The Mortgage Process Explained
The process of acquiring a mortgage can be an overwhelming and complex task. Among the steps of the mortgage process are shopping for the right home loan, gathering essential documents, and estimating monthly payments. While getting a mortgage may seem daunting, breaking it down into simplified steps will help ease your stress as you work through the process. Below are the six steps you need to take to secure a mortgage.
Get your pre-approval
The first step you should take toward obtaining a mortgage is to determine what kind of mortgage is best for you. There are five common types of mortgages to choose from conventional, fixed-rate, adjustable-rate, government-insured, and jumbo. Learn the purpose and requirements of each type to choose the right one for purchasing your new home. While shopping for a mortgage, you should have an accurate estimation of the monthly costs that you can afford which includes both the principle of the loan and the interest payments. Keep in mind that if you are not able to make a 20% down payment, you will also need to pay for private mortgage insurance (PMI). To help you with the estimate, you can use a mortgage calculator to see how different rates and home prices affect the monthly payment. Once you have an idea of the mortgage type and your budget, you can then approach lenders for pre-approval. A pre-approval is a document that states the maximum amount that your mortgage lender is willing to lend to you. Getting pre-approval is important in the home-buying process because it shows you are ready to act quickly on a home when you find the right one.
Find Your property
While you may have already been house hunting up until this point, once you receive your pre-approval, you are ready to take the search process more seriously. If you don’t already, use a real estate agent to help with this process; not only will they guide you through the property search, but they will also take care of sending offers and the closing process. Once you have found the home of your dreams, your agent will submit an offer. You will have to also put down earnest money, which is a deposit that shows you are interested in purchasing the property. The typical deposit amount is between 1-2% of the sale price; if you close on the property, this money is placed towards the down payment.
Apply for a mortgage
Once you have found your property, you must approach a mortgage lender (typically the one that gave you the pre-approval) to apply for a final mortgage. The lender will need documents containing information about your employment, income, assets, debts, credit history, and property. Of these items, your credit history is one of the most important; it is a good idea to check your credit report beforehand to see where you stand.
Complete loan processing
The next step is for the lenders, who must gather all the information you have given them into a loan estimate. This three-page form standardizes the home loan information in a way that is easy for you to read and understand, and also makes it easy to compare the offers from different lenders. If you meet the lender’s requirements, you will receive a loan estimate within three business days of applying for the mortgage. When you receive the loan estimate, you will have ten business days to accept the offer. Upon acceptance, your loan will start to be processed and the lender will work to verify your information.
The underwriting process
While you will not typically interact with mortgage underwriters, they are the key decision-makers in the mortgage approval process. The underwriters will check every part of your application, including ordering an appraisal to determine if the funds from the property sale can cover the amount you will be lent. Once underwriters assess your application, they will decide to either accept it as proposed, accept it with conditions, or reject it. Once your application receives approval, then your interest rate will be locked-in with the lender.
Closing the property
After the mortgage application is approved, you will now close on the property. You will be invited to the attorney’s office for a closing meeting, where you will see a large stack of documents, including your closing disclosure form. This form will show you the estimated closing costs, final closing costs, and the difference between them. Closing costs are typically between 2-5% of the home’s purchase price, but the closing fees can vary depending on the state, loan type, and lender. Finally, you will sign documents to accept the mortgage and leave the office with keys to your new home!
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