Buying a home is one of the biggest purchases most people make in their lifetime. And one of the best ways to ensure things go smoothly is by doing a little homework before you dive in. Knowing what to expect can help prevent unpleasant surprises. Read on for a little understanding of the five big steps in the mortgage loan process.
1. Securing your Pre-Approval
Well before the house hunt comes your loan pre-approval. This is usually a quick process that involves pulling credit reports from three separate bureaus. Lenders will be able to view your credit score, credit history, payment history, and past and present lines of credit. They’ll use this information to determine a suitable loan amount for which you’ll qualify.
It’s truly a necessary step that will save time down the road by pointing you in the direction of homes in your price range. It’s also a sign that you’re ready and able to buy, and that you’re serious about any offers you make.
Don’t mistake loan pre-approval for mortgage pre-qualification, which is a far less meaningful measure of your ability to really get a loan and usually involves a few questions about your credit. There is no third-party verification with this kind of pre-qualification.
2. House Hunting
Starting online is a great way to zero in on different homes, but this is a good time to find an agent. Keep in mind that the home values you’ll find on websites like Zillow and Trulia aren’t accurate, nor are they always current. An agent will be able to find inventory that may not even be formally listed. Plus, he or she can advise you on homes just out of your price range that may be negotiated down.
Once you’ve found a home that works, it’s time to make an offer. Again, this is where the expertise of your agent will shine. He or she will guide you through negotiations until your purchase agreement is signed. And then, it’s on to finalizing your loan.
3. The Mortgage Loan Application
Creating a loan file through underwriting requires different documents, and you’ll be responsible for providing some of them. Your loan officer, like those here at the Cushing Team in Reno, will help you prioritize documents and let you know what isn’t needed. Usually, the following paperwork is necessary:
- Employment – current employer info, how long you’ve been there, your position and title, and your salary (including bonuses, commission, and overtime)
- Income – two years of W2s, profit and loss statements if you’re self-employed, pensions and social security, any public assistance, child support, or alimony
- Assets – bank accounts, real property, investments, proceeds from the sale of your current home, and any gifted funds from relatives
- Debts – current mortgage, and any liens, alimony, child support, vehicle loans, credit cards, or real property
- Property information for the new home – address, expected sales prices, type of home, size of property, annual real estate taxes, any HOA dues, and the estimated date of closing (your real estate can help gather these details)
- Financial issues – any bankruptcies, foreclosures, delinquencies, or collections
- Type of mortgage – fixed or adjustable, forward or reveres, conventional or government-insured, or jumbo
All of this information is combined to create the loan estimate, a document that includes terms and estimated costs for your loan. It will also include specifics such as closing costs, the interest rate, and your monthly payments, plus any special features.
Note that this is simply a document at this point, and nothing has been approved or denied.
4. Loan Processing & Underwriting
In the next step of the application process, loan processors gather additional information about both the borrower and the property, review the loan file, and prepare a package for the underwriter. They’ll verify employment and deposits, order a credit report if it wasn’t already pulled for a pre-approval, and order property inspections, appraisals, and a title search.
The underwriter then reviews and double checks all documentation before making a final decision to approve or reject the loan. In some cases, a loan is approved with specific conditions. If your loan has been approved, you’ll move to the last step.
Your loan documents will be drawn so you can sign a big pile of paperwork at your closing meeting. Pay attention to the closing disclosure. This document confirms the costs that were laid out in the loan estimate, so they should be pretty similar. You have the right to review this document three days before the closing meeting.
This meeting typically runs a few hours, and it’s important to read all of the documents presented to you and ask questions if anything seems unclear. When you’ve signed everything, your duties in the closing meeting are complete. Recording and funding will be handled separately by the title company.
This overview dives into the five main steps between pre-approval and closing, but there are lots of little steps along the way. A trusted real estate agent and loan officer can make a big difference in smoothing the way. If a new home is a step you’re ready to take, we hope this information helps you feel a little more knowledgeable about what to expect.