When you're looking for your dream home, you visualize your family making beautiful memories in the new space you call home. You picture the swing out back for your kiddos and catching the sunsets on your front porch. What you don't daydream about is the, on average, 45-day process of getting a mortgage.
A mortgage is a complex undertaking that significantly impacts your finances. The paperwork, time, and commitment make it a weighted and complicated task. If you're looking into getting a mortgage, it's ok to feel overwhelmed. That's why we're here to help! Your dream home and the mortgage go hand in hand, and you can't have one without the other. Let's tackle this head-on and break down the scary parts.
Often anxiety stems from the fear of the unknown. What really happens when you get a mortgage? Today, we will break down the mortgage pipeline into well-defined steps so that you have a better understanding of the process. Buying a new home is exciting! We want you to enjoy getting ready for your new home. Be empowered with knowing the process and focusing on the steps individually versus feeling overwhelmed by uncertainty.
Application
When you've done your research and decided on a few lenders, you can start applying.
Questions you will be asked:
• What kind of mortgage do you need? (Conventional or FHA)
• What is the property address for the mortgage in question?
• What type of loan do you need?
• Who will be the owner and co-owner?
Information you will be required to give:
• Bank statements
• Social security number
• Highest level of education
• Marital status
• Employment records
• Employer contact information
• Income documents
The above may seem like a LOT of information to give about yourself, and in truth, it is! But try not to be overwhelmed. Mortgages are a big deal and require an in-depth process to know what's best for you and the lender. Your lender needs a lot of information to make a well-informed decision. If you have any questions, your loan originator should be more than happy to carefully explain every detail and assist in getting the loan that fits you!
Mortgage Pre-Approval
Getting a pre-approval is like the checkered racing flag in a mortgage. It's the official start of homeownership! At this stage, you will have one or more lenders from whom you are considering getting your loan, and if the right opportunity opens up, you are ready to get a mortgage!
After your application has been considered, the next best step is getting pre-approved. The lender will examine your financial history and determine what loan amount you're qualified for. Here's the information that they're looking for:
• Proof of income
• Employment verification
• Proof of assets
• Credit history
• Identification
• Debt-to-income ratio (DTI)
To determine the above, be prepared to provide the following:
• W-2 statements
• Pay stubs
• Bank statements
• License
• Social Security number
Once this information is sent, the lender can determine what kind of loan you are qualified for and how much you can borrow. The average time for getting approved usually takes 3-5 business days. Then the lender will issue a pre-approval letter stating they are willing to give you a loan, pending further confirmation of details. This letter is an excellent tool for house shopping because it shows the sellers and their agents that you're a serious buyer.
Tips:
• Take your time to meet multiple lenders! The relationship formed between you and your lender is an important one. Consider multiple options and choose the one that best fits your needs.
• Remember, getting a pre-approval is not a carte blanche for a mortgage with that lender. But as long as you pass your up-to-date income and credit score, you shouldn’t have an issue.
• Don't get pre-qualified confused with pre-approval! Getting pre-qualified is an educated guess of how much you can afford. Imagine a lender taking a quick look at your finances for a loose approximation of the loan amount. It's not as in-depth as a pre-approval, and sellers will not take them as seriously. If you want to stand out as a buyer, a pre-approval letter is often a far better route.
Processing
A processor will review your financial documents with a fine-tooth comb and prepare them for the underwriter. Their job is to identify discrepancies and ensure that the underwriter can make an informed decision on whether or not to approve your loan. Don't be surprised if you're asked to give a LOT of information about your residential history, income, and assets. Remember, everything that you're asked to provide has a purpose!
Tip:
• Being asked to provide personal records can be draining. It's ok to feel unnerved! Getting a home is a massive undertaking. Processing can add to the strain by asking for a number of personal financial information. During this stage, keep in mind that a mortgage is a large sum the lender is backing you for. It's a big deal for all parties involved. You'll be one step closer to homeownership by quickly giving them the necessary information.
Underwriting
The underwriter's job is to analyze the file that the processors have prepared for potential borrowers and determine the risk in lending that applicant a mortgage. During this process, they will evaluate your debt-to-income ratio, check your credit, and verify all income and assets.
The financial documents to be gone over include the following:
• Bank statements
• Retirement funds
• Cash in checking and savings account
• Determine the cash value of other assets in your possession. (stocks, bonds, etc.)
If you get approved, you'll be issued a pre-approval letter specifying the loan's terms.
Tips:
• The underwriter's job is to catch any red flags or discrepancies. If you are asked to clarify any financial records or asked for a letter of exception, remember that the underwriter wants you to qualify for a loan. But they need to ensure you are well-equipped to take on a mortgage. If you are working with a good lender, your loan originator will be able to assist you in giving the underwriter everything they need.
Title
As you prepare for closing, title insurance will be ordered. This part of the process is outsourced from the lender and is a standard transaction. Title insurance protects you from someone else making a claim to the property. Once it's cleared that the title can be transferred, you and the lender are not liable for any claims to the property.
Closing
The closing, also known as settlement, is the final step you take in securing your mortgage. The loan documents are ready for you to sign on the dotted line.
What should I bring?
• Driver's license or passport
• Cashier's check to cover any closing costs from an account your lender has already approved
Who else may be present?
• Your real estate agent
• The seller's real estate agent
• Title agent
• Closing agent
• Possibly your lender
• Attorney (if regulated by your state)
Tip
• Carefully read and understand the terms of the mortgage. Don't be afraid to ask questions!
Funding
Once your paperwork is signed, your loan can move forward to the process for funding. The transfer of ownership is recorded by the county, and the home and title officially become yours! Get the keys and start moving in!
We hope this has helped break down the process in your mind so that when it's your time to buy a home, you can keep calm and carry on.
If you're ready to take on a mortgage, don't wait! Our licensed professionals are happy to help you every step of the way. Start your application here!
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