When you are buying a house, there is so much going on at one time that it can be extremely overwhelming and confusing. The loan process and mortgage process is one of the worst parts for this because it is also one of the most confusing portions of buying a home.
There is no way to make it any less complicated, but there is a way to make it seem less complicated - education. Learning about the different steps and being able to anticipate what is coming will help to remove at least some of the pressures you feel. There are six basic steps to getting a mortgage. Let’s break them down:
Financial Self Assessment (Prep Work)
This is the first stage and it could be one of the most important - you need to know what you are working with. Establish monthly budgets, check your credit score, and save as much money as possible. You should start keeping any and all financial documents you have so that you can understand and explain your financial situation.
Much of this can be done for you by the lender, but you will want to do it for yourself in order to see where you really stand - lenders don’t know what is a comfortable level for you nor do they understand what you spend your money on.
Pre-Approval and Application Process
It is usually best to apply for a mortgage loan through a pre-approval process. This means you submit an application before you’ve found a house. The goal is to see how much you can get, which can help determine where you look. During this process, your lender will look at your debt, credit, and income before making an assessment on how much they are willing to give you.
Filling out the application is actually one of the easiest parts of the process. You’ll likely have to fill out the Uniform Residential Loan Application (Fannie Mae form 1003 / Freddie Mac form 65). You can look up the form to see what you will have to fill out.
Mortgage Originating and Processing
Origination means creation, which is something that the lenders will use. The lender originates your loan by putting your application with other documents to put together a packet. This will help speed things up after you do find a home. There isn’t much you can do during this process - just make sure to get in any and all documents that your lender asks for.
Eventually, your lender will pass your application file along to an underwriter. That person will determine if you are an acceptable candidate. Mortgage companies have to take on risk when they accept you as a client, so you have to go through a few different approval processes.
You may be asked to submit additional documentations based on current spending activities and any major changes - be sure to submit them.
Once you submit your loan application, you will get a list of items needed to satisfy the lender’s requirements. You should read over them and then ask any questions you may have and then actually do the things so that your loan can be approved.
Some of the most common conditions include cash reserves to cover the first couple months, proof of income, and proof of homeowner’s insurance.
Closing is the final step that you will have to go through. This is when all of the funds go out and the paperwork is signed. The sellers and buyers will receive what they need from the lenders. Most of the time, things will go through an escrow company.
This is a complicated procedure, but it will be easier when you work with a team who helps explain each step.