Buying a home is one of the most significant investments you are making in your life. Although the prospect of getting a home to live with your family is exciting, it also involves a lot of money. Ideally, you should buy your home using your funds, but that would take years of saving up money. It is where a mortgage comes in.
The mortgage application process can be daunting if it is your first time doing so. Thankfully, there are steps you can follow to secure a mortgage. Read as we provide these steps and help you get one step closer to buying your home.
1. Get Your Credit Score In Order
One of the most important things a lender considers is your score. It helps them determine if you are capable of fulfilling your financial responsibilities satisfactorily. Your lender may request your credit reports from Equifax, Experian, TransUnion, or Crediva, so before approaching your lender, you need to check your credit reports and ensure that you have a good credit rating. Also, check for errors in your credit report that may damage your credit score or indicate fraudulent activity, like identity theft. Once you have your credit score in order, you’ll feel more confident when searching for a lending institution you can apply for a mortgage.
2. Calculate How Much You Need and Can Afford
Don’t go for a dream house immediately when calculating how much you will be borrowing for a mortgage. Keep in mind that your mortgage repayment is not your only financial obligation once it will be approved. There are other expenses such as personal and family needs, homeowner’s insurance, property taxes, interest, and other expenses that might come up in the future. With this in mind, make sure you can afford your mortgage by using a mortgage calculator or having your lender work with you in calculating the most cost-efficient mortgage option. It is also helpful to know your debt-to-income (DTI) ratio to guide you in your mortgage calculation. A good rule of thumb is to stick to the 28/36 rule, where you should keep your mortgage-related expenses under 28% and your other debt obligations under 36%. Making a wise computation before applying for a mortgage will save you from financial difficulties in the future.
3. Process Mortgage Prequalification
The first two steps we mentioned earlier will be further validated by the lender once you process your mortgage prequalification. The lender will consider factors like your credit score, your income, your debts, and other elements that can determine how much a house a borrower can afford. In the prequalification process, you will be offered different loan programs where your credit score, debt, and income are suitable. Process a prequalification for different programs and select one that suits your needs best.
4. Proceed with Mortgage Application
Prequalification is just the screening process to determine if you are ready to take on your responsibility as a mortgage borrower. Once you are prequalified, the loan process begins with your application. The loan officer will then provide you with a loan application form and other papers and documentation for processing. If you are making the application online, most, if not all of the documents you can fill out will be sent through email and you will be notified of the next steps you will be doing in the application process. Typically, you will be advised to discuss the fees and downpayment with the loan officer and will be sent an itemized loan estimate. After reading the loan estimate carefully and approving its details you can ink-sign (or electronically sign if online) the “Intent to Proceed” document to acknowledge your loan application.
5. Monitor the Processing and Underwriting
You will need to keep in touch with the loan officer, the processor, and the loan underwriter for updates regarding your loan application. The processor makes a final review of the documents you have submitted and will contact you if there are any concerns regarding your debts and payment histories. If none, you will be notified that your application has been forwarded for underwriting.
The underwriter determines whether the application and loan package is acceptable. If more information is required from the borrower, you will be contacted to provide more documentation. A mortgage insurance underwriting may also be necessary if you cannot put forward 20% of the loan amount as a down payment. It is needed to protect the lender in case of default.
You are just a step nearer to securing your mortgage. 20 to 30 days after your mortgage processing, the title loan insurance is ordered and all approval contingencies are fulfilled. You will then be notified of the closing schedule of your mortgage application. At least three days before closing, your lender will provide another itemized list of costs associated with the closing.
At last, the moment you have been waiting for. Your mortgage closing is where the lender funds the loan to the selling party to obtain the title to your property. At this point, your mortgage process is finished, and you have bought a new house. Depending on your state or locality, the closing can take place in a closing attorney’s office, an escrow company, or any office with jurisdiction on this matter.
Getting your mortgage secured is a fulfilling process. Once you get that mortgage contract signed, pat yourself on the back for a job well done. You finally have a home where you and your family can grow and make memories.