You’ve been waiting for this moment for your entire life; it’s finally time to buy a home. You’ve saved up your money and know the location you want to live in, so it’s time to take those next steps.
However, the scary stories you’ve heard about the mortgage process may deter you slightly. But don’t worry. Today, we’ll break down the entire process so you’re well informed and prepared for when you decide to buy a home. Read on to learn more.
1. Determine Your Budget
Before we do anything that involves enormous monetary transactions, we usually figure out how much money we can afford to spend. The same logic applies when you’re buying a home.
Although you may have saved up a substantial amount of money over the years, you should figure out a budget so you can determine what house to look for.
One trick to help you determine your budget is looking at your monthly expenses. Add in an average mortgage payment for your area, and see what you can afford to pay.
Also, as you’re calculating your budget, remember to factor in potential interest rates and property taxes. They may vary depending on where you decide to live. But by breaking down your costs into monthly payments, you’ll have a better idea of the overall amount you’ll need.
2. Loan Pre-Approval
Once you determine your budget, it’s time to start looking for houses in your price range. But before making any offers on a home, it’s essential to get a pre-approval letter from a mortgage lender. But why?
Having a pre-approval letter lets sellers know that you’re qualified for a loan to purchase a house. It makes it easier for you as you’re shopping around for homes.
However, it’s important not to get it mixed up with a “pre-qualified” letter. Although it’s another way to let realtors know that you’re able to receive a loan to purchase a home, it’s not verified. It’s only an estimate of the funds you’re approved for.
Pre-approval letters take your bank statements, credit card debt, and savings into account before approving the loan. That’s why sellers prefer it to a pre-qualified letter.
Related: How Does Rent To Own Work: Beginner’s Guide
3. House Hunting and Making an Offer
Since you’re now pre-approved for a loan from your lender, it’s time for the fun to begin. You get to look at different houses. Take your time with this step because you’re choosing a property that you’ll potentially be living in forever.
Once you find a property within your budget and in an ideal location, it’s time to make an offer. Most sellers will require a security deposit. It could be 5% or 10% of the house’s overall price. But check with your realtor to see how much you’ll need for the deposit.
4. Home Inspection
Congrats! You’ve found a home that you like, but it’s still only the beginning part of the process. Next, you need to order a home inspection. Typically, an inspector will review the property:
- Foundation
- Electrical wiring
- Plumbing
- Entire structure
Inspections are great because they let you know the repairs you’ll need for your home. Also, depending on what’s required, you may be able to negotiate the sale price.
5. Choosing a Lender
You may have already chosen a lender once you got pre-approved for your loan. If not, you’ll need to spend time figuring out what mortgage company to go with.
As you’re shopping for a mortgage, remember that your rates aren’t solely based on your application but also on the type of loan you choose. Some of the various mortgage loans are:
- FHA mortgage
- VA mortgage
- USDA mortgage
- Interest-only mortgage
FHA Mortgage
An FHA mortgage loan is backed by the Federal Housing Administration. It’s for buyers who are living through more modest means. Down payments for this loan are usually as low as 3.5% of the overall cost.
Also, you can qualify for this loan even if you have a credit score as low as 500. However, you’ll be required to pay insurance premiums.
VA Mortgage
A VA mortgage is supported by the Department of Veterans Affairs and is for individuals that are currently or were previously military members. There’s no down payment required, and you’ll have a low-interest rate.
But there is no mortgage insurance, and all properties aren’t eligible for VA mortgage loans. So you’ll need to research correctly before deciding on this loan.
Related: How Long Does It Take To Close On a Home? A Complete Guide
USDA Mortgage
The US Department of Agriculture issues USDA mortgage loans. With it, you don’t have to provide a down payment for your new home, and interest rates will be low.
However, to qualify, you’ll need to be a US citizen and accept that your property will most likely be in a rural area. Metropolitan and some suburban areas are generally excluded from USDA loans.
Interest-Only Mortgage
If you have a large cash flow and don’t plan to stay in a home for an extended period, applying for an interest-only mortgage may benefit you. You’ll only be required to make payments on the lender’s interest charge.
However, the principal balance isn’t lowered throughout this time. You’ll also need to show that you have substantial assets before this type of loan is approved.
Are you curious about today’s mortgage interest rates? Find out more from Mares Mortgage!
6. Complete Your Mortgage Application
After selecting a lender, next is formally filling out your loan application. You may have provided some of your information for your pre-approval letter. However, a more in-depth analysis of your financial background will be done by an underwriter.
Some standard information that you may need to provide are:
- Additional bank statements
- Pay stubs
- Other sources of supplemental income
Afterward, you’ll receive a loan estimate within three business days that will list your mortgage rate and terms.
7. Processing and Underwriting
For most new homeowners, underwriting is one of the most stressful parts of the entire mortgage process. Why?
That’s because everything you’ve done in your financial past is actively getting reviewed. The only thing you’re doing is sitting and waiting for confirmation that the process is moving forward.
What Role Does An Underwriter Play In the Mortgage Application Process?
An underwriter is an essential component of the mortgage process. Once a processor puts together your financial documents, they get sent to an underwriter for further review.
Unfortunately, it’s their job to pick your file apart and look for any red flags or missing pieces of information. Specific details underwriters look for include:
- Your capacity to pay back the loan
- Any credit card debts
- If the property value is sufficient collateral for the loan
If an underwriter has any questions about your financial history, be sure to answer them promptly to avoid any further delays with your application.
How Long Does the Mortgage Underwriting Process Take?
Underwriting can vary depending on the institution that’s reviewing your file. However, standard turnaround times are usually between two to three days.
If they have questions about your file, underwriting could take a week or longer if both parties are slow with the transfer of information.
8. Closing Day
You’ve finally made it! It’s closing day. Your lender will send you the documents you need to prepare and instructions to file them correctly. Be prepared, though; you’ll be signing a large stack of papers, but it will be worth it.
If everything is in order, you’ll receive your keys, and then Voila! You’re a new homeowner!
Related: 14 Mortgage Questions You Should Ask Your Lender
How Long Does It Take For a Mortgage To Be Approved?
Timing is everything when it comes to mortgage approval. Usually, it takes about 30 days for the entire process to get completed.
However, this will vary greatly depending on if you’re working with a mortgage company or a financial institution. But if you’re trying to buy a home during a busy season, it can take almost two months for the entire process to get completed.
Get Loan Pre-Approval From Mares Mortgage Today
As you can see, buying a home is a tedious process that requires a lot of attention to detail. However, as we stated above, if you get a pre-approval letter, you can speed up the process since you have the evidence stating you’re approved for a loan.
How do you get a pre-approval letter? You can work with Mares Mortgage. Whether you’re a first-time buyer or purchasing your second home, we’ll help you get a loan pre-approval in minutes.
If you’re ready to start your mortgage process, contact Mares Mortgage today! We’ll help you land your dream home in no time!