Purchasing a home can be an exciting milestone, but it’s not necessarily an easy one to achieve. There are several important steps to take when getting a mortgage loan to ensure it goes as smooth as possible.
Whether it’s your first home purchase or you just need a refresher, it can seem daunting. Here’s a step-by-step guide to help you through the mortgage process.
Do Your Research
It’s always best when making a large purchase to see what your household can realistically afford. Making a list of all your current debits - such as bills or loan payments - and credits - such as paychecks or disability payments - is an effective way to see what type of mortgage payment you can afford while still saving for emergencies and other life needs.
It’s also wise to research the different types of mortgage loans available and decide which seems right for you. There are various programs to assist you depending on your circumstances, including first-time homebuyer loans and conventional fixed-rate loans or government-backed loans, such as FHA, VA and USDA. A reputable mortgage lending officer can also help you understand the benefits of each.
On our OMB Money & More Blog, we have an entire section of articles dedicated to home buying and home ownership that can help you with many of the questions you may have along the way!
Get Pre-Qualified
This is an essential step and consists of filling out a short application at the financial institution you intend to get your mortgage loan through. At this step, you get a soft credit inquiry, which is part of the process your lender will use to estimate how much money you’ll be able to borrow. With a soft inquiry on your credit, you don’t have to worry about your score being negatively impacted at this step.
This saves you significant time and potential heartache since it gives you an idea of what houses to shop for and what’s in your price range. By limiting your search to what’s actually within your means, you can also lessen any feelings of becoming overwhelmed that can occur when you have the entire housing market at your fingertips. While some banks have a fee for pre-qualification, it’s free at OMB (with no obligation)!
Remember to factor in all costs that may come along, such as a down payment. In some cases, and depending on your mortgage program type, if you aren’t able to make a 20% down payment on the property, you’ll also need to pay for private mortgage insurance, or PMI.
Utilize one of our mortgage calculators to help you with various calculations including a payment calculator, debt-to-income ratio, home closing costs and many more!
Go House Shopping
Now you’re ready to start house hunting! You can check online real estate portals like Zillow or Realtor.com, visit properties in-person with your real estate agent, or both. Once you find “the one” and you feel ready to buy, you want to put an offer in on the house. You’ll do this through your realtor, who can help fill out the necessary forms and consider any contingencies to help protect you as the buyer.
Contingencies are clauses in a contract that define conditions that must be met or an action that must be taken before a sales agreement becomes binding. Also, if you're a first-time homebuyer be sure you avoid these 5 costly mistakes.
Apply for a Home Loan
Much of the hard work is done, but there is still a little work to go! You will now want to choose a mortgage lender, typically at the institution where you did your loan pre-qualification, and fill out a mortgage loan application in its entirety. This application is longer and will involve a hard credit pull and updated financial information, and will be based on factors like the home’s address, sales price, loan amount and specific loan program.
Your lender will tell you all the information you’ll need to provide, along with any required documentation. You may also want to order an inspection of the property before fully committing to the purchase and typically the property will be appraised.
Processing & Underwriting
Much of this step occurs behind-the-scenes, but after your application has been finalized, a mortgage loan processor will assemble all the information you provided into a loan estimate packet and provide you early disclosures. This allows you to easily digest all the information in front of you and make an informed decision regarding whether to proceed with that particular loan and lender. If you accept the estimate, all the information is then sent on to an underwriter who reviews the information and makes a final determination on the terms of the loan you’ve requested.
Closing Time!
You’ve made it to the light at the end of the tunnel! For closing, which is the final signing of all the paperwork for the property transaction, your documents are sent over to a title company or attorney.
You then have a period where you can review everything one last time. It’s important you ask any questions you have about the paperwork and never sign something you don’t understand. You may also want to do a final walk-through of the property beforehand and then sign everything to make it official.
Now that you’ve made it all the way through, congratulations are in order – welcome to the home ownership club!
OMB and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decision.
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