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Your guide to understanding the mortgage process from start to finish
Buying a home is much more than simply applying for a mortgage, getting a stamp of approval, and moving in. A lot of the mortgage process happens behind the scenes and is out of your control, but there is also a lot that you can control to ensure you’re in the best position to buy that coveted home and close in a timely manner.
In this guide, we’ll walk you through everything you need to know — from finding an agent to the paperwork you’ll need — to prepare you for the mortgage process.
In this guide:
Before you begin the process of finding and buying a home, you should go to a bank or realtor and get prequalified for a mortgage. Prequalification basically gives you an idea of how much of a loan you’re likely to qualify for.
The prequalification process is pretty straightforward and doesn’t delve too far into your financial background or require any commitments. The lender will conduct a “soft” credit check — meaning they’ll accept either a credit score you provide them with or they’ll run one themselves. They’ll also look at your current income, any debt you have, and assets. Once that information is reviewed, you’ll get an estimate.
The entire process is free and a good way to test the waters before preapproval. Prequalification can also be done online or over the phone.
When applying for a mortgage, you’ll need to fill out a good amount of paperwork and provide some paperwork of your own. Be sure to have these documents on you when you go to apply.
Around this time, use our mortgage calculator to tally up how much you can afford. You'll need to know before moving on to the next step.
Once you’ve gotten your prequalification loan estimate and you’ve determined that home ownership is right for you, it’s time to fill out your mortgage application. This is the first step to getting preapproved and signifies to home sellers that you’re serious about purchasing a home.
You can apply for a mortgage in person, over the phone, or online.
It’s important not to limit yourself during the application phase — make sure you apply to two or more mortgage lenders. Every bank and mortgage company has different mortgage products with different rates, so even when you think you’ve found the best possible loan, a different bank could have a similar product with even better rates. Comparison is the key to finding the ideal mortgage.
If you’re a first-time homebuyer and this is your first time applying, you’re probably best served speaking with a loan officer to make sure you’re accurately answering application questions. Incorrectly filling out an application makes getting approved for a mortgage significantly harder, and in some cases it’s illegal.
Every mortgage application follows roughly the same format; it’s about five pages and 10 sections long. Your application will take around an hour to complete if done in one sitting. Your application will ask for the following information:
From there, the loan originator at your bank will review the application to make sure everything is filled in. If that’s the case, they’ll sign off on it and your application will be submitted for preapproval.
Once your application is approved, you’ll receive a preapproval letter, which is the lender’s way of saying that you’re legit and that they agree to lend you a specific amount of money.
Your preapproval essentially helps narrow your search to homes that you can afford under the agreement (meaning your preapproval amount plus whatever down payment you can afford) while also making your bid more attractive to sellers.
Once you’ve found a home that’s both desirable and in your price range, you’ll negotiate a purchase offer with the home’s seller.
For first-time buyers, we suggest negotiating with a trusted and experienced real estate agent during this part of the process. Local real estate agents have a good understanding of the lay of the land, can help you identify a decent home at a good price, and, perhaps most crucially, provide invaluable negotiating experience.
Once your offer has been accepted, the seller will produce a purchase contract that will be signed by all parties. The purchase contract is basically the green light to your lender to begin finalizing the loan.
Underwriting is your lender’s way of determining your ability to pay back the loan. This is typically the longest part of the mortgage process and can take anywhere from a week to a month.
Something to keep in mind with underwriting is it isn’t simply to give you a thumbs up or thumbs down for the mortgage. They’re also underwriting you to determine both your loan amount and interest rate.
Prior to underwriting, the underwriter will request that you submit many of the same documents that you submitted for pre-approval (like your W-2, pay stubs, and asset information) and may request even more information.
For example, if a family is paying for your down payment as a gift, your lender will request that your donor submit a gift letter to prove that the down payment money is a gift and not a loan you need to pay back.
Once you’ve gotten through underwriting, it’s time to close on the home and finish the mortgage process once and for all. You’ll meet with a number of people — a closing agent, an attorney, a title company representative, the home seller, the seller’s real estate agent, and your lender.
The closing agent will ensure a few things before you can officially close on the home: that all legal documents are signed, and that closing costs and any conditional approval or escrow conditions are resolved.
You’ll need to review or sign the following documents during closing:
At closing, you’ll also be required to either provide a certified check or make a wire transfer to your lender for costs associated with originating and processing the mortgage, among other services. Closing cost amounts can vary depending on the lender and type of mortgage, but they’re typically anywhere from 2% to 5% of the mortgage amount.
Your closing costs typically include:
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