Loans

The Mortgage Loan Process: A Step-By-Step Guide

9 steps to get a mortgage

1. Get informed consent

The first step we recommend to any home buyer is to get pre-approved for a mortgage. The idea behind pre-approval is simple: before checking out what’s on the market, you need to be confident that you know how much the lender will lend you.

You may have already experienced that, without prior approval, real estate agents will not give you much of their valuable time (especially in a seller’s market). They operate on a commission basis, and may not take you seriously – nor will the sellers – so you can show them your pre-approval letter. For more in-depth information, read about our verified approval process here.

When you get pre-approved, your credit is withdrawn. This gives the lender two things: your credit score and a look at the data on your credit report. You must have a credit score of 580 to qualify for a loan through the Federal Housing Administration (FHA) and a credit score of 620 for a conventional loan through Fannie Mae or Freddie Mac. A VA loan backed by the U.S. Department of Veterans Affairs does not require a specific score, but lenders can set up guidelines themselves. In Rocket Mortgage®We are looking for a credit score of at least 580 for VA loans.

In addition to your credit score, lenders will see how much debt you carry and whether you’re trying to buy a home with any bankruptcies or collections on your record. If you have something like this on your record, you can still get a mortgage, but you may only qualify for certain loan options.

The lender will also ask you about your income and assets up front to calculate how much you can afford based on your debt-to-income ratio (DTI).

You will also be matched with an initial loan program, although this may change later in the process.

2. Prepare your documents

In short, most lenders require information about your debt, assets, credit history, proof of employment and income. Keep in mind that you will not need all of these documents to get pre-approved for your loan. However, the more information you can provide to the lender in advance, the stronger your pre-approval – because you and the seller can trust that your loan is more likely to be approved in the end.

Let’s break down the documents you must prepare for your mortgage application.

To check your debts and assets, you will need:

  • bank account statements
  • Recent data from your investment portfolio, including retirement accounts, stocks and bonds
  • Receipt of the gifted funds
  • Document your current mortgage
  • Check other outstanding debts, such as auto loans or student loans

When validating your credit history, the loan provider may request the following:

  • Permission to access and review your credit report
  • An explanation of any financial incidents that may appear on your credit report, including bankruptcies, foreclosures, or late payments

Finally, proof of employment and income records will require:

  • Name, address and contact information of the current employer
  • Two years of W-2s
  • Profit and loss statements, if you are self-employed
  • Proof of child support, alimony or other types of income
  • 1040 tax forms

Income and asset documents can be submitted later in the underwriting stage, but submitting them in advance will likely give you a better understanding of how much you can pay.

3. Determine your budget

Your pre-approval letter will tell you how much money the lender is willing to allow you to borrow. However, just because you can borrow a certain amount does not mean that you have to push your budget to the limit. You can put different purchase rates into the mortgage calculator to come up with a realistic estimate of your monthly mortgage payments. You can also add the cost of taxes and insurance if you know what that could be.

You want to make sure you have enough money each month for savings, emergencies, investments, and other expenses. Don’t forget to leave a little room for the fun money too!

4. Start your home search

Getting out and looking at homes is usually the most exciting part of the mortgage process. You have to imagine what your life would be like in every house you walk into. Although this is often one of the most enjoyable stages during the process, you will want to start with a solid game plan.

Depending on your budget, it may or may not be possible to find a home that has every feature you want. With this in mind, it is best to make a list of your top priorities for the homes you are looking for to ensure that you save time while searching for your home.

Once you have made your wish list, we recommend hiring a real estate agent. They know the market. They see a lot of homes each year and can work with you to find something that meets your needs and within your budget. Our friends at Rocket HomesSM They can help match you with an agent who can work with you to find a home that fits your needs.

5. Make an offer

Let’s say you’ve found the perfect home. Now is the time to make an offer. There are many things to think about here. You’ll work with your real estate agent or attorney to write the purchase agreement, which includes your offer of the purchase price as well as a list of anything from the home you might want to include in the sale.

Although these types of details are negotiable, sellers will likely want to have a deal with very few strings—one as clean as possible. This could mean avoiding things like asking for seller concessions and including furniture in the deal.

Also at this point, you will be depositing serious money. This is a percentage of the purchase price given to the seller when accepting the offer to show that you are serious about the property.

6. Termination of the loan

After you are legally bound by your offer of a purchase agreement, you are ready to apply for a mortgage and finalize the terms of the loan. If you haven’t done so already, you’ll need to think about the types of mortgages you qualify for, compare their respective rates, adjust the down payment amount and choose the term.

Next comes the paperwork. Although you may have already completed a good portion of your application paperwork during pre-approval, you will need to gather some final documentation before you will be allowed to close. Loan officers will need any information you haven’t yet provided about your debt, assets, credit, and income.

Once your application is completed, the lender will provide you with a loan estimate. This document does not mean that you are approved, but it will specify the details of your mortgage arrangement, such as the total amount of the loan and the appraised value of the property you wish to purchase.

7. Wait for the subscription

Once your offer is accepted, the purchase agreement is sent back to your bank. The banker will review your options to ensure that you are in the right loan program. Once this happens, your loan goes through underwriting.

During the underwriting process, the underwriter will check your income, assets, and employment and compare them to the information on your credit report. Lenders always withdraw the potential borrower’s credit at the beginning of the process, but pre-approval only lasts for 90 days.

If you’ve been looking for a home for a while, it may be necessary for the lender to pull your balance back. Try not to take on additional debt during the home search process. Doing so while trying to buy a home at the same time could put your finances at risk.

Before you close the house, you and the lender will usually decide when to lock in the interest rate as well. Since mortgage rates can fluctuate several times a day, a mortgage rate lock will ensure that the interest rate remains the same until the close or for 30-60 days after the lockout goes into effect.

Also during this time, the lender may request additional or updated documentation if it needs it for approval purposes.

8. Get a home appraisal

Your lender will prepare a home appraisal while you go through the underwriting process. An appraisal protects you and the lender by verifying that the home is worth the price you agreed with the seller.

During the appraisal process, the home is evaluated against similar properties in the area. This means that if the property you’re buying is a two-bedroom farmhouse with a basic bathroom that was recently renovated, the appraiser will find properties in the area that most resemble your property, look at sales data and give you a dollar’s worth of the home you’re looking for.

If the valuation comes at less than the selling price, there are three options: the seller can lower the price to the valuation value; You bring the difference between the appraisal value and the selling price to the closing table; Or you can move away from the house (if you have an appraisal clause in your purchase agreement).

9. Prepare to close

When the underwriting process is complete, it’s time to come to the closing table. You’ll bring photo IDs, a copy of your closing statement, your advance payment, and any other closing costs to your closing meeting, then sign the mortgage and get the title deed.

There are ways to keep your closing costs that you have to pay to close. One way you can do this is to increase your bid price to convince the seller to pay for other things. This way, you include closing costs in the loan.

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