First-time homebuyers are often overwhelmed by the mortgage loan process. Once the process starts, they may question the purchase. Thankfully, they have a real estate agent, mortgage loan officer, and other professionals to walk them through the steps. However, knowing each stage of the process and what it entails is helpful so the buyer can ask questions and make the right decisions for their financial situation.
Set a Budget
Before meeting with a loan officer or real estate agent to discuss mortgages and look for homes, a person should set a budget for this purchase. They need to consider the monthly mortgage payment rather than the home purchase price to determine which houses are affordable. However, the mortgage payment, real estate taxes, and insurance are only part of the equation. The borrower must also consider utilities, home maintenance, and repairs when determining how much they can afford.
Pre-Approval
Borrowers should talk with a lender to get pre-approved for a mortgage. Doing so lets the borrower know exactly how much they can obtain for the home purchase from a financial institution. This information can be shared with sellers because many won’t work with buyers unless they have pre-approval letters. Sellers want to know they are working with someone who can afford the purchase and isn’t wasting their time.
Look at Homes
Once a borrower is approved, it’s time to look at homes. Don’t rush the process; nobody wants to learn they missed out on their dream home because they didn’t look long enough. When a house is found, the buyer makes an offer with the help of their real estate agent. This offer should include contingencies or conditions, and the buyer must have earnest money to include.
Choose a Lender
Homebuyers often assume they must use the lender that provided the pre-approval letter when purchasing a home. They are not locked into using that financial company. Experts recommend speaking with at least three lenders to find the best interest rates and terms and conditions. The interest rates are determined by the loan type and the individual’s credit score.
Apply for a Mortgage
Complete the mortgage application. The lender will require additional documentation beyond that provided during the pre-approval process. A fully executed Purchase Agreement and the earnest money deposit are needed. Other documents must also be provided. Once the lender has all the documents, a Loan Estimate will be provided within three business days. This document outlines the precise rates, fees, and loan terms.
Home Inspection
A home inspection ensures the house doesn’t have major structural issues. Lenders usually require this inspection, which may be waived in a competitive market. The inspector checks the foundation, electrical and plumbing systems, the roof, and other major household components to identify areas needing repair. The buyer can negotiate the price with the seller once they know what work must be done to the house.
Home Appraisal
The home must also be appraised to ensure the asking price is reasonable. Lenders require this appraisal before the mortgage is approved. The buyer should choose a third party independent of the lender. The mortgage will not be approved if the assessment is lower than the contracted purchase price.
Underwriting
When all steps have been completed, the underwriting process begins. The loan process orders all credit reports, a title search, and tax transcripts. They verify all information on the application and send it to the underwriting team. This team ensures nothing has been overlooked and no areas of concern exist.
Once the loan has been approved, it must be finalized at closing. This step is handled by a closing attorney or title company, and the borrower must be prepared to sign several documents. The closing may be in person or virtually. Review the Closing Disclosure to ensure it is similar to the loan estimate and that all costs are as expected. The buyer is now a homeowner when all documents have been signed and funds exchanged.
Congratulations!
