One of the most complex financial transactions that people make is the purchase of a home. When you apply for home financing, you will find that the mortgage application process is indeed long and complex.
Here is a basic breakdown of the mortgage application process and the main steps you will need to take to buy a house:
1. Shop Around
The first thing you should do is gather information about your income, your credit score, and your monthly debt obligations. Meet with several different mortgage lenders and find out what each of them offers. Having your financial information on-hand can help lenders determine which programs you are likely to qualify for. You can then choose the best lender and get pre-qualified or pre-approved for a home loan. [See related article “How to Shop for a Mortgage Loan”]
2. Fill Out Paperwork
Next in the mortgage application process comes the paperwork. There is a lot of paperwork to fill out when you are doing a mortgage application. You will need to provide the lender with your identifying information, income information, declarations of your legal and financial history, asset information (including investment accounts and retirement accounts), your financial obligations, the type of loan you want, and other information. [See related article “How to Fill Out the Universal Residential Loan Application”]
3. Provide Supporting Documentation
Most mortgage lenders aren’t going to assume that what you disclose on your mortgage application is true. You will to have to show evidence with paystubs, income tax returns, bank account statements, government-issued identification, and any other paperwork requested. Make sure you understand what documents are needed, and get them as soon as possible or your mortgage application process may be delayed.
4. Underwriting, Approval, and More
After you submit your mortgage application, it goes through a process called “underwriting.” During this time, your risk as a borrower is determined. You may be asked to do a few things, such as pay off a car loan or find funds for a larger down payment. At this point, you might also attempt to lock in an interest rate. Be aware that it can take up to 60 days (or more) to get through the mortgage application approval process. Understand, too, that some lenders will check your credit score again, even if you were already pre-approved. If your credit score has dropped, your mortgage application may fall through ― along with your attempt to buy a home. [See related article “What Kind of Borrower Are You?”]
5. Final Approval and Funding
If all goes well with your mortgage application, you will receive final approval from the lender ― hopefully at a rate that you have locked in. There is even paperwork involved as you arrange to fund the loan, so that the money can be transferred to the seller (this may include an escrow agreement). Once all the terms and conditions are agreed upon, the contract is signed and ownership of the property is transferred from the seller to you. Now, you can move into your home and start making mortgage payments.
Remember that this is just a brief overview of the mortgage application process. Make sure you understand your lender’s full requirements before signing anything.