Applying for a mortgage and buying your first home is a major milestone for any adult. This milestone, however, often comes with feelings of anxiety and stress. Many people wonder what the process is like from start to finish and how they will know if they are applying for the right mortgage. Here are some tips to help ensure you get the right mortgage for your needs and your budget.
Review Your Budget
The first thing you want to do before you talk to a bank, lender, or broker about interest rates and loan terms is to review your own budget. You need to determine what size of a monthly payment you can afford. Keep in mind that most lenders will include escrows for property taxes and property insurance in your monthly payment. You can talk to your real estate agent about estimated taxes and insurance amounts for properties you are considering. You should also consider the expenses associated with living in a new home, such as the added cost of a different commute length, adjustments to utility costs, homeowners association dues, and more.
Once you have reviewed your budget and have determined a monthly payment that you would be comfortable paying each month, your next step is to get prequalified. The prequalification process generally does involve a lender or mortgage broker pulling your credit report. You want to limit the number of times your credit is pulled, as too many credit pulls can lower your credit scores. For this reason, it may be best to shop around around for rates and fees before getting prequalified. Another option to consider is working with a mortgage broker who can shop around for a mortgage loan on your behalf. After getting prequalified, you will be able to firm up a sales price that you can afford.
There are different types of loans that you may apply for, and different types of documentation will be required for each. A full doc loan is the most common loan to apply for, and it generally requires you to provide several years of tax returns, a recent pay stub, recent bank statements, and other supporting documentation. It is best for you to provide this information to your mortgage broker or lender as soon as possible. In many cases, the loan request cannot proceed until all of the documentation is received.
Third Party Reports
Third party reports such as an appraisal are required for most loans as well. Often, an appraisal is the only required report. However, you may opt for a property inspection. In some cases, a property inspection, a termite inspection, and other similar types of reports may be required. Some lenders require these additional reports as standard requirements. Other lenders may require them after reviewing the appraisal, and particularly if the appraiser may a comment in the report that indicated the need for further reports.
Underwriting is the final step in the loan process before you can sign loan papers and become a property owner. This is an internal process at your bank or lender's office. All of the paperwork you have provided as well as third party reports will be reviewed at this time. Many loan files progress through underwriting without issue. However, there may be times when an underwriter may request additional information before loan approval can be extended. After you receive final loan approval, closing documents will be prepared and forwarded to the title or escrow company. Both you and the seller will need to sign these papers before closing can be finalized. Down payment funds will also need to be provided at this time.
Applying for a mortgage loan can be stressful, but it does not have to be. When you know more about the loan process and when you work with an experienced and helpful loan professional, you may be able to walk through the process with relative ease.
By Andre Bradley