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The mortgage loan process can be intimidating. This is the biggest purchase of your life – you want to make sure it all goes smoothly, right?
The good news is that it’s pretty simple. We’ve broken the home loan process down into five main steps.
Mortgage Loan Process Step 1: Get Pre Approved
When you’re in the market to buy a home, the first thing you need to do is understand how much home you can afford. While you can use something like a mortgage calculator, you ultimately need to get pre-approved by a lender.
Just like it sounds, getting pre-approved for a mortgage is when a lender will look at your key financial metrics to understand if they think you’d be a good borrower. They’ll review your credit score, credit history, income, debt-to-income ratio, and assets and liabilities.
These factors are important because they paint a picture of how well you manage your money and how much money you have. If you have a low credit score, a lot of debts, and a relatively low income, a mortgage lender will be warier in lending to you. They will be concerned that with all of your other debts, you may not be able to pay back the mortgage.
On the other hand, if you have great credit, a high income, and a good debt-to-income ratio, lenders will be more willing to work with you. The lender will give you a high-level breakout of how much you’re approved for. They will also extend a pre-approval letter that you can show home sellers to help them feel better about getting on contract with you.
Once you are pre-approved, it’s time for the next part of the loan process.
Housebuyer Process Step 2: Get on Contract with a House
Now that you know how much house you can afford, it’s time for the fun part – finding a house! The great thing about living with the internet is we have powerful tools to help us find the type of home we want to buy.
The downside is your competition – other homebuyers – can do the same.
This part of the mortgage loan process can take a while sometimes. An article on Zillow.com reports that it can take about 4.5 months to shop for a home. Just keep in mind this involves the entire search process! Most people start by searching online to get a feel for what’s on the market. Then they’ll start touring homes to see what they like and don’t like.
Eventually, they’ll find their dream home, submit an offer and get on contract! Now it’s time for the next step.
Mortgage Loan Process Step 3: The Home Gets Appraised
The tricky thing with houses is their value can be relative. Even though a seller may ask for $300,000, the market may think it’s worth closer to $250,000.
That’s where the appraisal comes in. The lender wants to get an expert’s opinion as to how much the home is worth. If it’s worth at least the full amount of the purchase price, the home loan process can move on to the next step.
House Buyer Loan Process Step 4: Underwriting
The most complex step from a lender’s perspective is underwriting. This is where the lender will ask for more detailed information from you regarding your financial history and assets. You’ll be asked to share financial documents that show your debts and assets. You’ll need to validate your employment and share some of your tax records.
This is the lender’s last chance to verify they feel comfortable giving you a loan. If all goes well, they’ll give you final approval for the mortgage! This takes us to the last step of the mortgage loan process.
Step 5: Close on the House
Everything has led up to this point. Your lender has approved you for a mortgage. The seller is happy to accept the price you’ve offered. The house was appraised for a high enough market value.
Closing is where you take ownership of the home. It does involve a lot of paperwork, but it’s worth it because, after the meeting, you have the keys to your new home!
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We love helping people walk through every step of the mortgage loan process. To get started, let us know how we can help! We look forward to hearing from you soon.