The decision to buy a home is always a big one and is an occasion to be celebrated. However, after the initial excitement, many people are often overwhelmed with the mortgage application process.
However, there’s no need to worry, as we’ve done all the research for you and have gathered all the answers you need in one place. In this article, we’ll provide a breakdown of everything you need to know regarding the whole application process for your mortgage, along with other useful tips.
Preparing Your Mortgage Application
It’s best to be prepared — the clock starts ticking as soon as your purchase offer is accepted. The average time it takes to complete a mortgage takes an average of 45 days. Here are some important things to do before applying for your mortgage:
- Make sure that you have a good credit score and that your report is without errors.
- Have a clear idea of the kind of mortgage you want.
- Compare and research lenders.
- Be preapproved to borrow a given loan amount.
- Organize your loan paperwork.
Easy Steps for Mortgage Application
If you’re not sure how to go about applying for your mortgage, here is a step-by-step walkthrough that will guide you through the process. It breaks down what you need to do, along with what the lender does in every stage.
- Fill out your mortgage application
- Review estimates on loan
- Pick a lender
- Loan processing
- Begin underwriting
- Loan cleared to close
Filling Out Your Mortgage Application
At this point, you’ve already looked up lenders and have gathered one or more pre approvals on your potential mortgage. After you make an offer on a property, you will need to settle on a finalist where you will borrow the money you need. You can start by calling lenders (a good standard practice is to have at least three to choose from), going online to fill out their mortgage application, or by visiting their office.
Mortgage applications will usually have this same format: it will have five pages full of questions about your debts, finances, employment, assets, the property, and your loan. Also, you don’t have to worry about your credit score since submitting multiple applications is accepted as long as you submit all of them within 45 days. It’s always best to submit a few applications so you can decide on the best offer.
What to Expect from Lenders
Lenders will ask for permission to check your credit. A lender then has three business days to give you a Loan Estimate form. This is a detailed report that shows the loan type, amount, interest rate, as well as all the costs of the mortgage, which includes mortgage insurance, hazard insurance, property tax, and closing costs.
It’s also a good idea to hire an independent home inspector to check on the property’s condition before signing anything. While lenders don’t require that you do this, it will save you a lot of time and money in case the inspector discovers a problem that will force you to back out. Doing so will cost between $300 to $500, but it will be worth it to give yourself some peace of mind with such a big investment.
Reviewing the Loan Estimates
Now that you have options to choose from, use the Loan Estimate forms you’ve received to compare costs and terms. On the report you receive, you will notice the expiration dates for the interest rate. Check if it’s locked and check for the closing costs. It’s also best to have the lender explain anything that you don’t understand.
If the report seems confusing, don’t keep your focus on the rate. Instead, look through the four numbers found on the Estimate’s section called “Comparisons.” This will let you easily compare your offers:
- The total cost in five years: This represents all the charges, including principal and mortgage insurance, as well as interest that you may incur in the first five years of your mortgage.
- The principal amount paid in five years: This refers to the amount of principal you would’ve paid off in the first five years.
- Your APR or annual percentage rate.
- Percent paid in interest: This is the percentage of your loan that’s been paid in interest for the whole duration of your mortgage. This shouldn’t be confused with the interest rate.
Which Lender Should You Choose?
Now that you’ve compared the lenders’ fees and rates, you can assess their trustworthiness and responsiveness. Remember to think twice about anyone who pressures you, and instead, choose someone that you can trust. Once you’ve made your decision, once you’re ready to proceed, contact your lender.
Most lenders request for money to be used on a credit report, which will range between $12 to $26, as well as an appraisal that can cost between $400 to $500.
Time to Process the Loan
At this stage, every statement you’ve made on your mortgage application will now go under the microscope. Prepare for a wave of document requests and questions. Always respond promptly to keep things moving forward. Make sure all of the information you provided is the processor will make calls and check to verify.
Now, you wait. Any work you need to do at this point will just be follow-up questions, as well as producing more documents.
An underwriter’s job is to assess if there are any risks to lending you money for the property you want. They will check on things such as:
- If you have the budget to make monthly payments
- What your loan-to-value ratio is
- What your credit character is
- If you have consistently made payments on time
- If the home is valued correctly and is in good condition
- If the house’s title is clear
- If the house is in a flood zone
Once the Loan is Cleared to Close
You’ve now reached the last step. This is where the lender acts so that the borrower can move forward.
Hopefully, with some time to spare, this is when the lender can deliver you the happy news that you’re ready to close. The lender will send you another required form, three business days prior to the scheduled closing date, known as the Closing Disclosure. This will show the detailed and final costs of your mortgage.
You will need to carefully examine the Closing Disclosure and compare it to your Loan Estimate form to see if anything (such as the quoted fees or any numbers) has changed. If you see any discrepancies, have the lender explain them to you.
This is the time for you to decide if you want to move forward with the purchase. If you do go ahead, you will be given the last of the paperwork to sign, and it will all be over soon. Once you’re done, you can now pat yourself on the back as you’ve just finished your mortgage application and can now claim your loan.