If you’re considering buying a home, congratulations! It’s an exciting step in your life. You might be wondering how much you can afford to spend, how much your monthly payment might be, or if you can even afford to buy right now.
Many people have lots of questions about how to get a mortgage, even if they’ve had one before. We’re going to explain the whole process of how to get a home loan. We want you to feel comfortable with buying a home. At any time, please feel free to reach out to us with your personal questions. We’re here to answer every question you can think of.
Most people don’t have enough cash to buy a home outright, and that’s okay.
In the US, we have excellent home loan programs. The government wants you to own a home! There are government-backed programs that help you get a home loan, or mortgage. To make them more affordable, mortgage payments can be spread out for up to 30 years. (Learn more about the different types of mortgages.)
You do need to qualify for a mortgage, and there are several steps involved. An expert loan professional can guide you through the loan process from start to finish
Step 1. Shop around for a Lender
You absolutely can shop around for a loan. A home is a very important purchase, and you want to feel good about the loan you choose.
To find the right loan professional and loan product for you, you can start by asking friends or family or a trusted real estate agent for recommendations. Look for reviews on the lender. Make sure the lender is reputable, trustworthy and has been around for a while. If you’re watching this, you’ve found us, and we hope you’ll give us a try.
We want to earn your trust and be that guide for you, but even if you don’t work with us, please feel free to use this information to help you understand the process and be an informed borrower.
Step 2. Get Pre-qualified
Next, get pre-qualified for a loan. You can talk to several different lenders for pre-qualification. (They should not check your credit report at this point.) This is a no-cost, no-commitment, 10–20-minute analysis of your financial situation that will give you a great starting point for your new home loan.
You can do this with a loan officer in-person or on the phone. In just a short time they will be able to give you a very good idea of how much home you can afford, discuss several loan options you could choose from, what your monthly payment will look like and how much money may be needed at closing for a down payment, closing costs, or other costs. Going through pre-qualification can help you decide which lender you would like to work with.
Step 3. Get Pre-approved
Pre-qualifying with a lender is a great place to start because it is simple and quick, and it gives you a great feel for what you can afford. But don’t stop there.
When you have selected a loan professional to work with, the next step is to get pre-approved by completing a mortgage application.
Pre-approval is much stronger than pre-qualification because your financial information will be verified and your credit will be checked. Pre-approval is a powerful tool that shows sellers that you are truly able to buy their property.
Tip: Did you know that in hot real estate markets where many buyers are competing for the same houses, a seller won’t even consider your offer if you don’t include a pre-approval letter? It’s a very important step and should not be skipped. The seller wants to be absolutely sure you will be able to buy their home if they choose your offer! Sellers do not want to waste their time with a buyer who can’t close on a loan.
There are two main steps in the pre-approval process: the mortgage application (filled out by you) and application verification (done by the loan officer).
Complete a mortgage application. Allow yourself some time to work on the application. You’ll need to show how much money you make (your income), all of your debts, your credit history and how much cash you have to put towards a home as a down payment and for loan costs that may need to be paid at closing.
You’ll need to send a number of documents to your lender, including pay stubs, bank statements, and tax returns. It may take you a while to locate and compile all of those documents.
Next, your loan officer will analyze your application to consider 3 things (sometimes called the 3 C’s):
- Capacity to repay
- Capital (or cash)
They will then verify the information you provide and run a credit check, with your permission.
Tip: You will be sharing sensitive personal information with your lender, so make sure you do NOT use email to send private information, like tax returns or your social security number. Hackers and thieves can break into your email and steal your identity. Instead, your lender should offer you a secure web site where you can safely upload your personal information. If they don’t, do not work with them.
If things check out and the lender can approve you, they will provide you a pre-approval letter, which is an offer to lend you a specific amount of money (assuming nothing changes in your financial situation). This letter should be included when you make an offer on a home. And your lender will even customize the letter if needed for each offer you make to match the amount of money you’re offering.
With a pre-approval in place, you can now go home shopping with confidence in your budget and your ability to qualify for the loan. You may want to work with a real estate agent; in most cases, there’s no cost to you as a buyer because the seller pays the buyer’s agent fees, so why not use their expertise to help you.
