mortgage process

A Simple Mortgage Process For First-Time Home Buyers

If you’re a first-time homebuyer, the mortgage process may seem daunting. But it doesn’t have to be.

Lenders go through thousands of mortgages a year. Consequently, they have a pretty set pattern for mortgage lending-and usually, it runs like clockwork.

Here’s a simple overview of what you can expect when applying for a mortgage.

Get Your Financial Documents in Order

Before you begin the mortgage application process, make sure you have all of the required financial documents. This may include your tax returns, pay stubs, bank statements, and more.

If you’re not sure what documents you’ll need, ask your lender for a list. Today, a lot of mortgages are provided through self-service portals that will walk you through the entire process. Be prepared to furnish about 3 months of bank statements and up to 2 years of tax returns.

Apply for a Pre-Qualification With Multiple Lenders

Once you have all of your financial documents in order, it’s time to start shopping around for a mortgage. Be sure to compare interest rates, fees, and other terms before settling on a loan.

It’s a good idea to apply for a pre-qualification with multiple lenders. A pre-qualification is not a formal loan application, but it will give you an estimate of how much you can borrow and what your interest rate will be.

Apply for a Mortgage Pre-Approval

Once you’ve found the right lender and the right rates, it’s time to apply for your mortgage. The application process will vary depending on the lender, but you can expect to provide even more data than you did for the pre-qualification.

This is when you should be negotiating. If another lender had better rates or better closing costs, talk to your lender about matching their terms.

Today, many people get a pre-approval before looking for properties. A pre-approval can help you produce a firmer offer.

mortgage process

Choose a Type of Mortgage Loan

There are many types of mortgage loans available to homebuyers. The most common type is the 30-year fixed-rate loan, but you can also choose a 15-year fixed-rate loan, an adjustable-rate mortgage (ARM), or other options.

FHA loans require only a 3.5% down payment but they also have stricter lending criteria. Likewise, VA loans (for veterans) require 0% down but they have a strict appraisal/inspection process.

Your choice will affect your interest rate, monthly payment, and how long it takes to pay off your loan. Talk to your lender about which type of mortgage is right for you. In general, fixed-rate loans are better than adjustable-rate mortgages. An adjustable-rate mortgage assumes you will sell your house or refinance your house within a few years, something that isn’t always a guarantee.

Find a Property and Make an Offer

Now that you’re pre-approved for a mortgage, it’s time to start shopping for a home. When you find the right property, make an offer to the seller. Until you’ve found a property, most of the mortgage amounts will not be finalized. The mortgage lender will be using estimates of things like property tax and insurance.

Finalize a Hard Credit Check

Part of the mortgage application process will involve a credit check. Early on, you’ll usually undergo a soft credit check. During underwriting, you’ll undergo a hard credit check.

A soft credit check doesn’t hurt your credit score. However, don’t let the hard credit check dissuade you from shopping around. All the credit checks from mortgage companies within 60 days will be counted as a single one.

mortgage process

Provide Additional Documentation

In addition to undergoing a credit check, you’ll also need to provide documentation of your income and assets. This may include tax returns, pay stubs, bank statements, and more.

If you went through a thorough underwriting process for qualification or approval, you won’t need to furnish too much additional information. But you may still find yourself sending in updated documents such as your most recent bank statement.

At this stage, you’re well into the mortgage underwriting process. Your loan officer will let you know if they need anything unusual from you. Occasionally in the mortgage loan process, a loan processor may need something such as a Letter of Intent. If you changed jobs recently, for instance, the mortgage loan officer may need you to explain why.

If you’re asked for anything unusual during the mortgage loan process, don’t panic. Your loan approval is still likely to go through; they just need a little more documentation.

Get a Home Appraisal

Once your mortgage application is approved, the lender will order a home appraisal to ensure that the property is worth the amount you’re borrowing. Note that you’ll also be getting home inspections during this time, but that’s not the lender’s concern. The lender only cares about the appraisal.

What happens if the home doesn’t appraise? You could try to negotiate with the seller to lower the purchase price. Or you could put more money down. If neither of those options is possible or desirable, you may need to look for another home altogether.

Find Home Insurance

Once the home appraisal is complete, you’ll need to find homeowners insurance. This is usually required by the lender in order to get the loan.

Homeowners insurance protects you from liability if someone is injured on your property or if your home is damaged. It also covers your personal belongings in case of theft or damage. But most importantly, homeowners insurance protects the mortgage lender. They don’t want to initiate a home loan for uninsured property.

Bring Your Down Payment to Escrow

Now it’s time to close on your loan and move into your new home! Before you do so, you’ll need to bring your down payment to escrow. Your lender should tell you the exact amount.

You can either wire your closing costs or bring them in the form of a cashier’s check from your bank. Today, there’s so much wire fraud that you’re usually better off getting a cashier’s check.

sign the mortgage documents

Sign the Mortgage Documents

After you’ve found insurance, it’s time to sign the mortgage documents. This is when you’ll finalize the loan and agree to the terms.

Be sure to read over all of the documents carefully before signing. But you’ve probably also seen these documents before; the lender disclosure has to be sent to you three days before the mortgage closes.

