Understanding the steps involved in getting a mortgage
Last week we talked about the things you need to know as a first time home buyer. As part of that guide, we mentioned that financing your home is very common, and that “nearly 90% of all buyers finance their homes, according to the National Association of Realtors”.
Today, we will focus more squarely on the mortgage loan process, outlining the various steps involved in getting a mortgage, whether it’s your first home, or your fifth!
Without further ado, here is an inside look at the steps involved in financing your home:
This is the first step, and is basically an estimate of how much you will be cleared to borrow for your mortgage. You will share your credit score and other financial information. There is usually no cost involved in prequalification, but it is also not a guarantee you will qualify for a mortgage.
This phase is a much more thorough review of your financial information and often involves a small fee. The lender will review all of your documentation and tell you the maximum amount you can borrow from the institution. Because preapproval demonstrates you can qualify for a loan, it can save a lot of time when you are ready to submit offers during the buying process.
Once you have found your dream home, you will officially apply for a mortgage. If you have completed step 2 and are preapproved, all of your financial information will have already been reviewed. The lender will also need to know all the information you have about the home you are looking to buy.
- Loan Estimate
Once your application has been submitted, you will receive a loan estimate very shortly thereafter, usually within a couple of days. This will include all financial aspects of the loan such as interest rate, monthly mortgage payments, total closing costs, taxes, and a host of other relevant information.
Once you have accepted the terms of the loan estimate, the lender will do a full review of all documentation.
- Additional Documentation
In some cases, lenders may require additional documentation to explain abnormalities in your paperwork. This can cause delays, so best to be thorough first time round!
This is when the lender makes the final decision on your loan application and approves or denies your mortgage application.
- Closing Disclosure
When your mortgage has been approved, they will send you a closing disclosure document. This looks very similar to the loan estimate, except now the numbers are for real! You will get this document with plenty of time to review it before your closing date.
You will likely have to buy homeowners insurance for your property, and lenders often require it to protect their investment.
The last step is the final review of all documentation and sign along the dotted line! You will usually pay a down payment and the closing costs, at which point you will get the keys to your new home.
So there you have it.
It might seem like a lot to take in – but if you have any questions, don’t hesitate to get in touch with one of our local experts!