Steps to Getting a Mortgage That Every Home Buyer Should Know

There’s good news for homebuyers in a demanding housing market! Average interest rates are lowering, which has encouraged buyers to explore financing, causing an increase in mortgage applications. As first-time and repeat home buyers find renewed interest in and ability to finance new home purchases, understanding the mortgage application process will greatly benefit your home buying journey!

First, a mortgage is a financial agreement between a buyer and a lender that provides funds to purchase a property in exchange for the lender’s right to take the property if you fail to repay the money borrowed and interest on the borrowed amount.

Sounds like an ideal situation to get your dream home, right? For most home buyers, the mortgage process can be a simple and straightforward way to purchase a home responsibly. 

Although the process of a mortgage application can seem daunting and complicated, we are here to take some of the worries and work out of preparing to obtain a mortgage. These steps to getting a mortgage can guide you on one of the biggest investments of your life. 

What are the Steps in the Mortgage Application Process

    1. Preapproval is essential to start the mortgage process.
      The steps to get preapproved for a mortgage include finding a lender, filling out an official application, and providing the necessary documents to determine your preapproved budget and mortgage loan amount.

      Your credit report will be run during this time to determine your overall financial standing for getting a mortgage. The income you can use as you prepare to start the steps to getting a mortgage includes social security payments, military benefits, alimony, child support, investment accounts, commission, and overtime. You will collect bank statements from the last several months, tax returns for the past two years, and any statements for outstanding debt like lines of credit or rent. Other financial documents to assist the mortgage process include documents explaining large deposits, credit inquiries, child support, or bankruptcies, and your most recent paystubs to prepare for preapproval.
    2. Find a property within your preapproved budget and make an offer.
      Let the house hunting begin! Your mortgage preapproval will help you narrow down your search within realistic budget parameters. Many real estate agents and home sellers favor seeing a mortgage preapproval letter to reduce the risk that your offer will fall through due to financing. Once you’ve found your dream home, you can initiate the contract process. For a resale home, this means presenting a reasonable offer for the home. For a new construction home, the need to present an offer is rare. Instead, interested home buyers accept the listed price and offer a small percentage of the price as an earnest money deposit before choosing additional design options that may impact the final price.
    3. Apply for a final mortgage.
      You can apply for your official mortgage through the same mortgage lender that provided your preapproval, but it’s also wise to shop around to ensure you’re getting the best rate from other lenders. You must submit information regarding your employment, income, assets, debts, credit history, and data related to the property you plan to purchase.
    4. Your lenders will complete loan processing on your behalf.
      Your mortgage lender will gather your personal information and documentation to provide a loan estimate explaining your estimated interest rate, monthly principal payment, projected closing costs, and other fees. You will use the loan estimate to compare mortgage lenders to choose the best deal and accept or deny the terms.
    5. Your accepted mortgage loan will go through the underwriting process.
      Underwriters will assess your mortgage application to confirm your submitted personal and financial information is accurate. This step in the process of mortgage application is the most important, as the underwriters will either approve or deny your final application. This step requires a professional appraisal of the home you want to purchase to guarantee the loan amount and the amount the home is worth match.

      The mortgage application can be approved, approved with conditions, suspended, or denied. If conditions need to be worked out or more documentation is required, that will lead to the loan being approved with conditions or suspended. Denial of a loan happens if employment history or credit history presents too many issues.
    6. Once your mortgage loan is approved, you can close on the property.
      Congratulations! Your closing date will be scheduled; it will be time to transfer funds and property ownership.

What are the 4 Steps in the Loan Application Process for a Final Mortgage?

There are four main steps in gathering the documentation needed for the process of a mortgage application. You must pay special attention to these steps in a mortgage loan process for an accurate approval process without the risk of delays or denials.

    1. You will need to look at your credit. Your credit score shows a lender how reliable you are based on your history and habits. Your score is suggested to be around 620 to qualify for a mortgage. FHA loans are probably a good idea if you fall in the 580 range.
    2. You also want to know your debt-to-income ratio. That is the percentage that informs lenders on how much of your gross monthly income goes to required bills monthly. If you need to figure that out, add up the minimum you pay each month on recurring debt, then divide that by your total pre-tax income. Do not include your utilities, entertainment, or health insurance premiums in your recurring debt calculation.
    3. Your assets will probably be something lenders specifically inquire about as you take steps to get preapproved for a mortgage. Verification of the amount for the down payment that is accessible in a liquid cash account will also be discussed. A steady cash reserve may be a requirement if this is an investment property.
    4. After the loan submission, you can look for a Good Faith Estimate (GFI) to provide a better idea of estimated closing costs. The final closing costs will more than likely change slightly by the time you close, but this will give you a reasonable estimate of the final amount.  

How Long Does it Take to Run a Mortgage Application

On average, preapproval will take about one week, looking for a property may take a few months, preparing to close (going through the final steps) will take around one month. For a resale home transaction, you should be able to close in a week after finalizing all of the closing steps. On a new construction home, the process may take longer as the home is built, depending on the construction status when you sign the contract. You cannot close on an unfinished home, so you must wait until the home is finished to schedule closing.

Of course, these timelines can change, but that is an idea of what to expect as you start getting preapproved for a mortgage and move through the final process of a mortgage application

What are the 6 pieces of information on a mortgage application?

To start the process of a mortgage application, you will need to provide:

  • Your full name
  • Your income
  • Your Social Security number
  • The property’s address
  • The estimated value of the property
  • The estimated mortgage loan amount needed

With careful planning and diligent information gathering, the mortgage process doesn’t have to be scary. Remember to keep accurate documentation of your employment, income, and financial history to help make the steps in a mortgage loan process smoother for you, your mortgage lender, and the underwriters.

Ready to move forward on your dream home whether you have preapproval or not? Get in touch with our team to see what’s available in Georgia, Florida, and Alabama’s favorite neighborhoods!