Obtaining a mortgage can be a difficult and intimidating process. There are many different types of mortgages to choose from, and applying for one requires a lot of paperwork. Even calculating the monthly cost of your future mortgage can be difficult.
Despite this, the mortgage process may be split into a few distinct parts. When looking for a new mortgage, most consumers go through six stages: pre-approval, house hunting, mortgage application, loan processing, underwriting, and closing.
We’ll go over everything you need to know about each of these steps in this guide.
Important Points to Remember
Getting pre-approved for a mortgage loan is the first step. Then, you look for houses, apply for a mortgage, get a loan, and close the deal.
It’s a good idea to get a mortgage pre-approval before you start looking for a home so you know how much you can spend.
Expect the process of getting a mortgage to close to take up to 45 days after you find a home and make an offer.
Examine all of your documents thoroughly. Because you’ll be paying your mortgage for a long time, the fine print might add up to a significant sum of money.
1. Get a Pre-Approval.
The first steps in acquiring a mortgage are determining which type of mortgage is appropriate for you, determining how much you can afford to pay, and obtaining pre-approval for the loan. To choose the proper form of mortgage for you, familiarize yourself with the many types of mortgages and choose the one that best suits your needs. When it comes to picking a mortgage, there are a few things to consider, but the most crucial is to have a firm grasp on your monthly expenses. This will entail not just repaying the “principal” debt, but also paying interest. You’ll also have to pay for private mortgage insurance if you don’t have enough money to put down 20% on a home (PMI). 1. A mortgage calculator can help you see how different interest rates affect your monthly payment.
You can approach mortgage lenders for pre-approval once you have a general idea of the type of mortgage you want. A pre-approval letter specifies the maximum amount of money your mortgage lender is ready to offer you. This is called a “trimerge,” and it’s what your mortgage lender will need to do in order to make sure that you can get a loan. It’s a report that shows your score and credit history as it’s reported by third-party credit bureaus.
When it comes to hunting for a home, a pre-approval is really useful. It shows that you are a serious buyer who is ready to act swiftly on a property once you locate one you like.
Discrimination in mortgage lending is against the law. There are actions you can take if you believe you’ve been discriminated against because of your color, religion, sex, marital status, use of public assistance, national origin, disability, or age. A report to the Consumer Financial Protection Bureau (CFPB) or the US Department of Housing and Urban Development is one such process (HUD). 22. Find a House
Most people begin looking for homes long before they are pre-approved for a mortgage and possibly even before they consider purchasing a home. However, if you’ve completed the processes above and received pre-approval, you’re now ready to start looking seriously.
This can be accomplished in a variety of ways. You can use Zillow or Trulia online real estate portals, buy a house at an auction, or hunt for an off-market residence. Just make sure you don’t make some of the most common mistakes individuals make when looking for a home.
Making a Deal:
You’ll need to make an offer on a suitable property once you’ve located one. Because different sellers and properties demand different types of offers, your real estate agent should be able to assist you with this.
You’ll usually have to put down earnest money at this point, which is a deposit that shows you’re serious about a property. Earnest money deposits typically range from 1% to 2% of the sale price. 3. When you buy a house, this money goes toward the downpayment.
In most cases, your offer will include caveats that allow you to back out. These are intended to protect you and your money in the event that the home you’ve chosen isn’t exactly what it appears to be. The following are examples of common contingencies:
Appraisals must be close to, but not below, the loan amount.
Home inspections reveal no major flaws in the property.
You have the ability to obtain final mortgage approval.
3. Apply for a home loan
You are now prepared to apply for a final mortgage. To do so, contact a mortgage lender—most likely the one who granted you pre-approval, but you should shop around to ensure you get the best deal.
In order to make you an offer, each mortgage lender will want information. They may already have some of this data, but they may need to get more. You will, however, be required to provide a package of paperwork to your lender.
Your lender should tell you what to send and when to deliver it, but you’ll probably need to borrow
Current employer’s name, phone number, and street address
Time spent at current job
Overtime, bonuses, and commissions are all included in the salary.
• W-2s for the previous two years
If you’re self-employed, you’ll need a profit and loss statement.
• Public assistance, pensions, and social security
• Real estate • Investments (stocks, bonds, retirement accounts) • Proceeds from the sale of the current home • Gifted money from relatives (e.g., down payment gift for FHA loan)
Debts include current mortgages, liens, alimony, child support, vehicle loans, and credit cards.
• Commercial real estate
Your real estate agent may be able to obtain some of the more difficult-to-locate items, such as property taxes.)
• The property’s address; • The expected sale price; • The type of home (single-family home, condo, etc.)
• The size of the property; • The annual real estate taxesHomeowner’s association dues (HOA) • Estimated closing date
Be ready to explain any financial blunders you’ve made in the past. Any of the following might benefit from having dates, amounts, and causes:
• foreclosures • foreclosures • Delinquencies • Bankruptcies
One of the most crucial factors in having your mortgage authorized is your credit history. As a result, it’s a good idea to look over your credit report ahead of time to determine where you stand. Each year, you are legally entitled to one free credit report from each of the three major credit reporting bureaus. 4
Checking your credit report ahead of time to see where you stand is a good idea. Each year, you are legally entitled to one free credit report from each of the three major credit reporting bureaus.
