A Step-by-Step Guide to Applying for a Mortgage
For first time home buyers or experienced homeowners alike, the mortgage application process can seem intimidating. But being prepared and knowing what to expect are essential steps in getting the best possible deal. So be informed and prepared!
First and foremost, select a lender and research their credit, income and debt-to-income ratio requirements. Big banks, local banks and national mortgage companies all have different standards so it’s essential to shop around for the best one that fits your individual situation.
Next, collect all of your tax returns, W2s and pay stubs from the past two years as well as any other documentation that might be helpful to the lender. If you receive income through alimony or child support payments, it is wise to provide court orders and bank statements confirming that these funds will continue flowing to you.
Once all your paperwork is in order, it’s time to begin the application process with your chosen lender. This involves filling out the Uniform Residential Loan Application (Form 1003), a five-page form which requests specific details about finances, employment status, assets and debts.
Once you submit your application, the lender will conduct an extensive underwriting review to determine if you meet the criteria for receiving a loan and if the property you want to buy is worth the money borrowed. This ensures that no unnecessary funds are taken out from you during this process.
Underwriting evaluates all aspects of your application based on what’s known as the three C’s of underwriting — capacity, collateral and credit reputation. They will examine your credit score, debt-to-income ratio, job history and assets.
As a first-time homeowner, this can be an especially stressful and confusing step in the process. Fortunately, most lenders are willing to guide you through this step and assist in prepping you for it.
If you’re ready to purchase a home but lack the funds for a down payment, many lenders will still consider your application if you can demonstrate that you can make payments on time and fully. Doing this can save you a lot of hassle in the long run and guarantee that you can afford your new residence when it’s time for moving in.
Once approved, submit a copy of the purchase agreement for appraisal and await your loan approval. Upon receiving approval, sign all final documents to become officially a homeowner!
It is wise to apply for your mortgage as early in the home buying process as possible. Doing so can give you an edge over competitors and may even allow you to negotiate a better price once you find the ideal house.
Once approved, you can begin taking steps to improve your credit and pay off debts. Doing so could result in a significantly reduced interest rate and monthly payments. Furthermore, having good credit helps you qualify for the most advantageous loan terms.