Buying a home is much more than simply applying for a mortgage, getting a stamp of approval, and moving in. A lot of the mortgage process happens behind the scenes and is out of your control, but there is also a lot that you can control to ensure you’re in the best position to buy that coveted home and close in a timely manner — and get a roof over you and your family’s heads.
In this guide, you’ll walk through everything you need to know — from finding an agent to the paperwork you’ll need — to prepare you for the mortgage process.
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1. Getting prequalified
Before you begin the process of finding and buying a home, you should go to a bank or realtor and get prequalified for a mortgage. Prequalification basically gives you an idea of how much of a loan you’re likely to qualify for.
The prequalification process is pretty straightforward and doesn’t delve too far into your financial background or require any commitments. The lender will conduct a “soft” credit check — meaning they’ll accept either a credit score you provide them with or they’ll run one themselves. They’ll also look at your current income, any debt you have, and assets. Once that information is reviewed, you’ll get an estimate.
The entire process is free and a good way to test the waters before preapproval. Prequalification can also be done online or over the phone.
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2. Gather your documents
When applying for a mortgage, you’ll need to fill out a good amount of paperwork and provide some paperwork of your own. Be sure to have these documents on you when you go to apply.
- Name and addresses of employers from past two years
- W-2 or 1099 forms from the last two years
- Two years of tax returns (Form 1040)
- Most recent pay stubs
- If self-employed, your year-to-date profits and losses, and any tax returns you filed for your business
- Proof of pension, if applicable
- Any dividend earnings
- Any bonuses you received from your employer
- Bank statements from last three months
- Information about any debts, such as any other mortgages, car loans, student loans, or credit card debt
Here’s how a bad credit score can affect your finances.
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3. Start applying
Once you’ve gotten your prequalification loan estimate and you’ve determined that home ownership is right for you, it’s time to fill out your mortgage application. This is the first step to getting preapproved and signifies to home sellers that you’re serious about purchasing a home.
You can apply for a mortgage in person, over the phone, or online.
It’s important not to limit yourself during the application phase — make sure you apply to two or more mortgage lenders. Every bank and mortgage company has different mortgage products with different rates, so even when you think you’ve found the best possible loan, a different bank could have a similar product with even better rates. Comparison is the key to finding the ideal mortgage.
If you’re a first-time homebuyer and this is your first time applying, you’re probably best served speaking with a loan officer to make sure you’re accurately answering application questions. Incorrectly filling out an application makes getting approved for a mortgage significantly harder, and in some cases it’s illegal.
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4. What’s in a mortgage application, anyway?
Every mortgage application follows roughly the same format; it’s about five pages and 10 sections long. Your application will take around an hour to complete if done in one sitting. Your application will ask for the following information:
- The type of mortgage you’re applying for and the terms of your loan. Are you applying for a low-down-payment mortgage like an FHA or VA loan, or for a conventional mortgage?
- Your property information and purpose of the loan, but only if you’ve already selected a house.
- The borrower information, including your Social Security number for a hard credit check, and that of any co-borrowers, date of birth, marital status, and contact information.
Your employment information, where you’ll provide your employment history.
Your monthly income and housing expense information, where you’ll indicate your monthly income and monthly expenses. - Your assets and liabilities, where you provide what you own as well as any debts you have. Everything from bank accounts to trust funds to other homes or cars you own will be calculated against your debt to determine your net worth.
- The details of the transaction, where you’ll fill in information about the home (again, only if you have one picked out), along with estimated closing costs.
- Any declarations that apply to you or your co-borrowers, like any pending legal judgements or whether or not you’ve had to declare bankruptcy in the last seven years.
- The acknowledgement and agreement, where you’ll sign on the dotted line, giving the lender permission to verify the information you submitted in the application.
From there, the loan originator at your bank will review the application to make sure everything is filled in. If that’s the case, they’ll sign off on it and your application will be submitted for preapproval. (It may be the end of ultra-cheap mortgages. Here’s why.)
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5. Congrats, you’re preapproved
Once your application is approved, you’ll receive a preapproval letter, which is the lender’s way of saying that you’re legit and that they agree to lend you a specific amount of money.
Your preapproval essentially helps narrow your search to homes that you can afford under the agreement (meaning your preapproval amount plus whatever down payment you can afford) while also making your bid more attractive to sellers.
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6. Make an offer on a house
Once you’ve found a home that’s both desirable and in your price range, you’ll negotiate a purchase offer with the home’s seller.
For first-time buyers, we suggest negotiating with a trusted and experienced real estate agent during this part of the process. Local real estate agents have a good understanding of the lay of the land, can help you identify a decent home at a good price, and, perhaps most crucially, provide invaluable negotiating experience.
Once your offer has been accepted, the seller will produce a purchase contract that will be signed by all parties. The purchase contract is basically the green light to your lender to begin finalizing the loan.
Here’s an example of a cover letter that won over the house’s sellers
https://www.policygenius.com/blog/home-offer-letter/
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7. Underwriting
Underwriting is your lender’s way of determining your ability to pay back the loan. This is typically the longest part of the mortgage process and can take anywhere from a week to a month.
Something to keep in mind with underwriting is it isn’t simply to give you a thumbs up or thumbs down for the mortgage. They’re also underwriting you to determine both your loan amount and interest rate.
Prior to underwriting, the underwriter will request that you submit many of the same documents that you submitted for pre-approval (like your W-2, pay stubs, and asset information) and may request even more information.
For example, if a family is paying for your down payment as a gift, your lender will request that your donor submit a gift letter to prove that the down payment money is a gift and not a loan you need to pay back.
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8. Closing time
Once you’ve gotten through underwriting, it’s time to close on the home and finish the mortgage process once and for all. You’ll meet with a number of people — a closing agent, an attorney, a title company representative, the home seller, the seller’s real estate agent, and your lender.
The closing agent will ensure a few things before you can officially close on the home: that all legal documents are signed, and that closing costs and any conditional approval or escrow conditions are resolved.
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Closing documents
You’ll need to review or sign the following documents during closing:
- Your loan estimate. The amount of your loan and its terms.
- The closing disclosure, which outlines further details about your mortgage.
- The escrow statement, which will inform you of any payments your lender will make from your escrow account during the mortgage, such as taxes, homeowners insurance, or mortgage insurance premiums.
- The mortgage note, which is you agreeing to repay the mortgage. This document also details your lenders rights if you fail to make your monthly payments.
- A deed of trust. This is simply another name for a mortgage in some states. Your deed of trust gives your lender a claim to the home if you fail to make mortgage payments.
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Don’t forget the closing costs
At closing, you’ll also be required to either provide a certified check or make a wire transfer to your lender for costs associated with originating and processing the mortgage, among other services. Closing cost amounts can vary depending on the lender and type of mortgage, but they’re typically anywhere from 2% to 5% of the mortgage amount.
- Your closing costs typically include:
- An application fee
- Discount points
- An attorney fee
- A home appraisal fee
- An escrow deposit for property taxes, homeowners insurance, and mortgage insurance premiums
- Origination fees to your lender
- Credit-check fees
- Inspector fees
The next step? Protecting your new home. Here are the best homeowners insurance companies out there.
This article originally appeared on Policygenius and was syndicated by MediaFeed.org.
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