The home loan process can be confusing and unfamiliar – especially for first time home buyers. If you’ve decided to purchase a new home, you may be wondering where to get started and how to get a mortgage?
To help with all of those questions, we’ve put together this step-by-step guide to help explain the home loan process.
Step 1: Pre-Qualification
Before you start house hunting, we highly recommend getting pre-qualified with a mortgage lender. Pre-qualifying will not only help you determine how much house you can afford to purchase, it will also help you get your financial house in order and determine if there are any issues you should address before your under contract. During the pre-qualification phase, your Mortgage Banker will discuss different loan programs and the down payment options that are available to you. They will also give you a realistic idea of what your monthly payments will look like.
At the end of the pre-qualification process, your Mortgage Banker will issue a pre-qualification letter. It’s time to find your dream home!
Step 2: House Hunting
The second step in the process is finding the right home. You will primarily be working with a Realtor throughout this process, attending open houses in search of a home that’s the right fit. It may be helpful to make a list of the top features you would like to have in your new home. As you consider properties, it’s also important to consider what might be easy cosmetic changes, like a new coat of paint, versus more costly modifications, like tearing down walls or redoing the floors.
Once you find your dream home in your ideal neighborhood, your Realtor will help you negotiate the sales contract and purchase price. With an accepted contract from the sellers, it’s time to reconnect with your Mortgage Banker so you can complete your new home purchase.
Need a recommendation on a good Real Estate Agent in your area? We’re happy to make an introduction.
Step 3: Mortgage Loan Processing & Appraisals
Once you’re under contract, you’ll be asked to complete a full loan application. On the application, you will be asked in-depth questions about your income, the property you wish to purchase, employment history, assets, and liabilities. Your lender will be requesting various financial documents and information, and it’s important to provide this information as quickly as possible to avoid delays in processing.
During the processing phase, you will also be working with your Mortgage Banker to select a home loan product and lock in your mortgage rate. Mortgage rates are tied to movements in the financial markets, which are subject to change on a daily basis. You will also discuss your final down payment amount and closing costs. As part of this process, you will receive a Loan Estimate that itemizes the rates, loan fees, and associated costs for obtaining the loan.
During processing, your lender will also set up an appraisal to evaluate the value of the home you wish to purchase. The appraiser will visit the home and will also consider the sales prices of comparable houses in your new neighborhood. This allows the lender to determine if the value of the home covers the loan amount.
Step 4: Underwriting
Once the processor has put together the complete loan package, the file is sent to the underwriting team. The underwriter is the key decision maker and will be closely reviewing your loan package. They’ll be checking to ensure that you (the borrower) and the property you wish to purchase meet the eligibility requirements for the loan product.
After reviewing your file, an underwriter will typically do one of three things:
- Issue a Clear to Close. Clear to Close means that you are approved and ready to close on your new home. It’s rare that a file will get a Clear to Close upon first submission.
- Issue a Conditional Approval. This is a request from the underwriter to provide additional documentation or information before they issue a Clear to Close. Conditions vary, but a common request is additional pay stubs, more tax returns, or a letter of explanation on a late or missed payment.
- Suspend the File. If the loan terms don’t match up or there isn’t enough information in the file, it is possible that an underwriter could deny or suspend the file.
Once any conditions are satisfied, your file is issued a Clear to Close and your closing is scheduled. Final prep is now underway.
Step 5: Closing
You’re almost there! At this step, your mortgage loan file goes through a pre-closing review for quality assurance and the closing instructions are prepared. The Homeowners Insurance and Tax Certificate are reviewed. Closing date and time are confirmed, and the closing documents are prepared and delivered to the title company.
On your closing day, you’ll bring your down payment and any closing costs (if required) to your scheduled closing and sign all of the necessary paperwork to take possession of the deed. Yes, you will be signing lots and lots of paperwork.