For most homebuyers, a mortgage is essential. However, the process of obtaining one can be a little intimidating.
There's an old saying: Battles are won before the fight through preparation. In that spirit, here's a step-by-step guide to the process of obtaining a mortgage from preapproval to closing.
1. Find a Mortgage Broker like me.
Your home buying quest shouldn't start with looking for a house. It should start with finding a lender. Mortgages are long-term relationships, and you'll want to be confident that your mortgage broker offers a strong combination of quality service and competitive pricing.
Also, consider the reputation and strength of the company. Pay attention to closing costs and fees in addition to interest rates, as they can contribute to a higher overall loan cost.
2. Get preapproved.
Most real estate agents need you to be preapproved for a mortgage before they'll take you to look at homes. Doing so will help you save time later in the process and, more importantly, be in a stronger position to make a credible offer to a seller.
A preapproval is a preliminary indication of how large a mortgage you qualify for. The lender will do a quick evaluation of your ability to afford a mortgage payment including property taxes and insurance, based on your credit score, income and debts. The process may also help identify any potential problems with your credit.
If you're preapproved, you'll receive a preapproval letter to help with your home search and present offers to sellers.
3. Make an offer.
Once you've found an affordable property you like, make an offer. Be sure to put the seller's asking price into context by researching the selling prices of comparable homes in the area. Your real estate agent can prepare a comparative market analysis to determine a fair offer.
Determine how motivated the seller is to part with the home. Has the house been on the market for a long time — say, more than 90 days? Has the seller been coming down in price? An experienced real estate agent can be very helpful in the negotiation process.
If the offer is accepted, you'll create a purchase contract, which formalizes both parties' intention to go through with the deal. Send a copy to you me.
4. Finalize the loan.
To move forward in the mortgage process, the lender will formally evaluate you through a process called underwriting. The goal is to assess your ability to repay the money you borrow. Doing so requires a check of your credit score, income, assets and past and current debts.
This process isn't just about whether the lender will give you a mortgage. It also determines how much you can borrow and the interest rate.
You'll need to submit some documents, including, but not limited to:
• Pay stubs for the past 30 days.
• W-2 forms for the past two years.
• Details about long-term debts, such as auto and student loans.
• The previous year's tax return (the past two years if you're self-employed).
• Proof of any supplemental income.
• Proof of homeowner's insurance.
The required documents can vary based on the type of loan you're getting and your lender's underwriting requirements. To keep things moving, be ready to respond quickly to any requests for additional documents or details.
The underwriter will generate a list of items you must provide to meet the lender's requirements. These tasks constitute conditions for approval and may include:
• Additional documentation to prove your income. Other documents may be required specific to your individual scenario such as letters of explanation, divorce decree, child care expense documentation, etc.
• Documentation on the source of your down payment funds.
• Proof of sufficient cash reserves to cover your first few monthly mortgage payments.
The lender will also order a professional appraisal of the property and review recently sold properties in the area to make sure the sale price is reasonably close to its true value to serve as collateral on your loan. The title to the property will also be reviewed to ensure you are obtaining the property free and clear.
5. Close on your home.
Closing is the last stage in both the mortgage and home buying processes. It's a meeting of the buyer, seller and other professionals involved in the transaction. Depending on your location, buyers and sellers may meet as a group or separately. At closing, you'll sign dozens of documents. Some are specifically associated with the mortgage.
At closing, you'll be required to have a certified check or complete a wire transfer to cover closing costs and down payment. These costs can vary, depending on the type of loan you choose, location and property type. They typically range from 2% to 5% of the loan amount and can include:
• Appraisal fee: It's paid to the appraisal company to confirm the fair market value of the home.
• Attorney fee: It's paid to an attorney to review the closing documents.
• Escrow fee: It's paid to the title company, escrow company or attorney for conducting the closing.
• Escrow deposit for property taxes and mortgage insurance: It's money set aside to pay taxes and insurance payments. If you use an escrow account, you'll usually need to pay two months of property tax and mortgage insurance payments to get started. The actual amount can vary based on the time of year.
• Lender fees: These are the origination fee and discount points paid to the lender.
• Prepaid interest: It will accrue between closing and the date of your first mortgage payment.
• Other fees: These can include credit report fees, required inspections, survey costs, title search, and title insurance policy.