So you've finally decided to make the big leap and buy a house. Perhaps there is already one you have your eye on. Being that the current real estate is favorable to buyers, you probably have plenty of time to apply for a mortgage loan. But why wait? Most real estate agents won't even talk to you unless you've been pre-qualified or pre-approved by a lender. So why risk losing that special house you've had your eye on to another, better prepared buyer?
Before you can even start shopping for a mortgage loan, or filling out an application for one, you need to know what your credit looks like. You can request all of your credit reports and scores from this page. The best mortgage loan rates go to those borrowers with the best credit and highest scores, so it's a good idea to know what you have to deal with. It will also help you find a good lender with a rate that you actually qualify for.
Application Essentials
Now that you've decided on a lender, they will help you choose the loan program that will best suit your budget (i.e., 30-year fixed, 7/1 ARM, etc.), but they are going to need additional information from you. So when you apply for a mortgage loan, it's always best to come to that first appointment armed with the following:
- Paystubs -- 2 most recent for all borrowers
- Tax returns -- past two years
- Bank statements -- most recent
- Statements for retirement accounts, stocks, bonds, investments -- most recent
At this point in the application process, many mortgage loan officers will make a preliminary judgment as to whether or not you will qualify for a loan and be able to afford the payments. They will come up with a set amount they think you will be approved for. This is commonly referred to as "Pre-qualification". Your lender should be able to provide you with this information in the form of a pre-qualification letter.
But we are not done yet. When you apply for a mortgage loan, you will go through a series of evaluation stages, with plenty of paperwork along the way. So let's talk about what happens next.
The next step will be one of two options:
- You can request your lender to "Pre-approve" you for a set amount, which means your application and financial documents will be submitted for underwriting and approval, and you will be provided with a pre-approval letter.
- Or, you can wait to officially submit your mortgage application when you know how much you need to borrow -- i.e., until you find a home you'd like to buy and your offer is accepted by the seller. You may find the pre-approval letter has a little more weight when dealing with sellers and their agents, so if you are certain you'll be purchasing a home in the near future, and you can stick to your budget, you may want to choose this option.
During this time, you must be diligent to make sure your credit remains good, mainly by paying all of your bills on time. You also want to refrain from making any big credit purchases and opening any new credit accounts. This will lower your debt-to-income ratio and affect your credit score, which could raise some red flags since your lender will pull your credit reports again before closing.
It's also a good time to spend as little money as possible to make sure your bank account balances don't fluctuate too much. You will need to submit another set of pay stubs and statements for all of your accounts before closing on the house.
If all goes well with the above, you should be ready to close on your new home within the time stated in your offer contract to the seller. The lender and title company will schedule the closing so all you'll need to do is show up with a cashiers check for your down payment and closing costs.
You will receive a statement (HUD-1) of all the fees and amounts you will be required to pay at closing at least 24 hours prior. It is important to review this statement for accuracy so there is time to make any necessary changes before the scheduled closing. The final piece of the mortgage process puzzle is the most exciting -- when you are handed the keys to your new home!
Remember that when you apply for a mortgage loan, you are taking the first of many steps in the path to qualification and approval. You need to understand how the process works before you even submit your mortgage application to a lender. By understanding the process, you can better prepare for it. This will make it easier to apply for the loan to begin with, and will also expedite the process.
