The mortgage loan process can be daunting for first-time homebuyers. They’re not sure what to expect or what they need to do. If you’ve had financial difficulties in the past, the usual uncertainty may be compounded by stress and fear.
At Addition Financial, we hear questions about the mortgage loan process a lot. We feel that it’s our job to ensure our members, whether they’re first-time buyers or experienced homeowners, understand what goes into approving a mortgage application.
To make sure you understand the mortgage loan process, we’ve put together this list of the six steps required to get a mortgage.
#1: Mortgage Pre-Approval
The first step in the mortgage loan process is getting pre-approved for a loan. Pre-approval isn’t a sure thing, but it tells you (and potential sellers) how much you can afford to spend.
During the pre-approval process, the lender will check your credit report, income and debt-to-income ratio. Then, they’ll give you an estimate of what you can qualify for.
#2: Finding a House/Purchase Agreement
The next step is hunting for a house. The pre-approval process will provide you with a price range and it’s important to stick to it. Your real estate agent should be willing to work within your limitations.
Once you find a home that you want and can afford, you’ll put in an offer to the homeowner through your agent. Once they accept your offer, it will be time to sign a purchase agreement. The agreement may require you to make a good faith deposit (to show your level of seriousness toward purchasing the home) and will be contingent upon your approval for a mortgage.
#3: Preparing Your Application
After you make an offer, you’ll need to get and complete a mortgage application. Finding the application is easy since most lenders use the same one. It’s the Uniform Residential Loan Application (URLA), also known as Fannie Mae form 1003. You can find it online.
Make sure to fill out the application completely and include any required supporting documentation. You’ll need W-2 forms, tax returns, pay stubs and information documenting any loans or debts you currently have. It’s better to provide too much information than not enough.
#4: Application Processing
During the next phase, your lender will process your mortgage application. That means reviewing the application to ensure it’s been filled out properly and reviewing all supporting documentation. If they’re missing anything, they’ll come back to you to request it.
The lender will also do the following:
- Order credit reports on you and any co-borrowers
- Verify your income, assets and employment
- Order a home appraisal to determine the value of the property you’re buying
This process may be quick – and it will certainly take less time if you’ve provided all the necessary information ahead of time.
#5: Mortgage Underwriting
Once the application is complete and has been processed, the underwriting phase will begin. During this time, the underwriter assigned to you will review your information in detail. It’s their job to nitpick the information you’ve provided looking for missing items and red flags.
They’ll primarily focus on the three Cs of mortgage underwriting:
- Capacity – Do you have the wherewithal to pay for your loan?
- Credit – Does your credit history show that you pay debts on time?
- Collateral – Is the value of the property you’re buying sufficient collateral for the loan?
During the underwriting process, they may come back with questions. You should respond as quickly as possible to ensure a smooth underwriting process.
#6: Mortgage Approval and Closing
Once the underwriter is satisfied with your application and is convinced that you’re credit-worthy, the application will be marked “clear to close.” This signifies you have been approved for the mortgage and you’re ready to close on the sale of your home.
Before the closing, you’ll receive a document called a Closing Disclosure. It’s a standardized form that provides you with the final details of the loan, including the terms, projected monthly payments and your fees and closing costs.
The closing will require you and the seller to review and sign all documents. It can be a lengthy process, but when it’s done, you’ll be the proud owner of a new home.
Applying for and getting approved for a mortgage is a complex process, and it can be a frustrating one if you don’t know what to expect. We hope that the information provided here has demystified it – and that you’ll soon be on the way to making your dream of home ownership a reality.
To learn more about Addition Financial’s flexible mortgage options for first-time homebuyers, click here now.