Buying a home is a huge project, and it doesn’t end when you find a home you love. Once you have found your dream home, it’s time to secure a mortgage. Before you start with securing a mortgage, it helps to familiarize yourself with the mortgage loan process.
I want to show you some of the most important stages of the home loan process.
Mortgage Pre-Approval
Although the pre-approval is not a requirement for a mortgage application, it can be very helpful. It is best to go through the pre-approval before you even start your home search. The pre-approval shows you how much home you can afford. During the pre-approval, the lender, among other things, will consider financial factors, including your employment, income, debts, and credit score. Mortgage pre-approvals depend on your ability to repay the loan. To determine your ability to repay a loan, the lender also takes your employment history into account. Lenders prefer you have been at the same job for at least a couple years, and if not, at least in the same line of work. The lender will also look at your credit history. Your credit score details how well you have managed financial commitments in the past.
Even though a mortgage pre-approval is not a loan guarantee, it is worth the effort. It is a great first step during the home buying process because there will be no surprises about how much house you can afford. A loan pre-approval might also help you make a stronger offer on a property.
Choose The Mortgage Program And Interest Rate
Consider how long you want to live in the home before you decide on the type of mortgage you need. A 30-year fixed mortgage might make sense if you are buying your forever home. In contrast, if you think you will only be there a few years, an adjustable loan may be preferable. Look for mortgage professionals that are open to looking at your unique needs.
Apply for Your Mortgage!
Each mortgage company has its own application process. Mortgage applicants are required to provide a range of documents and information during the loan application process, such as:
- Your Name
- Your Income
- Pay stubs
- Your Social Security Number
- Credit check authorization
- Address of the new home
- Appraisal of the property
- Banking information
- The amount you wish to borrow
Loan Estimate
Your lender will review your application, and then, if you qualify, make a loan offer. The offer includes the estimated interest rate, monthly payment, and closing costs for the loan. The offer also includes the insurance costs and estimated tax. Adjustable mortgages include details about how and when the interest rate may change in the future. The mortgage estimate does not say whether you are approved or denied; it only presents you with what the lender may be willing to offer. The loan estimate helps you compare multiple loan offers.
Choose Your Mortgage!
After looking over your options from multiple lenders, carefully consider the details of each. Ask the lender any and all questions you might have. Once you have made your choice, notify the lender about your decision.
Approval Of The Home Loan
At the end of the mortgage loan application, the lender may approve your loan. From there, they offer what is called a Closing Disclosure. This is a form that provides the details about the loan you chose. The closing disclosure includes details about fees and your monthly mortgage payments. In addition, it includes additional fees and costs. Three days before closing, you will receive the closing disclosure. When you received the closing disclosure, you can review it and ask any questions you might have for the mortgage company.
Mortgage Closing
If you accept the loan offer, your broker will be notified to verify the closing fees. If you are working with a closing attorney, she will schedule a time for you to sign the loan documentation. Check with your lender to find out what to bring to the closing.
Enjoy your new home!
Yes! You did it. After signing at closing, you should receive the keys to your new home, and your home loan is processed.
7 Facts To Know Before Applying for a Mortgage
Thinking about buying a home you can be proud of? Before you can open the gate to homeownership, you need a mortgage. Don’t worry, millions before you have gone through the mortgage application process. You don’t have to be a financial expert to make it happen. If you want to improve your odds of qualifying for a home loan with favorable terms, there are some important facts to consider. Before you start to apply for a mortgage, think about the following.
1. Importance of paying bills on time
First off, your credit score is a critical part of qualifying for a mortgage. Credit is largely influenced by whether you pay bills on time. Skipping payments or paying late can negatively impact your credit score.
On the other hand, if you are prompt about paying bills, you should have a higher credit score. A high credit score is a key step toward the best possible loan terms. A great way to pay your bills on time is to set up autopay. With autopay, your bills are paid even if you forget.
2. Changing jobs could affect eligibility
Another item lenders look at when qualifying you for a mortgage is your income. Your income should be stable and sufficient to cover monthly house payments. Because of this, frequently changing jobs could affect your ability to secure a mortgage.
That said, it depends on the nature of job changes. If you show consistent upward movement within your industry, it looks far more stable than if you frequently go from one industry to another. If you’re considering a radical job change before applying for a mortgage, you may want to wait until after you close on the loan.
3. Multiple home loan types
Mortgages come in many different forms, and each can be useful in different situations.
Let’s take a quick look at few home loan types you may want to consider:
- Fixed-rate loans (FRMs), in which the quoted interest rate stays consistent over the life of the loan.
- Hybrid adjustable-rate mortgage (Hybrid ARM), in which the rate is fixed for a specific time period (called the “initial rate period”), but then is allowed to fluctuate afterward. Hybrid loans have an initial rate period of 3, 5, 7, or 10-years, followed by an adjustable-rate period.
- 15-year loans, which have higher monthly payments than 30-year mortgages, but are paid off faster.
- 30-year loans, which have lower monthly payments than 15-year fixed-rate mortgages, but take longer to pay off.
- Government-secured loans, such as FHA or VA loans
Each type of home loan has benefits and drawbacks. The best loan for you depends on your unique needs. For instance, you could lock in a lower rate with a fixed-rate loan, but that rate may be higher than the interest on an adjustable-rate loan during its “initial rate period.” 15-year mortgage interest rates tend to be lower than 30-year rates, but the higher payments may get in the way of building up savings, to finance future home improvement projects, etc.
Rates are not everything when it comes to mortgages. You need to consider the big picture. Talk to one of our expert mortgage professionals and learn about your options.
4. Pre-qualification is vital
The type of loan that works best for your situation depends on many factors. When you start house-hunting, it helps to know in advance how much you qualify to borrow. Mortgage pre-qualification helps you understand how much house you can afford.
With pre-qualification, your lender will typically examine your income, credit score, assets, and debts to figure out what type of mortgage will likely work for you. This isn’t the same as mortgage pre-approval—that takes a more in-depth analysis of your situation. Pre-qualification is a simple way to ballpark what you can afford, making it a valuable mortgage planning tool.
5. Avoid opening new lines of credit during your application
Lenders consider your debts during the mortgage application. Because of this, opening a new line of credit could negatively impact your debt-to-income (DTI) ratio. Lenders use DTI to measure your ability to manage the payments you make each month. When applying for a mortgage, it’s best to avoid opening new lines of credit.
6. Avoid closing lines of credit
At the same time, if you have current lines of credit open, it’s best to keep them open. Having an available line of credit on a card with no balance should help your credit score, but closing lines of credit could negatively impact your credit score.
7. Your lender is a key resource
You probably still have some questions about mortgages, even if you’ve bought a home before. Reaching out to a lender is a great way to begin the process of applying for a home loan. Talk to a mortgage broker and learn about your options for locking in great loan terms.
