Understanding the loan process will put your mind at ease as you start down the road to homeownership.
Buying a home can feel overwhelming, and a lot of that uneasiness can come from not understanding how to get a mortgage. This guide should help clarify the mortgage process and get you on the road to homeownership.
Determine your affordability
Before you start working with a real estate agent, it’s important to understand how much home you can afford. This will help you and your agent target your search, and you’ll avoid the heartache of falling in love with a property that’s out of your reach.
You can determine affordability in seconds using two different mortgage calculators. First use an affordability calculator to determine a purchase price appropriate for your income and down payment; then use a payment calculatorto determine your exact monthly obligations.
Get started on your mortgage process
Next, you’ll actually connect with a lender to apply for a loan, and the lender will review all of your qualifying documentation. A loan officer will ask you to provide the items below — verbally or in an online form first, then with full documentation:
- Personal information. Date of birth, marital status, number of children and ages.
- Residence history. Rent payment or all mortgage, insurance and tax figures — for at least the past two years.
- Employment and income. Documentation showing wages and employment history for at least two years. If you receive commissions or bonuses, you’ll need two years of figures. Lenders average variable and self-employed income over two years. Full tax returns for two years are usually required.
- Asset balances. All checking, savings, investment and retirement accounts. You must provide all information for accounts, even if you’re only using one account for the down payment (you lender will need to see a paper trail for large deposits and withdrawals). If you’re using gift funds for your down payment, specific rules apply.
- Debt payments and balances. Credit cards, mortgages, student loans, car loans, alimony and child support.
- Social Security number. For a credit report to confirm your debts and credit scores.
Select down payment and loan type
Once your lender has your full profile, he or she can recommend loan structures based on your situation.
Perhaps your income is strong, but you’re early in your career and haven’t saved up that much money. In this case, your lender might recommend a 10-percent down payment because the slightly higher payments fit your budget and enable you to conserve cash.
Or you might start the process thinking you want to buy a 1-bedroom condo using a 5-year adjustable-rate mortgage because you think you’re going to sell the home and upgrade within five years. But your lender may look at your income and consider that you want to start a family within three years, then determine that you can afford the monthly budget and cash to close on a 3-bedroom single family home using a 30-year fixed loan.
It’s important to match your loan terms and home buying choices with your objectives. Because lenders require your full financial profile, they are in a good position to help you explore and fine-tune your objectives to make sure you select the loan type that fits you best.
Start home shopping
After you’ve begun the mortgage process, you’re ready to get with your real estate agent and begin your home search.
Introduce your lender to your agent, and ask your lender to brief your agent on your mortgage process. This will verify your target home price and down payment for your agent and show that you’re ready to close as soon as you find a home.
Write offers, lock your rate and finalize your loan
Once you find a home you love, you’ll write an offer. Your agent will present your offer to the seller, and if the seller accepts your offer, your loan process will move to the final approval phase.
Your lender will inform you that it’s time to lock your rate. A rate lock runs with a borrower and a property, so you can’t lock your rate until a seller has accepted your offer.
Then your lender will request any updated documentation needed from you, order an appraisal on the property and review the property title report.
Once all of these items check out, your lender will draw final loan documents with your desired rate and terms for you to sign. Your lender will fund the loan, and the home will be yours!