The Home Loan Process
In 9 Simple Steps
1. Estimate your budget. How much home can you afford?
It’s important to take certain steps before kicking off the mortgage loan process.
Most importantly, you should estimate how much house you can afford. This lets you set realistic expectations for house hunting and choosing a mortgage loan.
2. Get pre–approved for a loan
Once you’ve estimated your own budget, you might start looking at homes within your price range. This is also when you take the first step toward getting a mortgage.
That first step is to get a pre–approval letter from a mortgage lender. This letter shows how much money a mortgage lender has approved you to borrow, based on your savings, credit, and income.
You’ll want to do this before you make an offer on a house.
Having a pre–approval letter gives your offer a lot more clout, because the seller has solid evidence you’re qualified for a loan to purchase the home.
3. Shop for your home and make an offer
Now that you’ve been pre–approved, it’s time for the fun part – house hunting.
After visiting properties with Lori and picking out the home you want, it’s time to make an offer.
Lori will know the ins and outs of how to structure the offer. It may include contingencies (or conditions) that must be satisfied before the deal is complete.
When you make your offer, you’ll generally also submit your earnest money deposit.
4. Order a home inspection
After your offer is accepted, the next step in the mortgage process is typically a home inspection.
A thorough home inspection gives you important details about the home beyond what you may be able to see on the surface.
Some of the areas a home inspector checks include:
Getting a home inspection is important because it helps the buyer know if a home may need costly repairs.
What is uncovered during an inspection can become part of a sales negotiation between buyer and seller, and their respective real estate agents.
5. Go rate shopping and choose a lender
You may have already decided on a mortgage company when you got pre–approved.
But if you’re still shopping, now that you’ve found a home and your offer has been accepted, it’s time to make a final decision about your lender.
When shopping for a mortgage, remember your rate doesn’t depend on your application alone. It also depends on the type of loan you get.
6. Complete a full mortgage application
After selecting a lender, the next step is to complete a full mortgage loan application.
Most of this application process was completed during the pre–approval stage. But a few additional documents will now be needed to get a loan file through underwriting.
For example, your lender will need the fully executed Purchase Agreement, as well as proof of your earnest money deposit.
Your lender may also request updated income and asset documentation, such as pay stubs and bank statements.
You will receive a Loan Estimate within three business days which will list the exact rates, fees, and terms of the home loan you’re being offered.
7. Have the home appraised
Your lender will arrange for an appraiser to provide an independent estimate of the value of the home you’re buying.
Most lenders use a third–party company not directly associated with the lender.
The appraisal lets you know that you’re paying a fair price for the home.
Also, in order for the loan to be approved at the contracted purchase price, the home will need to appraise for the contracted purchase price.
8. Mortgage processing and underwriting
Once your full loan application has been submitted, the mortgage processing stage begins. For you, the buyer, this is mostly a waiting period.
But if you’re curious, here’s what happens behind the scenes:
First, the Loan Processor prepares your file for underwriting.
At this time, all necessary credit reports are ordered, as well as your title search and tax transcripts.
The information on the application, such as bank deposits and payment histories, are verified.
9. Closing day
You’ve made it the big day: closing.
The lender will send the closing documents, along with instructions on how to prepare them, to the closing attorney or title company.
Prepare yourself for a big stack of papers you’ll be signing.
One of the more important documents is the Closing Disclosure. It should look similar to the Loan Estimate you received when you originally completed the full loan application.
The Loan Estimate gave you the expected costs. The Closing Disclosure confirms those costs.
In fact, the two should match pretty closely. Laws prevent them from differing too much.
If everything is in order, you’ll sign all your documents, receive your keys, and just like that – you’re a homeowner!