your mortgage approval.

Lenders take a gamble with every home loan. Even if an applicant has a job and good credit, there’s always a chance that he’ll run into hardship and be unable to pay his mortgage at some point during the term.

Lenders only approve those who meet their qualifications, and they don’t take the information you provide at face value. Instead, the bank asks for supporting documentation and verifies all information presented. If a bank learns you purposely lied on your application or submitted false information, it may refuse to do business with you.

Here are three little lies that can hurt your approval.

1. Lying about your earnings

Exaggerating or slightly inflating your income may not seem like a big deal. However, mortgage affordability is based on your monthly income, and fudging numbers by a few or several thousand dollars makes a difference in how much you actually qualify for.

Mortgage lenders don’t take any chances. The bank will ask for W-2s, tax returns, and some lenders will call your employer to verify how much you’re currently earning. If the bank learns you earn less than your stated amount, this could result in qualifying for much less, which can limit purchasing power.

2. Lying about the amount of your down payment

It’s important that you’re truthful about the amount of your down payment. Your down payment can determine the types of mortgage programs you qualify for. If you say you’re going to put down a certain amount of cash, your mortgage lender will expect this amount at the time of closing. Showing up on the day of closing with less cash can cause a delay. Also, you must be forthcoming with the source of your down payment. Mortgage lenders will request your most recent bank statements to verify assets. If you’re receiving gift money from a relative to cover your down payment, make sure your lender knows ahead of time. There are specific rules for gift funds.

3. Lying about how long you’ve been with your employer

Two years of consecutive employment is typically required when financing a home. This includes two years with the same employer and in the same field if you’re a salaried or hourly employee; and if you’re self-employed, you must produce at least two years of tax returns for your business.

If you’ve only been with your employer or self-employed for one year, be honest with your mortgage lender. This doesn’t necessarily mean you can’t qualify for a loan. Some banks maintain their own portfolio of mortgage loans. If the lender doesn’t plan to sell your mortgage, the bank may approve your mortgage although you only have one year of employment history.

An underwater mortgage is one of the most stressful situations you can face as a homeowner. Owing more than the value of your property makes it harder to sell or refinance, and it can feel as if you’re stuck. Since it can take years to dig yourself out of a hole, it’s important to understand your options.

1. Be patient and wait it out

An underwater mortgage isn’t the best situation, but the good news is that your property won’t be underwater forever.

The real estate market fluctuates on a constant basis. Home prices can be down one year and up the next year. So if you have an underwater mortgage today, your situation can change considerably over the next few years. In addition, as you pay down your mortgage balance, the amount you owe the bank may become better aligned with the property’s value. You can also recover some of your equity by making additional mortgage payments, which helps pay down the principal faster.

2. Refinance through HARP

Unfortunately, you won’t qualify for a traditional refinance when you’re underwater. Depending on your mortgage program, a traditional refinance requires a minimum 3% to 5% equity.

Refinancing can help you get a lower interest rate and reduce your monthly payment, and it’s the only way to switch from an adjustable-rate to a fixed-rate.

If your underwater mortgage prevents refinancing, talk with your lender about refinancing under the Home Affordable Refinance Program (HARP). This program doesn’t require equity, plus you can refinance up to 125% of your property’s value. There is one caveat. To qualify for this program, you must have a Fannie Mae or Freddie Mac mortgage.

3. Rent out your house

If you’re ready to move but can’t sell because of an underwater mortgage, another option is turning your primary residence into a rental property. The rent you receive from a tenant can cover the payment on your underwater mortgage, and you can get a new mortgage to purchase another property.

In the past, if you wanted to rent out your home and buy a new home, lenders required at least 30% equity in your current home. This rule was established to stop “buying and bailing,” where some borrowers would purchase new homes and then walk away from their underwater mortgages. As of 2015, there are no equity requirements for renting out a primary residence and buying a new property, but your lender will need a copy of your tenant’s rental agreement and proof of their security deposit.

4. Consider foreclosure alternatives

Walking away can seem like the only alternative if you need or have to sell a property, but can’t due to an underwater mortgage. A foreclosure, however, isn’t the only way to deal with an upside down loan. Talk with your lender and discuss your options. You may qualify for a short sale which lets you sell the property for less than you owe, or the bank may agree to a deed-in-lieu of foreclosure. You give the bank the deed to the property, and the bank cancels the debt. Both options will damage your credit score, but the effects aren’t as damaging as a foreclosure.

