Buying a home is a significant moment in anyone’s life. For most people, it is a financially straining purchase. Most people need to apply for a mortgage loan. Follow these steps to successfully apply for a mortgage loan for your home.
As you are preparing to apply for a mortgage loan, you need to have certain documents. The first is a mortgage application. On this document, you will need to provide information including:
- Full name, birth date, Social Security number, phone number
- Relationship status, number of children and ages
- Residence history for at least two years, including amounts you paid in any rental or homeowner situations, taxes, mortgage, and insurance
- Employment history for at least two years
- Income history for at least two years
- Asset account balances
- All debt payments and balances
- Information about any bankruptcies, lawsuits, or loans you co-signed
- Information about whether you will borrow any of your down payment
You will also need to provide documentation and information confirming and giving more details about the above information. The lender you are working with will give you a specific list of what you need. Some of the necessary documents may include:
- Written authorization for your lender to run a credit report
- Letters explaining credit inquiries, past addresses, and any derogatory information on your credit report
- Discharge papers if you declared bankruptcy in the past seven years
- Further explanation for any tax liens or derogatory items on your credit report
- Renting information to prove your checks cleared on time
- Lease agreement if you are keeping your existing home as well
- Pay stubs for at least 30 days
- W2 forms for all jobs worked in the past two years
- Personal federal tax returns for the past two years
- Business federal tax returns if self-employed or at least 20% owner in a business along with a year-to-date profit and loss statement
- Divorce and alimony information
- Two-month statements for all bank accounts
- Proof any gift funds are not loans
1. Mortgage Pre-Approval
The first step in applying for a mortgage loan is getting a pre-approval. Before completing any purchase transaction, your real estate agent will want to be sure that you can get the necessary loan. You will need a lender pre-approval to show that you are ready to receive the loan and buy your home. Producing a pre-approval also shows the real estate agent that you are serious about purchasing the house, which will help you negotiate an offer.
A pre-qualification is another way to determine how large a loan you can receive. However, pre-qualifications are less official, as they are usually based on your answers to a few questions that a loan officer asks you. They are meant to give a brief, general idea about the loan.
2. House Shopping
Once you have an idea of the loan you can receive, you can begin looking for houses with a buyer’s agent. One of the easiest ways to search for houses is online. Though you can usually only get specific information about a home by visiting it, there are some websites that can help you identify potential options.
It is important to remember that the prices are rarely completely accurate. While they may be in the ballpark of the actual price, do not assume that it is the exact cost. For example, Zillow’s price estimates are usually about 8% off.
Additionally, many of the large online real estate portals do not always have listings updated. Be sure to work with a reputable real estate agent and do not decide upon a house simply from online information, because the house may not be on the market anymore.
Another issue with large real estate portals is that they do not show a complete list of all the homes available. A real estate agent can find potential homes for you that are not online.
After you have visited multiple houses and determined which one you want, it is time to make an offer. There are a few things that must happen before you close the deal:
- Appraisals must be close to the loan amount
- Home inspections must not reveal any major issues
- Final loan approval
Once the deal is approved, the seller and the buyer will sign a purchase agreement. A real estate agent can help you with the complexities of this process.
3. Mortgage Loan Application
After officially choosing a home, you need to finalize the loan. To complete a mortgage loan application, you need the documents and information. Your loan officer can tell you if there are certain documents that you do not need.
Once your loan officer has collected and analyzed all the documents, you will receive a loan estimate that outlines details of the situation. A loan estimate includes closing costs, the interest rate, and monthly payments. Your loan has not yet been officially approved or denied, as a loan estimate is meant to simply give you a better idea of the situation.
4. Loan Processing
After you have completed your application, loan processors will begin making the final decision. They will open your application and review all of your information. They will also complete the following tasks to keep the process going:
- Order a credit report
- Start verifying employment and bank deposits
- Order property inspection if required
- Order property appraisal
- Order search title
The underwriter makes the final decision. It will look at all the information prepared by the loan processor and do any necessary additional analysis. The underwriter will approve or reject your loan. In some situations, an underwriter may approve a loan with certain conditions, such as written explanations of poor spots in your credit history.
The last step of the mortgage process is closing. You will have a meeting where everyone goes over the conditions and details of your loan. One of the most significant documents you will receive is the Closing Disclosure. Whereas the Loan Estimate reported expected costs, the Closing Disclosure confirms them. You will get the Closing Disclosure three days before the meeting, so you have an opportunity to review the information and make sure you are certain about the completing the purchase. Slight changes will not affect the timing of the closing. Changes that would push back the final meeting include:
- The annual percentage rate changes by more than 1/8 of a percent for a fixed rate loan or 1/4 of a percent for an adjustable rate
- The lender adds a prepayment penalty to the mortgage
- There is a change of loan products or details
Twenty-four hours before the closing meeting, you have the right to do a final walk-through of your future home. The walk-through gives you the opportunity to do a final inspection and make sure the seller has met all the requirements for repairs that the contract outlined.
The closing meeting is the last step. The meeting mostly consists of you and the seller signing a variety of documents confirming the sale. The documents you will sign include the Closing Disclosure, Promissory Note, Deed of Trust, and Certificate of Occupancy. For the meeting you will need two official forms of identification.
Once you have signed all the forms and the meeting is over, you have officially received your mortgage loan and are ready to move into your new home.