Going through the loan process can be stressful, but it’s worth finding the home of your dreams. While every family’s loan situation is a little different, there are some steps that all buyers must take as they apply for the mortgage loan that fits their specific needs.
Before you apply for a loan, you need to get a snapshot of how much lenders are willing to give you. A lender is attempting to ensure two things before moving on to the next step: your ability to repay the loan and your willingness to repay the loan.
In order to determine the former, a lender will look at your employment and income. For the latter, they’ll look at how you intend to use the property. Once you’ve passed both checks, you’ll be approved to move on to next step.
Note: Prequalification DOES NOT mean that you have been approved for the loan. It simply means that you’ve been approved to apply for the loan.
While every lender’s application varies a bit, in general, you’ll have to provide:
- Full name and social security number
- Authorization to run your credit
- The loan amount
- The address of the home you’re attempting to purchase
- An estimate of the home’s value.
Once your application is approved, you’ll move on to the next phase of the process.
3. Loan Estimate and Intent to Proceed
Next, you’ll receive a form that gives estimates regarding the nature of the loan. This will include everything from the estimated interest that you’ll be paying to your monthly mortgage amount. While these are not set in stone, they can give a good picture of what your loan will look like.
Once you’ve read over these estimates, you have a chance to decide whether or not you’re comfortable with those numbers. By signing an intent to proceed form, you’re agreeing to enter the next steps of the process.
After you’ve agreed to continue, the lender will begin gathering necessary documentation and ask you to do the same. The processor will collect the title, credit report, and appraisal paperwork to prepare for underwriting. In the meantime, you’ll be gathering quite a bit of paperwork. In general, most lenders ask for:
- Rental history
- Bank statements from the last 3 months
- Tax returns from the last 2 years
- Work history from the last 2 years
- Pay stubs from the last 6 months
- 401K and retirement account information
- Background check (though some conduct this themselves)
- Disclosures of all other owned properties.
- Copies of driver’s licenses, birth certificates, social security cards, and marriage licenses
Many borrowers find this to be the most stressful part of the process as they attempt to gather all the required information in a timely manner. A great way to avoid the stress and time crunch is to begin setting these documents aside as you prepare to apply for the loan. This gives you an opportunity to request paperwork from your job, the bank, and your accountant.
During the appraisal, a state-licensed appraiser will determine the value of the home you intend to buy. This protects the buyer from paying more than the home is worth, and the mortgage company from being in a situation in which the buyer is unable to pay their mortgage due to costly repairs.
Underwriting is the final step to closing. The processor for your loan will put together a file with all of your information, as well as their “stamp of approval” once the file is ready to complete. Be prepared to send in additional files, verifications, and paperwork during this time. The faster you’re able to supply the information, the quicker the underwriting process will go.
The most exciting part is the closing! You’ll soon be in your new home with all the information you’ll need for successfully paying back your mortgage. At closing, you’ll sign all paperwork that is required and receive the keys to your new home. This generally takes about an hour.
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