Complete the loan application process.
The lenders you’ve approached will then compile all of the information you’ve provided into a loan estimate. A loan estimate is a three-page document that summarizes home loan information in an easy-to-understand manner and includes explanations. This standardization not only makes the information easier to understand, but it also allows you to compare offers from different lenders to evaluate which one is the best bargain for you. Unless
you don’t fulfill the lender’s basic standards and your application is refused, you’ll get a loan estimate within three business days of applying for a mortgage.
If this happens, the lender must send you a written notification explaining why your application was denied within 30 days. 7. A credit report cost may be the sole fee you have to pay to acquire a loan estimate. The
loan estimate you receive is valid for 10 business days. If you want to accept a loan offer, attempt to do so within that time limit; if you take longer to decide, the lender may amend the terms and give a new loan estimate. 9
Your loan will begin to be handled once you approve a loan estimate. Your mortgage lender will begin to go over and verify the information you’ve submitted at this point. This includes the following:
Obtaining a copy of your credit report (if not already done as part of your pre-approval)
VOE (verification of employment) and bank deposits (VOD)
Request a home inspection and appraisal.
Request a title search.
5. Finish the underwriting process.
The next step is for underwriters to evaluate your application.
Mortgage underwriters are the essential decision-makers in the mortgage approval process and the people who will give final approval for your mortgage, even if you are unlikely to deal with them directly.
Underwriters will go over every detail of your mortgage application and do a variety of other tasks. Borrowers, for example, must have an appraisal performed on any property they take out a mortgage on. This appraisal is ordered by the underwriter, who utilizes it to assess whether the proceeds from the sale of the property will be sufficient to cover the amount you will be lent on your mortgage.
After the underwriters have reviewed your application, they will make a decision. This will either be accepting the loan as is, rejecting it, or approving it with conditions. If you apply for a mortgage, for example, it might be approved if you give more information about your credit history. If your application is approved, you will be able to get a loan.
will lock in your interest rate with your lender. This is the final interest rate you’ll pay on your mortgage for the rest of its term.
Closing costs usually add up to 2% to 5% of the price of the home.
6. Complete the transaction on the property.
It’s now time to close if your mortgage application was accepted. A large stack of documents will be printed at this point, and you’ll be invited to a closing meeting at the title business (or attorney’s office).
Your closing disclosure form is one of the most significant documents you’ll see at this conference. You’ll find a column on this form that shows the original expected closing expenses and the final closing costs, as well as a column that shows the difference if costs rise. 11
Closing expenses normally range from 2% to 5% of the purchase price of the home. As an example, if you buy a $200,000 home, your closing expenses could be anywhere from $4,000 to $10,000. Closing costs differ based on your state, loan type, and mortgage lender, so it’s crucial to keep track of them. 10
If you detect new expenses that were not included in the original loan estimate or realize that your closing costs have increased dramatically, contact your lender and/or real estate agent right away. You
will sign to accept the mortgage if everything appears to be in order, and you will leave the office with the keys to your new house. You did an excellent job!
Final Walk-Through and Three-Day Review Period
A countdown begins at this moment. Your mortgage will become active in three days if no further action is taken. However, you have the ability to review your documentation for three days at this point to ensure that everything is in order. Your
closing disclosure should be compared to the loan estimate you received at stage 4 above. Small modifications, inconsistencies, or mistakes are OK, but if you find something you don’t understand, get clarification right away.
Furthermore, some changes may result in the suspension of your mortgage agreement. This will occur if the following conditions are met:
The loan’s APR fluctuates by more than 1/8th of a percent (most fixed loans) or 1/4th of a percent (variable loans) (most adjustable rate loans).
The mortgage includes a prepayment penalty.
There has been a shift in loan products (for example, a change from a fixed-rate loan to an adjustable-rate loan).
After the three days are up, assuming everything is in order, your mortgage will immediately go live.
Typically, mortgage arrangements provide for a final walk-through of the property at least 24 hours prior to closing. You can use this visit to make sure that the previous tenant has moved out and done any repairs that need to be done.
Who decides whether or not a mortgage is approved?
As a general rule, you’ll work with a lender like a bank to get a mortgage. Underwriters make the final decision on whether or not your mortgage will be approved.
What Is the Average Time It Takes to Close on a House?
Closing on a house often takes 30 to 45 days, depending on a few factors, such as how quickly you can get a home inspection and whether or not you are pre-approved for a mortgage.
When buying a home, how much do closing costs cost?
Closing costs include a variety of fees, ranging from appraisal fees to fees paid to the lawyer who drafts your contract. These fees can range from 2% to 5% of the home’s purchase price and are normally due at the time of closing. Final
The application process for a mortgage can be confusing, but there are several processes involved. Pre-approval, house hunting, mortgage application, loan processing, underwriting, and closing are the six steps that most people go through.
The process might be lengthy and stressful, so don’t rush it. Check all of your documentation thoroughly, make sure you understand the mortgage you’re being sold, and get professional assistance if you have any questions. You’ll be paying your mortgage for a long time, so it’s in your best interest to get it right the first time.