Applying for a home loan is one of the first hurdles that comes to mind when buying a new home. The process can seem daunting at first; especially you’re a first time home buyer.
Thankfully, the nationwide mortgage approval rate sits around 88.2%, so chances are you’ll be approved.
Still, you’ll need to know a few steps so you can hit the ground running with your application process, starting with determining your price range and mortgage prequalification.
Step 1: Determine Your Price Range
Before you get started with your loan application, get an idea of how much you can afford to spend.
Everyone’s financial situation is different, with different levels of other debt for which to account. Lenders recommend buyers spend about three to four times their annual salary on a home.
Step 2: Mortgage Prequalification
The first official step in applying for a home loan is mortgage prequalification. Many people get prequalification confused with pre-approval. These terms do not mean the same thing.
Mortgage prequalification is significantly less official than pre-approval. A loan officer asks a few questions about your income and your credit, but won’t do any digging.
Step 3: Mortgage Preapproval
Mortgage prequalification won’t mean as much to real estate agents as preapproval will. Once you have preapproval in hand, agents know you’re ready and able to pull the trigger on the house.
In the preapproval process, the lender will take a more in-depth look at your credit history and determine what loan and interest rate you’ll be eligible for. For more information on interest rates, click here!
A preapproval letter will give you a better idea of what homes you can afford, as well as provide you with more leverage from which to negotiate. The following are some of the documents you’ll need to get pre-approval on a loan:
- Tax returns
- Borrower ID
- Pay Stubs
- Bank Statements
Step 4: Loan Estimate
A maximum of three days (required by law) after you finish your application for a loan, you’ll receive a loan estimate from your lender.
The estimate will include monthly payments, closing costs, and interest rates. It’s important to remember, though, that these numbers aren’t set in stone. You may see some changes when your loan is officially approved.
Step 5: Processing and Underwriting
After you’ve completed your application and reviewed your estimate, most of the additional work is in the hands of the lender. They’ll process your loan and begin verifying all of the information you gave is correct.
They’ll also take a look at the house your buying, and make sure everything is in order.
Finally, the lender will either approve or deny your loan. The interest rate will become locked and you’ll be ready to start the closing process on your new home.
Mistakes To Avoid
When you’re applying for a home loan, there are several mistakes you should avoid at all costs:
- Changing jobs during the application process
- Not checking your credit before you apply
- Making a major purchase before closing
- Closing credit accounts during the loan process.
If you follow the above steps and avoid these mistakes, you should be right on your way to getting a home loan. Take a look at our blog for more helpful tips on making your new house a home.