The mortgage loan process can be scary and overwhelming, especially if you’re a first-time home buyer. You probably realize you have to submit a lot of paperwork and that the lender will be digging deep into your finances, but what exactly are they looking for? How much will it cost? How long will it take to arrange the loan documentation? How much would the loan estimate be for the credit? When do you have to make the first payment? Are there any hidden costs? Is there anything you can do to make the process go smoothly for the borrower?
It helps to know what exactly is going on after you turn in all your financial information and wait to hear whether or not you’ll be able to buy the home of your dreams. Let’s take a closer look at all of the steps involved in the mortgage loan process for the borrower, from pre-approval to the closing to help set your mind at ease.
Before you can start looking for a home you have to know how much you’re able to borrow. That’s where pre-approval comes in. This is one of the most important steps because it gets the ball rolling. It can also be a bit overwhelming so let’s break down exactly what to expect.
Pre-approval is the part of the mortgage loan process where the lender examines all your financial information to determine how much they’re willing to lend you. Each lender is different but they each have certain criteria you have to meet in order to get approved. For example, they’ll look at your credit score, debt ratio, and all forms of income.
If you meet their requirements, the lender will give you a pre-approval letter that states the amount of money they’re willing to lend you so you know how much house you can afford. While pre-approval doesn’t guarantee that the lender will approve your mortgage in the end, it is a good sign. You’re likely to be approved unless something unforeseen comes up in the final underwriting process which occurs after you make an offer on a home.
2. House Hunting
Now that you know about how much house you can afford, you can start looking for places in that price range. Your mortgage lender isn’t a part of this stage but another very important person is: your real estate agent is.
Before we move on, there’s one more important thing to mention about the pre-approval process. Real estate agents are going to want to see a pre-approval letter. That way, they not only know that you’re serious but that you can also afford the homes you’re looking at. The truth is there are a lot of real estate agents that will be unwilling to work with you if you haven’t gone through the pre-approval process and most sellers won’t take you seriously without it.
Once you shop around and find something you like, you’ll make an offer. Keep in mind that other people may be making offers, too, so you may need to wait a few days for an answer. If the seller is willing to accept your offer, you’ll move on to the next part of the mortgage loan process: the loan application.
3. Loan Application
This is a pretty straightforward step because it really is a standard form that you have to fill out. Since you’ve already submitted all the necessary documentation during the pre-approval stage, the mortgage lender should have everything else that they need. The loan application provides information about the home you’re planning to buy as well as some additional information about you.
4. Mortgage Processing
Once you have a purchase agreement with the seller and have submitted your loan application, the larger approval process begins. The processor will examine more financial documents and take a closer look at the property you’re planning to purchase and basically make sure everything is in order for the next phase. If you got pre-approval, they will likely have everything they need from you but may contact you for additional information they need.
Once everything is in order, the loan moves on to underwriting.
It’s fair to say that underwriting is the most important part of the mortgage loan process. This is the part where the lender actually decides whether or not to approve your mortgage loan. The point of the process is to determine whether or not you’re able to pay back the loan. It’s not just about whether you can afford it but also whether you’ve shown a history of being financially responsible with your debts. The three things that they’re most concerned with are your income, your current debt, and borrowing history.
They’ll also take a close look at the property to make sure that it’s worth what the loan is worth because the house serves as collateral for the loan. An official appraiser will visit the property and do a thorough assessment.
There’s no set time limit for this process. It can take days or weeks to be completed. It all depends on how busy the lender is, how experienced the underwriter is, and whether or not anything new comes up during the process that requires more documentation.
It’s important to remember that pre-approval is not the same as final approval. You don’t actually get the mortgage until the underwriter approves your application.
The Final Steps: Approval and Closing
Once the underwriter completes the process and approves the loan you can move onto the final part of the process, closing. All of the necessary documents are sent to the title company that will be officially closing on the sale. You and the seller will look through everything and sign the paperwork to make it official.
Before closing, you should receive a document called a Closing Disclosure. This is a standard form that’s a snapshot of all the details of the loan. It will tell you the terms, monthly payments, any fees you owe, and other closing costs required.
Once all the fees are paid and the paperwork is signed you’re all done! Now all that’s left is to move in and turn it into that dream home you’ve always wanted.