The Mortgage Loan Process: A Step-By-Step Guide
So, you’ve decided you’d like to buy a home. Maybe you’ve tried contacting a real estate agent, who probably told you to call back after you’ve been “preapproved.” Immediately, the question arises: “How do I start the process of getting a mortgage loan?”
If you’re buying for the first time, the mortgage loan process can be confusing and unfamiliar. You may be wondering, “Is my credit score high enough to qualify for a loan? How long does it take? Where do I start?”
To help with all those concerns and more, here are all the steps to getting a mortgage that you can expect when you begin the mortgage application process.
9 Steps To Getting A Mortgage
1. Get Preapproved
The first step we recommend any home buyer take is to get a mortgage preapproval. The idea behind a preapproval is simple: Before checking out what’s on the market, you should be confident that you know how much a lender will loan you.
As you may have already experienced, without a preapproval, real estate agents aren’t going to give you too much of their valuable time (especially in a seller’s market). They work on commission, and they might not take you seriously – and neither will sellers – until you can show them a preapproval letter. For more in-depth information, read about our Verified Approval process here.
When you get preapproved, your credit is pulled. This gives the lender two things: your credit score and a look at the data on your credit report. You need to have a credit score of 580 to qualify for a loan through the Federal Housing Administration (FHA) and a score of 620 for a conventional loan through Fannie Mae or Freddie Mac. A VA loan backed by the U.S. Department of Veterans Affairs doesn’t require a specific score, but lenders can set guidelines themselves. At Rocket Mortgage®, we look for a credit score of at least 580 for VA loans.
In addition to your credit score, lenders will see how much debt you’re carrying and whether you’re trying to buy a house with any bankruptcies or collections on your record. If you do have something like this on your record, it’s still possible that you could get a mortgage, but you might only qualify for certain loan options.
The lender will also ask about your income and assets upfront to calculate how much you can afford based on a debt-to-income (DTI) ratio.
You’ll also be matched up with a preliminary loan program, although this could change later in the process.
2. Prepare Your Documents
In summary, most lenders require information surrounding your debts and assets, credit history and proof of employment and income. Keep in mind that you won’t need all of this documentation to get your loan preapproved. However, the more information you can give your lender upfront, the stronger your preapproval will be – because both you and the seller can have confidence that your loan is more likely to be approved in the end.
Let’s break down the documents you should prepare for your mortgage application.
To verify your debts and assets, you’ll need:
- Bank account statements
- Recent statements from your investment portfolio, including retirement, stock and bonds accounts
- Receipt of gifted funds
- Documentation of your current mortgage
- Verification of other outstanding debts, such as auto loans or student loans
When validating your credit history, your loan provider may request the following:
- Permission to access and review your credit report
- An explanation for any financial mishaps that might appear on your credit report, including bankruptcies, foreclosures or delinquencies
Finally, proving your employment and income records will require:
- The name, address and contact information of your current employer
- 2 years of W-2s
- Profit and loss statements, if you’re self-employed
- Proof of child support, alimony or other kinds of income
- 1040 tax forms
Income and asset documentation can be provided later at the underwriting stage, but submitting it upfront will likely give you a better understanding of how much you can afford to pay.
3. Determine Your Budget
Your preapproval letter will tell you how much money a lender is willing to let you borrow. However, just because you can borrow a certain amount doesn’t mean you have to push your budget to the limit. You can put various purchase prices into a mortgage calculator to come out with a realistic estimate of a monthly mortgage payment. You can also add the cost of taxes and insurance if you know what they’re likely to be.
You want to make sure you have enough money every month for savings, emergencies, investments and other expenses. Don’t forget to leave a little bit of room for fun money as well!
4. Start House Hunting
Going out and looking at homes is usually the part of the mortgage process that’s the most exciting. You get to imagine what your life would be like in each house you walk through. Even though this is often one of the more enjoyable stages throughout this process, though, you’re going to want to start with a solid game plan.
Depending on your budget, it may or may not be possible to find a home with every feature you want. With that in mind, it’s best to make a list of your top priorities for the homes you’re looking at to make sure you’re saving time during your house hunt.
Once you have your wish list in place, we recommend hiring a real estate agent. They know the market. They see a ton of homes every year and can work with you to find something that meets your needs and is within your budget. Our friends at Rocket HomesSM can help match you up with an agent who can work with you to find a house that matches your needs.
5. Make An Offer
Let’s say you’ve found the perfect house. It’s now time to make an offer. There are several things to think about here. You’ll work with your real estate agent or attorney to write the purchase agreement, which includes your offer for the purchase price as well as a list of anything from the house that you might want included in the sale.
