What the Mortgage Lending Process is Like
When considering buying a home, one of the aspects of the process that potential homeowners dread is going through the mortgage lending process. For some, part of this dread is the time it takes from beginning to end, while others dread all the paperwork involved.
This article will break down the mortgage lending process in six steps.
Step One: Pre-Approval
The first step in the mortgage lending process is the pre-approval step. In this step, you determine what you can afford to pay and what type of mortgage fits you best. When choosing a mortgage, you have to consider the monthly costs, which include the interest payments and the principal loan. The rule of thumb for personal budgets states that you shouldn’t pay more than 30% for monthly housing expenses.
This includes your mortgage payment, HOA fees (if any), homeowner’s insurance, property taxes, furnishings and appliances, and maintenance and repairs. While the traditional down payment for a house is 20%, there are mortgage loans that allow as little as 3% as long as you take out private mortgage insurance.
Step Two: Find Your House
Many people start looking for properties before they’re pre-approved for a mortgage, which is fine. After you’re pre-approved, you can remove the properties on your list with higher monthly mortgage payments than your pre-approved monthly mortgage cost. You don’t even have to buy through an agent; you can buy a house at auction, foreclosed homes, short sales, or look at off-market homes.
Step Three: The Mortgage Application
This step causes future homeowners the most stress as many documents are involved, and it takes a while to process. While you can wait until you reach this step to gather the documents you need pertaining to your income, credit, and property information, it’s easier and less stressful if you begin during the pre-approval and house-hunting steps. You can take this to the person or company that pre-approved you, or you can find a mortgage underwriter, when you have gathered everything you need.
Step Four: Loan Processing
This step involves receiving a loan estimate from the lenders you’ve approached, which is usually three pages long and is in a standardized format. You should receive the loan estimate within three business days of applying for a mortgage unless they reject your application if you didn’t meet their basic qualifications. If that happens, they’ll give you a written notice within 30 days stating why they rejected your application. When you do receive a loan estimate, it’s valid for ten business days; otherwise, the lender may change the terms and issue a new loan estimate.
Step Five: Underwriting Assessment
During this stage, underwriters will assess your application before giving you the final mortgage approval. They’ll inspect every aspect of the application and determine if there are enough funds to cover the amount in your mortgage. If approved, you’ll have a locked-in interest rate with your lender, which is the interest rate you’ll pay for the entire mortgage term.
Step Six: Closing Time
Once the underwriter approves the mortgage application, it’s time for the closing proceedings, which includes a meeting and a large stack of documents. One of the important documents you’ll see contains the final closing costs, the original estimated closing costs, and the difference between the two. Closing costs range anywhere from 2% to 5% of the home’s purchase price and vary depending on the state, lender, and loan type. After that, there’s a three-day review period, where you review the documents and another walk-through. The entire mortgage process takes anywhere between 30 and 60 days.
If you’re ready to take the exciting step into home ownership, we offer a full range of mortgage programs to meet the diversified lending needs of individuals like you. Contact us today to experience our fast, professional service with free mortgage analysis and free mortgage pre-qualification.
* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.