Tip: Once you’ve submitted a loan application, do not make any other financial changes! Do not open any other lines of credit. Do not quit your job. Do not fall behind on other loans. Do not buy a new car to celebrate the new home you’re planning to move into. Any big changes like these could disqualify you for a mortgage!
Step 4: Get under Contract to Buy a Property
Now is the time to go out and shop for a home that fits your budget, with a trusted real estate agent if you choose. You may need to make multiple offers to get one accepted, depending on market conditions.
When you’ve made an offer to buy a property and your offer has been accepted, you are then under contract. A typical time frame to close on a purchase is 30-45 days, but that can vary greatly depending on the circumstances and the needs of either the buyer or the seller.
You as the buyer will need some time to complete your due diligence including getting any inspections done on the property that you would like. And the lender will need time to process your loan.
You or your real estate agent will send your lender a copy of the purchase agreement, and the lender will give you a Loan Estimate (LE) that will show what the estimated closing costs will be and approximately what your total monthly payment should be.
Your monthly loan payment will include several items: principal (the actual loan amount you’re paying back), interest on the principal, and usually also a portion to go towards property taxes and your hazard, or homeowner’s, insurance. The taxes and insurance portion of your payment may be collected and then paid directly on your behalf (usually annually) in what is called an escrow account.
If your property has an HOA or homeowner’s association, you’ll also need to count their monthly dues as part of your total monthly cost (and make sure you can afford it). The HOA dues are usually paid by you directly rather than as part of your mortgage payment.
Some of the numbers on the Loan Estimate will likely change, because your lender is using estimates on a variety of factors, including which insurance provider and plan you choose, city and county taxes (which will change if your closing date changes), the appraisal cost, prepaid interest for the first month or so of your loan before your first payment is due, estimated title fees and various other fees.
The Loan Estimate will also help you see how much cash you will need to have at closing for a down payment and closing costs.
Step 5. Your Loan is Submitted and Conditionally Approved
Now that you have a property under contract and you’ve submitted your application, your lender is working on processing your loan. You will probably be asked for additional documents. Don’t be alarmed, that’s a normal part of the process.
Fortunately, technology has helped to make things more convenient. You will be able to digitally upload documents, rather than faxing or hand delivering documents to your lender like they did in the good old days. You’ll also be able to digitally sign documents such as your loan application, Loan Estimate and closing disclosure, which are the finalized terms and costs for your loan issued at least 3 days before your closing. You might use an app like DocuSign, which lets you quickly sign with a few clicks through a link in your email.
As part of processing your loan, your lender will order an appraisal of the property you’re trying to buy, which is an independent opinion of the fair market value of the property. Even if you’re doing a refinance loan on a property you already own, a new loan typically requires an appraisal.
Appraisals are used by lenders to ensure they are not loaning you more than the property is worth. Appraisals are usually paid by you out of pocket before closing, because if you were not approved for the loan or just changed your mind, the bank would be stuck with the cost of the appraisal.
Loan Processing Updates
As your loan is being processed, a good lender will provide you updates. Those updates may include:
- When your application has been submitted to underwriting (this is the deep analysis on your financial situation to determine if you qualify for this loan on this property).
- When your appraisal has been received (and how much the property appraised for).
- When your application has been approved and you’re cleared to close.
- You may receive a conditional approval and need to provide more documents before final approval. Please respond quickly to stay on track.
- Closing Disclosure (CD) you’ll need to review and sign at least 3 days prior to the closing date.
- When and where closing will take place.
Step 6. Closing
Closing, or settlement, is an official meeting with a title company, attorney, or settlement agent that happens when you sign all the legal documents agreeing to repay the loan and your loan officially starts. This is a very exciting meeting, but just know you will be signing A LOT of documents and it may take up to an hour. Be sure to bring your ID!
These signed documents will need to be sent (often through an overnight delivery) to the mortgage company. The money you have borrowed is then transferred to the home seller, along with your down payment, which means the loan has been funded.
The last step before the home is yours is that the deed to your new home must be recorded by the county where the property is located. You might need to wait to get the keys until it happens; it depends on what you have arranged in advance in your purchase agreement.
At last, the home is yours! Congratulations!
Please remember that your lender is working for you. Never be afraid to speak up when you have questions. Again, my team is always happy to explain things to you and help you feel comfortable with the process. We’ll be there every step of the way.