Fri. Mar 29th, 2024

Although the mortgage loan application process can be intimidating, especially if you’re a first-time homebuyer, it’s still helpful to know what’s going to happen at each stage of the process to be ready to ask the right questions and make good decisions.

Estimate your budget

It’s necessary to correctly estimate your budget before you start looking around for a house. This will enable you to set reasonable expectations while house hunting instead of going after the maximum home purchase price.

It’s better to determine your monthly mortgage payment budget. Then, using current mortgage interest rates, you can work backward to determine your maximum home-buying power.

You also need to consider how much savings you have to cover the down payment and closing costs for mortgage loan.

Get a loan pre-approved

After you’ve determined your budget, you can begin looking at homes in your price range. At the same time, you will begin the process of obtaining a mortgage.

The first step is to obtain a mortgage lender’s pre-approval letter. This letter indicates the amount of money a mortgage lender has approved for you to borrow based on your savings, credit, and income.

Getting a pre-approval letter before you make your offer gives you more clout. The letter acts as solid evidence that you’re qualified for a loan to buy the home.

A pre-approval letter is only issued after thoroughly reviewing your credit report, bank statements, tax returns, etc. It is a formal offer to lend from a mortgage company.

Scouting Properties

Now that you’ve been pre-approved, it’s time to start looking for your new home and make an offer. Your real estate agent will be well-versed in the intricacies of structuring an offer. It may include conditions that must be met before the transaction is finalized.

When you submit your bid, you will usually also submit your initial money deposit. This demonstrates your seriousness about purchasing the property.

Order a home inspection

Following the acceptance of your offer, the next step in the mortgage process is typically a home inspection. A thorough inspection provides essential details about the home beyond what you can see on the surface.

A home inspection is essential because it informs the buyer about the possibility of costly repairs. What is discovered during an inspection may even be used in the sales negotiation between buyer and seller.

Compare lenders

After you’ve found a home and had your offer accepted, it’s time to choose a lender. When checking for a mortgage, keep in mind that your application does not solely determine your interest rate. It is also determined by the type of loan obtained.

Examine several lenders’ mortgage interest rates and fees and inquire about the types of loans available to you. You may stumble across better deals this way.

Complete a full mortgage application

While the majority of the application process was completed during the pre-approval stage, additional documents are now required to move a loan file through underwriting.

Your lender, for example, will require a fully executed Purchase Agreement as well as proof of your initial money deposit. In addition, your lender may request updated income and asset documentation, such as payslips and bank statements.

You will be given a Loan Estimate that details the exact rates, fees, and terms of the home loan that has been offered to you.

Home appraisal

Your lender will arrange for a third-party appraiser to provide an independent estimate of the home’s value. The appraisal evaluates whether you’re paying a fair price for the home. Also, the home will need to be appraised for the loan to be approved at the contracted purchase price.

Mortgage processing and underwriting

The mortgage processing stage begins once your complete loan application is submitted.

This is primarily a waiting period for you. Respond promptly to any requests during this period to ensure underwriting goes as swiftly and smoothly as possible.

The underwriter will thoroughly review your information during this time, looking for missing items and red flags.

They’ll be looking for the three Cs of mortgage underwriting:

Capacity: Do you have the funds to repay your loan?

Credit: Does your credit history demonstrate that you pay your bills on time?

Collateral: Is the value of the property you’re purchasing sufficient collateral for the loan?

Closing day

The Closing Disclosure is an important document. It should resemble the Loan Estimate you received when you first submitted the complete loan application.

The Loan Estimate provided you with an estimate of the costs. These costs are confirmed in the Closing Disclosure.

The two should be very similar and should not differ too much. If everything is in order, you will sign all of your paperwork and be handed the keys to your new home.

By Anuj

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