10 Steps of The Mortgage Process Explained
As exciting as buying a home is, it can also be an intimidating process if you don’t know what to do. Whether you are a first-time home buyer or looking to refinance, familiarizing yourself with each step of the process can make it a smooth experience from start to finish.
Budgeting: How much home can you afford?
It’s important to take a few steps before starting the mortgage loan process. Most importantly, you should estimate how much home you can afford. It lets you set realistic expectations for finding a home and choosing a mortgage loan.
Rather than trying to define your maximum home purchase price, it may be better to determine a monthly payment that you can reasonably afford. Then, you can work backward using today’s mortgage interest rates to determine your maximum home buying power.
Get pre-approved for a loan
During the pre-approval process, your mortgage broker will evaluate your finances (assets, loans, income and credit) to determine whether you qualify for the lender’s loan products. You need to get pre-approved before home shopping so that you understand which lenders are willing to give you a loan.
Imagine you have your heart set on an exclusive Colonial home in the perfect neighborhood, only to find that you are not approved for a loan enough to cover the cost. That’s why it pays to secure a pre-approval with your mortgage broker beforehand. Pre-approval means that you can secure the loan for that dream home and give you a competitive advantage while making the offer.
Find a Mortgage Broker
While a drive through the neighborhood of your dreams may be all it takes to spark your homeownership journey, your first step is finding a local independent mortgage broker. Mortgage brokers help you navigate the housing market with more confidence because they can help you determine how much home you can afford. So whether you want to set a budget, or find the best loan terms and rates available to you, first look for a mortgage broker.
Additionally, mortgage lenders may offer a variety of mortgage products — each with its own unique set of closing costs, fees, and interest rates. Partnering with a mortgage broker is beneficial at this early stage of the loan process as they will negotiate on your behalf to find a deal that best suits your financial needs.
Find a home and make an offer
Now that you’ve been pre-approved, it’s time for the fun part: house hunting. After visiting the properties with your agent and choosing the home you want, it is time to make an offer.
Your real estate agent will get an idea of how to structure the proposal. This should include contingencies (or conditions) that must be satisfied before the deal can be completed. When you make your offer, you will usually also deposit your earnest money deposit.
Earnest money is a cash deposit made to secure your offer on the home and to show that you are serious about the purchase. This can be as low as $500 or as much as 5 percent or more of the purchase price, depending on local custom.
Talk with your real estate agent ahead of time about how big the earnest money is likely to be, and be prepared to write a check or make a wire transfer when you have an offer accepted — especially if you’re buying in a competitive market.
If the home buying process is a fairytale, underwriting is the final step before you reach your climax. During this step, an underwriter from your chosen lender will evaluate your mortgage application, along with supporting documents collected by the loan processor, and compare them to the requirements for the loan you applied for. It’s easy for some people to move on from the underwriting step, but hiccups don’t automatically mean denial.
If your underwriter discovers a minor issue during their review, they can send you a list of terms that will need to be addressed before your application is approved. If you’ve partnered with a mortgage broker, you can count on them to help you resolve terms quickly and move toward approval.
Order a home inspection
As you work through the mortgage process, you can also order a home inspection. Home inspections are generally recommended, although some buyers choose to waive them in a competitive market.
A thorough home inspection gives you important details about the home that you may be able to see on the surface.
Some areas to be checked by a home inspector include Foundation, House structure, Plumbing, Electrical, and Roofing.
Inspecting the home is important as it helps the buyer to know if the home may be in need of costly repairs. If the home is in need of extensive repairs, you may want to look for another home.
Even if you choose to continue buying, what is disclosed during the inspection may become part of sales negotiations between the buyer and seller and their real estate agents.
Complete Your Mortgage Application
Once your offer is accepted, you’ll finalize a purchase agreement, do your happy dance, and complete a formal mortgage application. Most lenders use a single form, called the Uniform Residential Loan Application (URLA), also known as the 1003 Fannie Mae Form. This is one of the more simple steps in the mortgage process and you will be able to complete it digitally. Your mortgage broker will still be there to answer any questions you may have along the way.
Have the home appraised
Your lender will also arrange for an appraiser to provide an independent estimate of the value of the home you are purchasing.
Most lenders use a third-party company that is not directly affiliated with the lender. The appraisal tells you that you are paying a fair price for the home.
Also, for the loan to be approved at the contracted purchase price, the home would need to be appraised for the contracted purchase price.
Processing Your Mortgage
Once your mortgage broker has your completed mortgage application and a copy of your purchase agreement, your mortgage package will be ready for processing. During this phase, a loan processor will collect and review various documents related to you and the house you are buying.
Close On Your Home
Once your underwriter is satisfied that you and the property meet all the necessary requirements, you will be in the clear to close your new home. Upon closing your mortgage, you will meet with your home seller and other mortgage professionals to sign loan documents and make your purchase official.
Before closing, you will receive a Closing Disclosure (CD), a five-page form that contains key details of your mortgage. The lender is required by law to give you your final CD at least three days before your closing, so you’ll have plenty of time to ask questions before the big day.