Whether you’re a first-time home buyer or a seasoned investor, the mortgage approval process can be a slightly overwhelming adventure without a proper road map and good team in your corner. While this site is full of useful information, industry terms and calculators that will help you research the mortgage approval process in detail, this particular post was designed to give you a brief outline of the important components involved in getting qualified for a new mortgage loan.
Step One – Organize your documents Two years W-2 and one month of paystubs or if self-employed, provide two years tax returns (all schedules attached).
Two months statements for each bank, stock, mutual fund account, and 401k.
If you own rental real estate, provide all rental agreements and two years tax returns, including Schedule E.
If divorced, provide a copy of the divorce decree and property settlement agreement (if applicable).
If you are not a US citizen, provide a copy of your green card, or H-1 or L-1 visa.
Step Two – Pre-Qualification vs. Pre-Approval
A pre-qualification letter is used when you are making an offer on a property. The pre-qualification letter indicates to the seller that you are qualified to purchase the house you are making an offer on. A pre-qualification is normally conducted by your mortgage specialist after he has interviewed you and determined, based on the information you’ve verbally provided him, the dollar amount you can be approved for. Your mortgage specialist will then issue you a pre-qualification letter. Mortgage specialists, however, do not make the final approval, so a pre-qualification is not a commitment to lend.
Pre-approval, on the other hand, involves verifying your credit, down payment, employment history, etc. Your loan application is then submitted to an underwriter and a decision is made regarding your loan. If your loan is pre-approved, you are then issued a pre-approval certificate. Getting your loan pre-approved allows you to close very quickly when you do find a house. A pre-approval can help you negotiate a better price with the seller, since being pre-approved is very close to having cash in the bank to pay for the house! It’s highly recommended that you get pre-approved before you start looking for a house.
Step Three – Shop Loan Programs and Rates
It’s always smart to shop around for the best possible mortgage deal. Armed with your documents in hand, seek out the best quotes based on your individual situation and your future goals. Remember that this decision shouldn’t just mean the lowest interest rate but the best overall loan terms from a trustworthy mortgage lender. Take your time to check out any lenders you are considering applying with, and make sure that they are reputable. After all, a low quote means nothing if that isn’t what you get when it comes time to close.
Questions to keep in mind:
How long do you plan to keep the property? Factors like when you plan to sell the property can affect the type of loan that fits your needs.
Understand the relationship between rates and points. One point is equal to 1% of the loan amount. The more points you pay, the lower the rate will get. Consult your tax advisor for applicable tax deductions.
Compare different programs. This can become confusing and difficult because there are so many different programs to choose from. This is why it’s important to speak with an experienced mortgage specialist who will help you make the best decision for your situation.
READ MORE ABOUT SHOPPING MORTGAGE INTEREST RATES
Step Four – Obtaining Loan Approval
Once you have filled out a loan application, your mortgage specialist will begin the loan approval process immediately by:
Running your credit
Verifying your employment
Verifying the property value
Verifying your assets
This is where most homebuyers make the mistake of kicking back or going furniture shopping. You need to get busy, but whatever you do, don’t take on any new credit or you could throw off your score and ruin your chances of getting approved. Instead, start ensuring that all of the third party items are being ordered and taken care of, such as appraisals, home inspections, homeowners insurance and title insurance. Note: a great mortgage lender can help you with these items, but still shop around to make sure you are getting the best rates.
Step Five – Closing of Your Loan
Once you clear the underwriter’s conditions it is time to schedule your closing. This is where you will be required to sign your final disclosures and pay your closing costs.
Before arriving, review the final disclosures on the settlement statement so that you are not surprised or pressured into taking loan terms that are not what they were supposed to be. Check the interest rate, terms and the name and property address for accuracy.
Bring a cashiers check for the payment of closing costs (Personal checks are usually not accepted) and ensure that you have valid identification in the form of a driver’s license or passport to verify who you are.
Celebrate!
