The mortgage process can be overwhelming, especially your first time around. Knowing what to expect can take a little anxiety out of the process. With the right knowledge and steps, you can easily get through the mortgage process with ease.
The first thing you should do is get a preapproval. This is when you apply with different lenders to see if they will give you the loan you need as well as at what terms/cost. The preapproval process involves you providing the lender with the following:
- Paystubs for the last 2 months
- W-2s for the last 2 years
- Tax returns for the last 2 years if you are self-employed or work on commission
- Asset statements for the last 2 months
- Contact information for your employer
- Consent to pull your credit
Giving a lender these documents now will give them time to evaluate your situation. They will determine your credit score, debt ratio, and amount of money you have available to put down on the home. They will then match you with the appropriate loan program. They will provide you with an interest rate and closing cost estimates all documented on a Loan Estimate. They will also provide you with a preapproval letter, which you can use when you shop for a home.
The Underwriting Process
Even though you obtained a preapproval, it’s not a guarantee that you will get the loan. It’s a preliminary approval based on what you provide the lender at the time of application. Once you find a property and sign a contract, the lender will officially underwrite your loan and let you know if you are approved.
Chances are that your preapproval will still stand unless things drastically changed for you. It will also depend on the property that you are buying. Is it worth the value that you agree to pay? Is it in good enough condition to move into right away? Is it safe, sound, and sanitary? Your lender will order an appraisal in order to figure all of this out. The appraisal can take between one to two weeks depending on the appraiser’s workload and the seller’s availability.
Taking Care of Conditions
Once the lender underwrites your loan, they may give you an ‘approval with conditions.’ This simply means that the lender needs more information from you. If you respond in a timely manner with the documents that they need, you can clear the conditions and move onto the closing.
For example, they may ask for an additional paystub or they may want an explanation on an account on your credit report. Your lender will let you know what they need. If you can provide adequate documentation that proves that you are still a good risk, your approval will still stand.
Locking Your Interest Rate
At some point during the process, after signing a contract, you will have to lock your interest rate. You must do this at least a few days before your scheduled closing. This ensures that the lender can prepare the right documents for you.
You can lock an interest rate for as little or long as you want. Typically, the longer that you lock the rate, the more it will cost you. In other words, the higher the interest rate you will get. Lenders take a risk when they lock in an interest rate for a long time, so they typically charge more in order to make up for that risk.
Closing the Loan
The final step is to close the loan. Don’t make the mistake of getting too comfortable at this point, though. The lender will still do one final check on your credit score and your employment. They want to know that nothing changed between the time that they preapproved you for the loan and the closing. If you applied for new credit, made large purchases, or quit your job, you could put your approval at risk.
If everything remains the same and the lender is ready to close on your loan, they will schedule a closing with the title company. You will attend the closing with a closing agent, the loan officer, and your attorney. Once you sign the documents, you are the proud owner of a new home and a new mortgage!
Getting through the mortgage process isn’t impossible – it is a lot of work, though. Understanding the steps ahead of time and how long you must wait for the process to complete can help take the stress out of the process.