The loan process can be complex. Find out what to expect from the day you apply to the day you close. You’ll be amazed at how many steps go into the home loan application and approval process.
You will be asked for a lot of documentation when applying for a home mortgage loan, so get your ducks in a row before you start to apply. Plan on having the following close to hand:
- Photo ID for proof of your identity
- Paystubs, W2 forms, and 2 years of tax returns for proof of your employment
- Bank statements (2 months) for proof of assets
- An idea of your credit score (your lender will pull your credit and you don’t want a surprise)
You can usually apply easily with a reputable mortgage company online, or over the phone with a loan officer (LO). They can help walk you through the process. You should be able to send over your paperwork electronically, preferably through a secure online portal that lets you upload scanned copies of all of your documents. You’ll be asked for permission for the loan company to do a hard pull on your credit.
Some lenders only do a prequalification, meaning they take your application, assume everything is correct, and use an algorithm to spit out a “prequalification” for a loan amount and interest rate. This isn’t really worth doing, as so many things can affect your actual loan application. It’s better to ask for preapproval, and let the lender pull a credit report and verify all of your information.
Real estate agents and home sellers like to see a preapproval letter since it shows that you’ve already completed the bulk of the loan process. You can even get underwriting done as part of your preapproval if you know what house you want to buy already and are in a competitive market.
Make an offer
When you make an offer, be prepared to put up earnest money to get the seller to take the house off of the market and put it under contract with you. This usually is 1-5% of the purchase price, but can be more. You can get this back if the home purchase falls through if it is through no fault of your own, or use it towards closing costs when you finalize your purchase. Once you hit this milestone, timelines kick in.
Check your loan options / lock your rate
Once you’re under contract, your LO can update you with your current rate and options. In the best case scenario, your lender provides real time rate tracking, so the rate is transparent. You can lock your rate to freeze it and prevent the possibility of it going up halfway through the homebuying process and adding thousands of dollars onto your loan term. It’s not advisable to gamble with an unlocked rate, as the risks aren’t worth the possible benefit of rates dropping.
Schedule the home inspection
You’ll need to work with your real estate agent to arrange a home inspection. You need to know that there aren’t issues with the home that could cost you big once you close the deal. Don’t skip this step! You should have a contingency in your contract that says you can walk away if the home inspection turns up major problems.
Get your initial disclosure / loan estimate
At this point, your lender should be providing you with your official loan disclosures. These include your loan estimate, including the rate, closing costs and prepaid items. It will also listy out state and federal disclosures. You can ensign them to affirm your intent to proceed.
Pay for the appraisal
Your lender will order an appraisal, which you are responsible for paying for. Usually they will ask for a credit card number and charge it directly. The appraisal establishes the value of the home and clarifies the loan to value ratio which can affect your loan terms. Ideally, the appraisal comes in close to what the asking price is, or a little higher. If it’s low, you may choose to walk away.
Wait on underwriting
Your loan processor may ask you for additional documentation, or request that you update your file with your latest pay stubs and bank statements. Once your documents are updated, you have signed the disclosures, the appraisal has been done, and the title report has been supplied, your file goes to underwriting.
If you’ve been preapproved already, and the appraisal, inspection, and title search all went well, your loan can usually be approved (swiftly. The underwriter might set a few conditions, which the loan processor will help you comply with if needed.
Receive your loan commitment
After the underwriter has signed off on everything, Your lender will send you their commitment to funding your loan, known as your final loan approval. They will order your final loan documents to be sent to closing with the escrow company (or, in some states, an attorney.)
Sign the closing disclosure
At least three business days before closing you’ll receive your closing disclosure, which should match or nearly match the original loan estimate you signed. Check to make sure the rate and lender fees match. All third-party fees must be within 10% of the original estimate. Prepaid items might change a little, but should also still be close to your expectations. The closing disclosure tell you what funds are owed at closing, and your loan processor can verify how much is in escrow which can be applied to your closing costs.
Transfer funds/sign loan documents
You might bring a cashier’s check for any balance owed at closing to the signing table with the notary or attorney. Alternately, you may wire the funds in advance. This is becoming a more popular option as many closings are starting to be conducted via e-sign with online notarization.
Get your keys!
Once you are done with closing, you might be able to get your keys immediately, depending on when you take actual possession of the property. Then you can move into your new home!
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