How to Get a Mortgage: The Loan Process Explained
Does the idea of homeownership excite you? Does the idea of taking out a loan overwhelm you? I totally get it. Buying a home is a whirlwind of emotions, and the mortgage process can seem a bit daunting at times. But don’t worry, we’re here to help you every step of the way. And I’m going to break down the process for you. You might wonder where to even begin. Before you go tour that million-dollar mansion (and fall in love with a house out of your price range), talk to a mortgage lender.
Preparing
Find a mortgage banker. Starting with a good mortgage banker is the first step to buying the perfect house. Their job is to help guide you through the entire mortgage process. He or she will explain the loan programs available to you, as well as interest rates, fees, and qualifications requirements for each of your options. They’ll also be collecting the information needed to process your loan.
Feel free to ask friends and family that have recently gotten a mortgage if they have lender recommendations. And look online for reviews as well.
Once you choose a mortgage banker, they’ll determine your loan eligibility using credit and income information.
Get pre-qualified.
When you first begin the process with a lender, your mortgage banker will ask basic questions about your income and credit score. If you’re eligible for a loan (based on the information you discussed), they’ll issue a “pre-qualification” letter. However since none of your information has been verified, it’s best to proceed to the next step, conditional approval, before you begin house hunting.
Get conditionally approved.
Once you know what loan programs you may be eligible for, your lender will pull and review your full credit report, along with your income documentation. Once your information is reviewed, your mortgage banker can tell you how much house you can qualify for, protecting you from falling in love with a house that’s out of your budget. You’ll receive a conditional approval letter, which will make your offer on a house more attractive to a seller.
Determine how much you wish to spend, based on your qualification and comfort level. Now you’re ready to begin the hunt.
Meet with a real estate agent.
Find an agent that you trust. Look for someone who’s responsive and familiar with your area. Similar to finding a lender, ask loved ones for recommendations. Your mortgage banker may be able to suggest agents as well. Prepare a wish list of must-haves, nice-to-haves, and deal breakers, so your agent can find and screen homes for sale.
Find a house.
Finally, it’s time for the fun part. Buying a house is likely one of the biggest purchases you’ll ever make. Make sure to tour plenty of houses so you’re confident with your decision.
Applying
Complete a loan application. Once you’ve made an offer, it’s time to reconnect with your mortgage banker. While negotiations are ongoing, you will complete a 1003 loan application. Then your mortgage banker will request additional items needed to support the information provided on your application. Items include additional pay stubs, W2s, bank statements, tax returns, etc. After all this information is gathered, your loan package moves to underwriting.
Underwriting
Review and Verify
During this stage, an underwriter reviews all of your information to verify that you meet the specific criteria of your loan program. At Atlantic Bay, your file goes through processing simultaneously as it’s being underwritten, streamlining the process. But keep in mind that the order of these steps may vary slightly from lender to lender.
Approval
Once the underwriter has finished their review and determined your ability to purchase a house, you’ll receive feedback on any additional conditions needed for final approval.
Processing
Verify and Satisfy
During this stage of your loan, the items in your loan application will be verified. While your loan is being underwritten, processors will verify employment, rental history, and fulfill any conditions the underwriter assigned.
Third party services ordered
Lenders typically require a home appraisal, which is an estimate of your proposed property's value. This helps you and your lender ensure you’re not overpaying for your property. After you’ve received your initial disclosures and estimates and let your lender know you plan on proceeding, the lender can order the appraisal. In addition, your lender will work with you to order title insurance, which protects the lender in case someone else has a legitimate claim to the property, or if there are other defects, liens, or claims against the property. For a small extra cost, you can also obtain owner’s title insurance, which insures you against the same thing. You’ll also need to obtain homeowner’s insurance, and depending on the home’s location, you may also need flood insurance.
Closing
Clear to Close
Once your loan package is fully processed and all conditions have been satisfied, your file is marked “clear to close.” The lender prepares your closing documents, sends all necessary disclosures, and your closing is scheduled with your attorney/settlement agent and realtor.
Close on your new home!
Closing is typically held at the title company you’ve chosen. Don’t forget to bring identification with you. It usually lasts around an hour, during which you’ll sign lots of paperwork. Once it’s confirmed that your funds have arrived, the title will be transferred and you’ll receive your keys to your new house.
If you’d like a quick reference of the steps in this article, download our graphic, The Loan Process.
While there are several steps to getting a mortgage, owning a home is definitely worth the wait. For a smooth and less-stressful process, begin with a mortgage banker you trust and keep the lines of communication open. Happy house hunting.