If you are financially and mentally ready to purchase a home, sitting through a homebuyer education course might be the last thing you want to do. However, some mortgage programs require completion of a course.

Instead of viewing homebuyer education as an inconvenience, you should focus on the benefits of the course. A home purchase is a major commitment and a decision that shouldn’t be taken lightly. Therefore, it’s important to have a clear and accurate understanding of the home buying process. Here are three facts about a homebuyer’s education course.

1. You can take a class free of charge

Several lenders and organizations sponsor or offer home buying education courses. Some courses are free, but others charge a fee. Even if your lender or mortgage program doesn’t require completion of homebuyer education, signing up for a class is worth consideration. You can find HUD-approved homebuyer education courses online, or your state may offer a free course. For example, the Virginia Housing Development Authority (VHDA) offers a free class that anyone can take, regardless of whether they’re getting a VHDA mortgage.

2. You can sign up for online or in-class instruction

One of the best features about homebuyer education is that you don’t have to sit in a classroom, or attend a class for several days or weeks. The entire course takes about six to eight hours, and in some cases, it can be completed online or in a classroom. For in-class instruction, you can break up classes over two days, or complete the entire course in a single day—whichever is more convenient for you. An online class lets you complete the course at your own pace. However, in-class instruction can be more advantageous because you’re able to interact with a homebuyer counselor.

3. Receive a comprehensive overview of buying a home

Homebuyer education provides more than an overview of mortgage loans and the lending process. These courses are comprehensive and cover various areas related to homeownership. Too often, borrowers apply for a home loan without understanding how mortgages, credit or personal finances work. You’ll learn how to prepare your credit for a mortgage, the importance of shopping for a mortgage loan, and you’ll learn about different home loan options. As an informed borrower, you’re able to choose the right mortgage for your situation. Additionally, these courses provide information on down payments, the closing process and how to successfully manage a mortgage.

According to the Consumer Financial Protection Bureau, “nearly half of all mortgage borrowers do not shop around when buying a home.” Some homebuyers make a lending decision based off a single loan quote, and they assume every lender will offer the same rate and terms. This couldn’t be farther from the truth.

When looking for a mortgage, you should comparison shop as you would with any other purchase. Mortgages vary from bank to bank, and if you don’t know your options, you could end up paying more than necessary for a loan.

1. You Could Pay a Higher Mortgage Rate

 Shopping around and comparing rate information helps you gauge whether you’re getting a fair mortgage rate. Your interest rate affects your monthly payment and determines how much you pay over the life of the loan. The lower your mortgage rate, the lower your housing costs. Let’s say you borrow $200,000 for a home purchase. The difference between an interest rate of 3.98% and 4.3% is about $40 a month.

Getting a mortgage quote will involve providing the bank with information about your income and assets, and the bank will check your report history. Although rate shopping can trigger multiple credit report inquires, these inquiries have little impact on your credit score.

Credit scoring models are able to recognize a pattern of rate shopping. Multiple mortgage inquires that occur within a 45-day window count as one inquiry on your credit report.

2. You Could Pay Higher Closing Costs

 Buying a house also involves closing costs, which can run between 2% and 5% of the loan balance. There is no set fee for closing, hence the importance of shopping around. Closing costs include a variety of fees, such as the loan origination, discount points, the appraisal, title search and the attorney fee. Some fees are a flat rate and you’ll pay roughly the same regardless of lender. But other fees vary by lender. Take the loan origination fee for example. One mortgage lender may charge 1% of the loan balance, whereas another lender charges 2% of the loan balance. Higher origination fees result in higher closing costs.

3. You Could Miss Out on Financing Specials

 Meeting with different lenders gives you an opportunity to learn about different loan options and special financing programs. If you request a rate quote from only one lender, this lender may not offer any type of closing costs or down payment assistance, which means you’ll have pay these expenses out of your own funds. But if you shop around, you may find a lender offering programs that help with mortgage-related expenses, thus reducing your upfront costs.