The Mortgage Process Explained
The Mortgage Process Explained for New Home Buyers
So you have decided you want to enter the fray of buying your first home? Before you start touring possible future homes, there are a few preliminary steps such as hiring a realtor, determining a target home price range, and finding a lender for your future mortgage. Now how do you go about obtaining the mortgage from start to finish? The mortgage process involves several steps to obtain a loan from a lender to purchase a home and I will simplify those for you here:
- Pre-approval: Pre-approval usually must happen before touring homes for possible purchase. That is because most realtors will want a pre-approval letter from your mortgage lender before they start scheduling showings of homes. Applying for pre-approval happens with the home mortgage lender you have selected. Pre-approval determines the maximum amount the lender will let you borrow to purchase a home. The lender will ask to verify your financial information such as incomes, assets, and current debt, and credit score. Once pre-approved, your lender will provide you a formal letter acknowledging the maximum amount you are able to borrow. Make sure you verify with your lender how long this pre-approval is good for.
- Home Search: With pre-approval in hand, you can start looking for a property that fits your budget and home needs. Coordinate with your realtor on location, desired price point, and scheduling showings. The timing on this stage is variable because it goes until you have an offer accepted and you go under contract.
- Loan Application: Once you find a home and go under contract, your lender will send a formal application to receive your mortgage. The timeliness of completing this application depends on the closing timeframe you and the seller have settled on. Your lender will ask you to provide documentation of your income, assets, current debt, employment, and credit information.
- Underwriting: After submitting your loan application with all the supporting documentation requested, your lender will review your loan application. The review is called underwriting and it determines if you are eligible for the mortgage loan requested to fund the purchase of your home.
- Appraisal: The lender will then order an appraisal of the home you are purchasing. An appraisal is conducted to determine the value of the property. The lender uses the appraisal to check the amount of financing they are willing to provide based on the value of the property.
- Loan Approval: If the underwriting and appraisal checks out, the lender approves your mortgage loan and issues a commitment letter. The commitment letter states the amount of financing the lender will provide at closing and terms of paying back the mortgage.
- Closing: This is the day you as the new home owner take ownership of the property. You will sign all the necessary paperwork at the title company office, and pay closing costs, including the down payment and any additional fees.
- Funding: Once the documents are signed, the lender will disburse the mortgage amount to the seller’s title office. This completes the purchase of the property.
Before you start or while in the mortgage process, it’s imperative you coordinate with a financial planner like us. We provide vision and clarity to an affordable mortgage based on your current financial situation and how different home purchase scenarios impact your financial plan. We understand the mortgage process can be daunting so lean on the financial planner, mortgage lender, and real estate professionals to guide you. If you are searching for a mortgage lender or real estate professional, reach out to us. We help clients by putting them touch with mortgage lenders and real estate professionals we consistently work with.
It is important to understand the mortgage process can take anywhere from a few weeks to several months. The timing depends on various factors like you finding the right home, having an offer accepted, the lender's process, your financial situation, and the complexity of the loan. Not everything is in your control so be flexible and responsive.