Buying a home is a unique experience, that can be very exciting. However, it can be extremely challenging experience if you don’t understand the mortgage process. Getting approved for a home loan has become an elusive financial goal for many as house prices continue to rise, with many young renters working tirelessly towards a deposit for a home.
The amount of paperwork they must complete makes many families feel overwhelmed, so knowing what to expect, could help you make solid decisions about your home purchase.
Main purpose of this short guide is to help you navigate through the mortgage process, including the people involved and costs and forms you’ll be asked to complete.
Home Loan Approval in Six Steps
While every home loan is unique to the applicant’s income, living arrangements, and a host of other criteria, the approval process tends to consist of the same six steps. If you’re planning on applying for a loan soon, these six steps will be your yellow brick road to home ownership.
Step 1: Mortgage Pre-Approval
According to Home Buying Institute, the pre-approval stage is mostly about working out the budget you’ll have available for a house. This is in place to prevent house hunters wasting time on scoping out houses which are beyond their price range. At this stage, the lender makes an assessment of your financial situation – assets, income, debts, and credit scores – before deciding whether to loan you money. During this stage, market comparison websites like Lendi or MoneySuperMarket can help you compare lenders, get well-versed in financial terminology, search through available properties, and get down to the fine details with a home loan calculator.
Step 2: House Shopping & Purchase Agreement
Finding a home you love within your price range is only the beginning. Once you’ve found the one, Easy Mortgage Company recommends that you enlist the help of an experienced real estate agent who can help you with the process of making an offer and negotiating sales terms. When everything is agreed upon, the purchase agreement is signed and the longest stage of the process is complete.
Also Read: Refinance Mortgage- Things to Know
Step 3: Mortgage Loan Application
At this stage, you’ll need to do some digging for financial records and various other details the lender might require before going forward with the loan. According to a list compiled by Ruby Home Blog, you’ll need details of employment, income, assets and debts, as well as any financial blemishes on your record, such as bankruptcies, collections, foreclosures and delinquencies. If you’re already a homeowner, you’ll also need details of your current property including things like the size and type of home, expected selling price, and details of annual real estate taxes.
Step 4: Mortgage Processing
The mortgage processor has an important role in your journey towards home ownership – they are the communication portal between you, your underwriter, and your loan officer. Louise Balle from The Nest says the role of the mortgage processor includes steering the application process, collecting documentation from the borrower, contacting service professionals such as the appraiser, and finally, submitting the package to the underwriter. In a nutshell, the processor is in charge of ensuring all your the documentation makes it to the underwriter on time.
Step 5: Mortgage Underwriting
Once all necessary information has been compiled, the fate of the file rests with your underwriter. According to Farmers Bank Home Mortgage, the underwriter determines whether the loan is acceptable based on all the information in your submission. If it’s deemed acceptable, your loan will be approved, but if any necessary information is missing, the loan will be suspended until you supply the information or documentation needed.
Step 6: Mortgage Loan Approval and Closing
Once the loan is approved by the underwriter, you’re in the home stretch. All that’s left is for the lender to conduct a final review of your documentation, particularly your employment and your credit report. You can request your closing documents a few days prior to the review so that you have an opportunity to look over them before you hand over your cash and sign on the dotted line.
Useful Advice for Time after Closing
Mortgage agreement, among the rest, establishes three important things: exact date when your mortgage loan is due each month, the amount of the payment and where it should be sent.
Making late payments will negatively affect your credit score and your ability to obtain credit in the future. Therefore, by knowing these facts, you should be prepared for the unexpected and these can help you:
- Start a savings account for unexpected emergencies (loss of the job, unexpected home repairs, illness etc.)
- Create a spending plan for you and your family members
- Never make a major purchase without a plan for paying off that purchase
- Protect your personal information and never share it with unknown companies and individuals
- Never sign any document you don’t understand
- Store all your documents in a file in case you need to take legal action to protect your property
Also Read: Tips to First-Time Home Buyer Mortgage
Keeping and Maintaining Purchased Home
Finalizing the home loan approval process with signing your mortgage documents is only the beginning of your home ownership responsibilities. You should be aware that owning a home is an ongoing commitment, with new issues and responsibilities constantly coming up.
Just as you organized your finances to purchase the new home, it’s also very clever to think through what it will take to stay comfortably in your home. It’s very important that you maintain the condition of your home, in order to protect the value of your property, same as to protect safety and comfort of your family.
It is crucial to know that if you want to have benefit for you and your family in the future, you should care now about every step you take about your home. So – prepare now for all challenges in the future. Thus, you’ll be able to handle every possible (and impossible) situation.
Understanding the primary purpose and function of the documents in home loan approval process can make the mortgage process much less intimidating.
Also, by knowing above mentioned steps in the process, you can avoid unpleasant surprises that can impact your finances.