Step 1: Know Your Numbers
First you will need to document your monthly debt and income. Lenders will consider your debt-to-income ratio to determine how much you can afford to borrow. Including your monthly home payment your total debt should not exceed 40% of your income.
It is a good idea to pull your credit report as your lender will run a credit check when you apply for pre-approval.
Make sure not to miss payments and pay off as much debt as possible as it will help increase your credit score and lower your debt-to-income ratio.
Before and after applying for a mortgage, make sure not to take on new debt, change jobs or do anything else that will negatively impact your credit score.
Step 2: Find A Lender
While it’s nice to get the lowest interest rate it is very important to work with a lender that is local, trustworthy and available since they are very involved in the closing process. The most common types of lenders are banks, credit unions, and online financial institutions.
Step 3: Get Pre-Approved
Pre-Qualification vs. Pre-Approval
During pre-qualification your financial information is not verified by the lender. You need to understand that it is a rough estimate of what you can afford and does not guarantee how much money can be loaned. A pre-approval is an absolute must for sellers to take any offer seriously. Once you apply, your lender will analyze your credit and all financial documents to assess your financial situation. If everything goes as expected you will receive a pre-approval letter which we will give to the seller along with your offer.
Step 4: Finalize Your Mortgage & Close
Congratulations, your offer is accepted. Now let your lender know so they can get the long process started. Your lender will be in close contact with you, your agent, and the escrow agency throughout the closing process.
Secure Your Mortgage
After you submit a formal loan application to your lender they will send you an official Loan Estimate outline your estimated closing costs. Take time to review these documents and when everything looks good, send your lender of intent to proceed.
In order for your lender to confirm the home is worth the value they are lending you and appraisal must be conducted. Payment for your appraisal can be made upfront or it can be added to your closing costs.
The lender will pull together all relevant documentation and submit it to an underwriter. The underwriter reviews the loan package and make sure all requirements are met. If the underwriter requests additional documentation make sure to submit it as quickly as possible to prevent delays. Once underwriting is complete, your loan is considered approved and your closing date will be scheduled.
Submit funds to escrow for your down payment and closing costs. Review and sign your final loan documents to make sure your interest rate, loan terms, names, and addresses are correct. If your closing is executed smoothly, all of the money and documents associated with the transaction will be distributed to the proper parties, and you’ll get the keys to your new home!