We learned all about the Pythagorean theorem in school but nothing about the mortgage process. Unfortunately, you can’t use any of that high school calculus to get you through applying for a mortgage loan for the first time. But you do have us to help guide you through it.
From learning what the heck pre-approval means to understanding how to look for the right type of loan (yes, there’s more than one type), here’s what you need to know about the mortgage process.
Look at Your Finances
You don’t just wake up one morning and apply for a mortgage loan (regardless of how many Zillow homes you’ve browsed through each night before bed). The mortgage process usually begins when you sit down and take a good, hard look at your finances.
Is your credit good enough to qualify for a loan? Do you have enough cash in the bank for a down payment? Will you be able to make loan payments each month? Answer all of these before you even think about applying for a loan.
Pre-Approval vs. Pre-Qualification
If you decide that you’re in a good enough financial position to apply for a mortgage loan then you’ll move on to the next step, which is pre-approval. It’s important to understand that this is different from pre-qualification. It’ll be hard to approach a real estate agent without pre-approval in hand, which requires you to pull a three-bureau credit report to show that you have good or excellent credit.
Based on that report, you’ll be able to see what kind of loan amount you qualify for. Again, this is different from pre-qualification in that pre-approval involves a full credit pull and report; pre-qualification is an informal look at your ability to get a loan.
Now that you’re pre-approved for a mortgage loan, it’s time to go house shopping with that dollar amount in mind. If you haven’t already, now’s a good time to start working with an agent to help you find the right home. Searching for homes solely online without the help of an agent is difficult. You can either miss out on homes that are valued way higher than you’d actually have to pay or, on the other hand, waste your time searching for homes that are valued way under the final asking price.
Once you find a home you like, you’ll make an offer during this step of the mortgage process. Usually, this is also when you have to submit an earnest money cash deposit to secure your offer on the house as well as sign a purchase agreement if your offer is accepted.
Assuming your offer on the home is accepted, you’ll want to go ahead and order a home inspection. This is a crucial step in the mortgage process as it’ll help you gain a complete overview of your total investment into the home.
If there are major costly repairs, such as structural issues or issues with the plumbing, this is when you’ll find out about them. Depending on what the inspector finds, you’ll be able to consider whether or not this home is the right property for you.
Compare Loan Rates
You might have already worked with a great lender when you were pre-approved for your loan. If you’d like to shop around now that you’re further down the funnel, it’s time to compare loan rates with a good idea of the total loan amount you need.
Shop around and browse a loan marketplace to find the best rates. And, remember that there are different types of mortgage loans that you can apply for. FHA loans are better for those with bad credit, and USDA mortgage loans are ideal for those purchasing property in rural areas.
Mortgage Loan Application
Whew, you’re almost to the end! Now, it’s time to start the actual mortgage loan application. For this, you’ll need to provide proof of employment, at least two years’ worth of W-2s, other information regarding income and assets, and information regarding your current debts.
All of that information is used to form a final loan estimate, which includes the loan terms and an estimate of your costs. In this estimate, you’ll be able to see what the closing costs will be along with the estimated taxes and interest rates for the entire length of your loan.
Loan Processing & Underwriting
Before the mortgage loan is finally approved and you close on the home, it’ll go through something called loan processing. During this stage, loan processors use all of the aforementioned information to prepare a loan package for an underwriter. This includes order a property title search, getting a property appraisal, and verifying documentation.
An underwriter will then come in and make the final decision. They’ll approve or deny the loan and then you’ll be oh-so-close to closing on your dream home.
Closing on Your Home
You made it! If the underwriter approves the loan, you’ll be ready for closing day. Documents are drawn up, printed, and sent to all parties. Pay special attention to the Closing Disclosure as it will confirm the costs you saw in the initial loan estimate.
You now have a three-day review period. You are entitled to a final walkthrough of the property 24 hours before the closing meeting to sign the papers. Assuming everything still looks good, all you have left to do is sign the papers and get the keys to your new home!
Starting the Mortgage Process with Float Credit
We just walked you through quite a bit. If you’re just getting started thinking about applying for a mortgage loan, you might feel overwhelmed. It’s okay; take a deep breath and relax.
The easiest way to start is to start small. Download Float Credit to begin monitoring your credit score. We’ll send you updates every two weeks along with helpful tips and tricks to guide you along your financial journey. Improving your credit score is a key first step towards applying for a mortgage loan. And, once you’re ready to search for a loan, simply head on over to our loan marketplace.
About the Author – ELIZABETH THORN
After receiving a degree in film from UCLA, Elizabeth left Los Angeles to travel the world and focus on storytelling and content creation. She has since worked as a freelancer and staff writer for publications in Europe, Asia, and North America, namely in the areas of travel, tech, finance, and business.