Still, occasionally the loan documents may include errors, such as a mistake on your mortgage insurance, loan term, loan amount, or mortgage rate. Check all the numbers to make sure they match what you know.

Pay Your First Mortgage Payment

Congratulations! You’ve made it through the mortgage process and are now a homeowner. Your first mortgage payment is due on the first of the next full month following your closing date. So, if you closed on 2/18, your first payment would be 4/1.

But don’t forget, you’re also responsible for property taxes, homeowners insurance, and other costs. Sometimes these are rolled into your monthly payments and sometimes they’re not.

That’s it: That’s the entire mortgage process. It may seem very overwhelming, but many people do it every day. Good mortgage lenders will walk you through the entire process from start to finish.

Mortgage Process Tips for First-Time Home Buyers

If you’re a first-time homebuyer, there are a few extra things you can do to make sure the mortgage process goes as smoothly as possible:

  1. Get your credit in order. Before you start shopping for a mortgage, pull your credit report and check your credit score. This will give you an idea of where you stand and whether there are any red flags that could make it more difficult to get a loan.
  2. Shop around for the best deal. Once you’re ready to start shopping for a mortgage, be sure to compare rates, fees, and terms from multiple lenders. It’s also a good idea to talk to a few different types of lenders, such as banks, credit unions, and mortgage brokers.
  3. Know what you can afford. It’s important to stay within your budget when shopping for a home and a mortgage. When looking at homes, be realistic about what you can afford in terms of both the purchase price and the monthly payments. The mortgage lender tells you the maximum amount you can afford, not what you should reasonably be looking to pay.
  4. Don’t bid more than is realistic. If the property isn’t going to appraise at that value (and your real estate agent can help you with this), then you may not be able to get a mortgage loan.
  5. Lock in your interest rate early. Locking in your interest rate prevents it from going up if the market rate goes up. As soon as you can, lock in that rate. You may need to pay a fee to do so, but it’s worth it.
  6. Ask questions. Don’t be afraid to ask questions throughout the mortgage process. If you’re unsure about something, be sure to speak up and get clarification. The more informed you are, the smoother the process will be.

Your real estate agent is there to answer questions for you, but they can’t answer questions about the mortgage lending process; that’s for your loan officer.

piggy bank

What Can Go Wrong During the Mortgage Process?

When a lot of first-time homebuyers look up the mortgage process, they’re really trying to look up what can go wrong.

Here are some of the most common problems that can occur:

  • You don’t actually qualify for the mortgage. Just because you’re pre-approved for a mortgage doesn’t mean you’re guaranteed to get one. If your financial situation changes between getting pre-approved and applying for the mortgage, you may not qualify. This is why it’s so important to keep your financial situation stable during the mortgage process.
  • Your property fails the appraisal. The appraisal can be a little iffy because while it’s calculated based on a uniform document, some of it is up to the appraiser’s discretion. If your property fails the appraisal, you may need to come up with more money to close the gap.
  • The mortgage process just takes too long. The mortgage process can take anywhere from a few weeks to a few months, depending on the type of loan you’re getting and your financial situation. If you’re worried about the length of time it’s taking, be sure to ask your lender for regular updates. If you’ve promised to close under 45 days, the seller may not always be willing to provide an extension.
  • Your costs end up being dramatically more expensive than you thought. If not locked in, interest rates can go up. You may find insurance or property taxes are much more expensive than you thought they would be.
  • You get cold feet. This is actually one of the more likely scenarios, and it’s up to you. The house you want may not be the house you can afford. You may need to wait for the right one. Be realistic about what you can afford, both in terms of the purchase price and monthly payments, and don’t let your emotions get in the way.

There’s no denying that the mortgage process can be stressful. But remember, you’re not alone. Many people go through it every day, and there are plenty of resources available to help you if you’re having trouble.

Reach out to your lender, real estate attorney, or a real estate agent for help during this process. The entire reason you pay these professionals is so they can help.

Conclusion

The mortgage process may seem overwhelming, but it doesn’t have to be. By following these tips and working with a good lender, you can make the process much easier.

Frequently, your real estate agent can point you to a local lender that they’ve worked within the past and that they trust. Working with an online lender can be alluring, but a local lender is often more trustworthy and reliable.

At the same time, an online lender like Rocket Homes may be able to save you money.

FAQs

What are the steps of the mortgage process?

Generally, you’ll get a pre-qualification or pre-approval first. You’ll find a property, choose your mortgage package, and then go through the process of appraisal. Once a title search has been completed and due diligence has been performed, you’ll close on the loan.

How long is the process to get a mortgage?

The entire process can take anywhere from a few weeks to a few months, depending on the type of mortgage and the lender. Most mortgages take 45 days to close. In hot markets, you may be asked to close within 30 days. Specialty loan products like VA loans can take up to 60 days.

How likely is a mortgage to fall through?

The vast majority of mortgages make it to closing without any hitches. There are a number of things that can cause a mortgage to fall through, but most of them are within the control of you, the borrower. Other things, such as the appraisal, are entirely out of your control—so there’s no reason to worry about them.

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