Although these types of details are negotiable, sellers are likely to want an agreement with very few strings attached – one that’s as clean as possible. This may mean avoiding things like asking for seller concessions and for furniture to be included in the deal.
It’s also at this stage that you’ll make an earnest money deposit. This is a percentage of the purchase price given to the seller when the offer is accepted to show that you’re serious about the property.
6. Finalize The Loan
After you’ve legally bound your offer with a purchase agreement, you’re ready to apply for your mortgage and finalize the terms of the loan. If you haven’t already, you’ll need to consider the types of mortgages you qualify for, compare their respective rates, settle on a down payment amount and choose a term length.
Next comes the paperwork. Although you may have already completed a good portion of your application paperwork during preapproval, you’ll need to gather some final documentation before you’re cleared to close. Loan officers will need any information you haven’t yet provided surrounding your debts, assets, credit and income.
Once you’ve finished your application, your lender will provide you with a loan estimate. This document doesn’t mean that you’ve been approved, but it will lay out the details of your mortgage arrangement, such as the total amount of the loan and the estimated value of the property you want to buy.
7. Wait For Underwriting
Once your offer is accepted, the purchase agreement is sent back to your banker. The banker will review your options to make sure you’re in the right loan program. Once that happens, your loan goes through underwriting.
During the underwriting process, an underwriter will verify your income, assets and employment and compare them to the information on your credit report. Lenders always pull the potential borrower’s credit at the beginning of the process, but a preapproval lasts for just 90 days.
If you’ve been house hunting for a while, it may be necessary for the lender to pull your credit again. Try not to take on additional debt during the house hunting process. Doing so while trying to buy a house at the same time could put your financing in jeopardy.
Before you close on the house, you and your lender will typically decide when to lock your interest rate as well. Because mortgage rates can fluctuate several times a day, a mortgage rate lock will ensure that your interest rate stays the same until closing or for 30 – 60 days after the lock goes into effect.
It’s also during this time that your lender may ask for additional or updated documentation if they need it for approval purposes.
8. Get A Home Appraisal
Your lender will set up a home appraisal as you’re going through the underwriting process. The appraisal protects you and the lender by verifying the home is worth the price you’ve agreed to with the seller.
During the appraisal process, the home is evaluated against comparable properties in the area. That means that if the property you’re buying is a two-bedroom ranch with a recently renovated primary bath, the appraiser finds properties in the area that are as similar to your property as possible, looks at the sales data and gives you a dollar value for the home you’re looking at.
If the appraisal comes in lower than the sales price, there are three options: the seller can lower the price to the appraisal value; you can bring the difference between the appraisal value and the sale price to the closing table; or you can walk away from the home (if you have an appraisal clause in your purchase agreement).
9. Prepare To Close
When the underwriting process is complete, it’s time to come to the closing table. You’ll bring photo IDs, a copy of your Closing Disclosure, your down payment and any other closing costs to your closing meeting, then sign the mortgage and take possession of the deed.
There are ways to keep your closing costs you are required to bring to closing down. One way you may be able to do this is by increasing the price of your offer in order to convince the seller to pay for other things. In this way, you roll the closing costs into the loan.
How Long Does The Mortgage Loan Process Timeline Take?
Now that you know how the process works, what is the timeline for buying a house? That’s different for everyone, but let’s try to give you a rough idea.
Mortgage Preapproval: 1 – 2 Days
Through Rocket Mortgage, you can be preapproved by sharing your income and asset documentation from your bank. Even if you get started over the phone, most people can expect to be preapproved within a day or two.
Mortgage Loan Closing: 30 – 60 Days
Once you have your purchase agreement and underwriting starts, we try to close your loan as soon as possible.
Besides looking for the home, the next biggest delay in the process can sometimes be getting an appraisal scheduled. There are areas of the country where there’s a shortage of appraisers. If you’re buying in one of these areas, it’s important that both the buyer and seller have realistic expectations.
You can really help speed up the process if you get all the documentation that you’re asked for turned in on time. This may be the one thing about the mortgage process that’s most directly in your control.
The Bottom Line: Demystifying The Home Loan Application Process Is Your First Step Toward A New Home
Once you’ve made it all the way through to your closing day, you’ll be rewarded for your efforts with a new home and the official status of homeownership. Getting across the finish line can feel like a long, complicated process. But mortgage applicants who are familiar with each step along the way are best positioned to make their application go as smoothly as possible.
Now that you understand the process, are you ready to get started? You can go ahead and get started with an online preapproval or call one of our friendly Home Loan Experts at (888) 452-0335.