The Keys to the Mortgage Lending Process
From Paperwork to Housewarming Party
If you’re like most people, the mortgage lending process probably seems pretty confusing. There are a lot of different terms and concepts to wrap your head around, not to mention all of the paperwork involved (it can vary between 40–100 pages worth). This is where a mortgage advisor and realtor can step in to answer your questions and calm any concerns. My desire is that within this short blog we will break down the mortgage lending process step by step so that you can understand exactly what’s going on (and what you need to do).
Applying for a mortgage can be a daunting task, but understanding the process can help make it less stressful
Applying for a mortgage can seem like an overwhelming task. From having to compile personal financial records (from bank statements, investment accounts, pay stubs, and work history, to name a few) to seeking the guidance of a professional. But, it doesn’t have to be a nightmare that keeps you up at night. Being well-prepared and knowledgeable about the process can make the experience surprisingly manageable. Taking the time to understand what documents and information you need, researching your best options and staying on top of communication with all parties involved are a few steps that can take away much of the stress associated with seeking a mortgage.
The first step is to get pre-approved for a loan, which will give you an idea of how much money you can borrow
Realtors and lenders will often recommend that the first step in the home-buying process is for a potential homeowner to get pre-approved for a loan by a lender. This enables them to get a realistic idea from their lender of how much money they can borrow for a home. A pre-approval document also works as reassurance for realtors and sellers as it shows that there is a greater likelihood that you will not only make an offer but follow through with paying for it. Knowing your purchasing power up front makes home shopping much less stressful and ensures that everyone involved gets the best possible outcome. Without getting a pre-approval from your lender is like shopping without knowing how much money you have in your bank account. If that does not concern some of you, then think of it as purchasing clothes without seeing them or trying them on first.
Once you’ve found a home you like, the next step is to apply for a mortgage and provide all the necessary documentation
Once you’ve found the perfect home after your realtor has shown you potential prospects, it’s time to take the next step and apply for a mortgage. Realtors and lenders are experts and can help guide you through the complex process of filling out the necessary paperwork, while your lender is responsible for assessing all the documents to determine what kind of loan you qualify for. Prequalification will make all parties involved more comfortable, so be sure to submit a complete and accurate application as soon as possible. Juggling dozens of details can seem daunting, but in the end taking these steps can help lead you towards home ownership — and that’s worth it!
For simplicity, I compiled a list of the main documents and information that you will need to provide your lender when you officially apply for the loan. Although there may be additional documents necessary for different scenarios, these are the general requirements.
1. Tax Returns: You’ll need to provide two full years of tax returns for both you and anyone else who will be listed on the mortgage application. This is to make sure that you have a steady source of income and can afford the payments.
2. Bank Statements: You’ll need to provide a few months of recent bank statements showing your financial activity and assets. This allows lenders to verify the amount of money available for a down payment, as well as check for any suspicious activity or large deposits that may need further explanation.
3. Credit Report: Lenders will need to review your credit report in order to determine your creditworthiness, including how much debt you owe, how long you’ve had credit accounts open, etc., which can be used to help calculate your debt-to-income ratio.
4. Pay Stubs: To ensure that you’re able to pay back the loan, lenders also require copies of your most recent pay stubs so they can see what kind of income you are generating and verify your employment status and earnings.
5. Identification: You’ll also have to provide valid identification documents such as a driver’s license or passport in order to prove who you are and where you live when submitting an application for pre-approval.
6. Gift Letters: If you’re planning on receiving any gift money from family or friends towards the purchase of the home, then documentation outlining these funds must be presented with your other paperwork. A gift letter should include details about who is giving the money and how much is being given as well as evidence that it has been transferred into an account in your name before closing can take place.
7. Employment Verification Form: As part of verifying your current employment situation, lenders usually require job verification forms from each employer listed on the application that states how long you’ve been employed there and what kind of position it is (full-time vs part-time). They may also ask for proof of other income sources such as investment dividends or rental property investments if applicable.
8. Renting History: Depending on your credit score and if you have never owned a home before, you may need to provide proof of paying your rent on time. Many times people do not realize how important this step is when acquiring a mortgage, especially if you do not have the highest credit score.
9. Purchase Contract/Offer Letter: Once a home has been identified, the lender needs documentation showing details about the purchase agreement between buyer and seller including price, terms, contingencies, etc., so they can evaluate whether they’re willing to provide financing based on those conditions before signing off on pre-approval status.
The lender will then order an appraisal for the property to make sure it is worth the amount you are borrowing
When buying property, the borrower must be mindful of appraisals. The property must be appraised by a licensed appraiser to ensure that it is worth the amount being borrowed. Furthermore, the appraiser will determine the condition of the property in question and make sure that there are no liens or other matters that could interfere with the title transferring to you. Of course, at closing time, a title company will review all documents to make sure everything is as expected and a clean title will transfer into your name. As such, appraisers play an important role when buying property.
If everything goes smoothly, you will then be able to close on the loan and move into your new home!
After weeks of paperwork, inspections and phone calls, you can finally see the light at the end of the tunnel: closing day! After checking off all the boxes and getting approval from your lender, you’ll be able to meet with title company reps and sign all the necessary documents. After that’s all completed, it will officially be official — you will have your keys in hand and the next stop will be a housewarming party! Hope this helps on your homebuying journey!
This is not financial advice. For educational purposes only. Before making any financial decisions, consult with a professional.
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