There is nothing more exciting than owning a home. Having a place to call your own is something that most people dream of. But before you can make a house your home, you’ll have to apply for a mortgage.
Though applying for such a big loan is nerve-wracking, take a deep breath and keep the end goal in mind: becoming a homeowner!
The key to a smooth mortgage process is to be prepared. There are several things to do before applying for a mortgage to maximize your chances of getting approved.
Step-by-Step Guide to Applying for a Mortgage
Here are six steps you’ll want to take before applying for a mortgage loan.
1) Review Your Credit Score & Report
Lenders look at your credit score to determine your worthiness as a borrower. The higher your credit score, the less risky you are to lenders. This means lower interest rates and a higher chance of getting approved for a loan.
If your score is below 670, take time to raise it before applying for a mortgage. Simple things such as paying off debt and continuing to pay your bills on time will improve your score.
You’ll also want to review your credit report to see what factors are keeping your score low. Look for errors and review any details, such as a high debt-to-income ratio, that are negatively impacting your score.
2) Figure Out the Best Mortgage Type
There are many different mortgage loans to choose from, including:
- Conventional mortgages – Can be used to buy a primary, vacation, or investment property.
- Adjustable-rate mortgages (ARMs) – Offer a low initial interest rate for significant upfront savings, but the rate increases after a set number of years.
- Fixed-rate mortgages – Offer predictable monthly payments as the interest rate never changes.
- Jumbo mortgages – Reserved for borrowers who need to take out a loan larger than the federal limit for a standard mortgage.
- Government-insured mortgages – Loans available through FHA, USDA, and VA. These loans offer low rates, but applicants must meet specific qualifications.
Knowing which option makes the most sense for your situation is essential. Remember, buying a home is a long-term commitment, so research your options before deciding on a mortgage loan.
3) Research & Compare Lenders
Just as there are several different types of mortgage loans, there are countless lenders that provide them, including large banks, credit unions, and even online banks.
Once you’ve decided on a type of mortgage loan, think about what factors are most important. Are you looking to apply entirely online? Want the lowest interest rate possible? Need to wrap your closing costs into the loan?
By shopping around, you’ll not only find a loan that best meets your needs especially loans for medical practitioners, but also a lender that provides the experience you want. Shopping around for the best lender can also save you thousands of dollars, especially if you take the time to compare and find the best deal.
4) Get Pre-Approved
Getting pre-approved is one of the most important steps in applying for a mortgage. It shows that you’re a serious buyer, which gives you an edge over others interested in the same house.
To get pre-approved, you’ll need to submit a mortgage application. The six pieces of information for mortgage applications include:
- Social credit number (to obtain credit report)
- Property address
- Estimated property value
- Requested mortgage loan amount
When you’re pre-approved for a mortgage, it means your lender has determined that you’re a suitable candidate for a mortgage loan. Pre-approvals are usually good for 30 days, which gives you plenty of time to work with your real estate agent to find your dream home!
5) Put Loan Paperwork Together
Most lenders require tons of documentation to process your mortgage loan after you’ve been pre-approved. For example, lenders need to verify income and employment, so you’ll need to provide copies of your W2s, 1099s, or year-to-date profit and loss statements.
Lenders will also need bank statements and retirement account statements to analyze your assets, as well as a list of monthly debt payments that you’re responsible for. Depending on your situation, a lender may also ask for:
- Record of rental payments
- Down payment gift letter
- Bankruptcy documents
- Foreclosure documents
Get these documents to your lender as soon as possible to keep the process moving.
6) Find Your Dream Home
Now comes the fun part! After months of preparing, the time has finally come to find your dream home. While you can browse home listings online, you’ll need a real estate agent to view homes in person.
When hiring a real estate agent, find one that is experienced, knowledgeable, and customer-focused. It’s important that you trust the agent you work with to help you negotiate the best deal on your soon-to-be home.
Want to know more? Here are some answers to the most commonly asked mortgage questions.
How Long Does it Take to Apply for a Mortgage?
The average mortgage process takes 30 days on average. However, during high-volume months, the process can average anywhere from 45-60 days. Make sure you budget extra time for this step.
Do All Mortgage Applications Go to Underwriters?
Yes. Mortgage underwriters assess the risk of lending money to you. The lender must determine that you’re able to pay the mortgage loan before approving your mortgage application. Underwriters review all of the loan documents you submit to verify your identity and assess your financial standing.
Can Overdraft Affect a Mortgage Application?
While you should avoid overdrafting any of your accounts, it’s unlikely that an overdraft will cause your loan application to be denied. If you have a steady income along with an above-average credit score, chances are you’ll be approved.
Do All Mortgages Require a Down Payment?
Most lenders require a down payment. However, some mortgage loans, such as USDA and VA loans, don’t require down payments. Most conventional loans require 20% down, but some loans, such as the Fannie Mae HomeReady and Freddie Mac Home Possible mortgages, only require as little as 3% down.
The larger your down payment, the better your interest rate will be. You’ll also lower your monthly mortgage payment while having equity the day you buy.
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