How to Start the Mortgage Process
Congratulations! If you are reading this, it means you are serious about taking the next steps in the home buying process, which is a major milestone for anyone to reach. At this point, many borrowers find themselves asking many similar questions: “How do I start the mortgage process? Do I have to have pre-approval? Is there a specific down payment I need to have?”
Not to worry. While many of these questions may sound complicated, our team at Delmar Mortgage is committed to providing all of our borrowers with the information they need to succeed. In this article we will break down the answers to many of these questions and more to give you a better idea of what the mortgage process looks like from start to finish (or pre-approval to close). This information will be helpful for everyone from a first-time homebuyer to someone with years or decades of homeownership experience.
What are the mortgage
For a first-time homebuyer, securing a mortgage is broken down into a few basic steps, those being:
- Pre-approval – an important document that shows the maximum amount a mortgage lender is prepared to provide for a mortgage loan.
- Selecting or identifying your new home – this is where you can shop around for your new home.
- Mortgage application – this is the mortgage process where you work with a mortgage lender to secure the home loan you will need to finance your new home.
- Mortgage loan processing – at this point you work with a loan officer to compile all of the financial information into an easy-to-read document that details the terms of the mortgage loan or mortgage payment.
- Underwriting – during the underwriting process a lender will work with underwriters who will review all of the information in the mortgage application and will give either final approval on the loan, rejection, or approval with conditions.
- Closing: This is one of the last steps where you establish the closing costs, closing documents, closing date, and more.
Starting to feel overwhelmed? Not to worry. We will break down each of these steps in a little more detail. While the mortgage loan process can be intimidating at first, always remember the prize of a new home will make this step-by-step guide well-worth the journey.
Getting mortgage pre-approval is an important first step towards homeownership before you start your loan application. This pre-qualification gives you an idea of how much you can afford to pay, what type of mortgage or type of loan is most appropriate for your financial situation. Being prequalified also gives you the final pre-approval letter, which can improve your odds of successfully getting loan approval for your new home.
The first step is to get an idea of your monthly costs or monthly payments. Remember that your monthly payment is a combination of paying on both the principal loan and the interest payment. As a rule of thumb, it is recommended to make a 20% downpayment on a property, but if you cannot make that initial down payment, you will need to pay for private mortgage insurance (PMI) for a time until you build that equity into your new home.
We recommend using a mortgage calculator to get an idea of the home price range, your down payment, loan term, APR or interest rate, and your credit score to give you a rough idea of what your monthly payment and loan estimate will look like (before the cost of homeowners insurance). You will also want to look into the different types of mortgage, and which would be best for you and your family. This is something one of our loan officers would be happy to discuss with you in more detail.
At this point, you are ready to approach a mortgage lender (like Delmar Mortgage) for pre-approval. The pre-approval letter indicates to others that you are a legitimate buyer with high intent on purchasing a home, and that you are prepared to take action once you identify the right home for you and your family.
Finding Your New Home
This is the fun part, where you get to shop around and envision what your new life will look like. Many will want to enlist the help of a real estate agent at this point, who can provide a wealth of knowledge into the area, details of the house, and more. There are also plenty of websites available to give you an idea of what homes are for sale or available in your areas. Remember, a critical part of finding your new home is making sure that it is the right home for you at the current point in your life.
If you are a young couple preparing to start a family as first-time homebuyers, you’ll want a home with plenty of space for any little ones you bring into the world. If you’re a family with multiple older children, you may want to consider proximity of your home to a school and recreational activities. If you happen to be more advanced in life, you may not need a home with as much space.
Really try to visualize yourself in this new space. You’ll be spending a lot of time in this new house, and it’s important that the space feels like home. We want you to feel comfortable and safe (and excited) for this next chapter in life.
These are all important conversations to have with your family and yourself, to truly evaluate your situational needs before you start the application process. Once you’ve identified your new home, you can work with your real estate agent to put in an initial offer (factoring in the loan amount that you are prequalified for).
Once you have placed your offer, you are ready to begin the mortgage application process. As a lender, we can work with you to compile all the information necessary for your application. Some of the information we will need includes:
- Employment history, including your current employer, salary, and an idea of how long you have been with your current employer.
- Total income, which includes two years of W-2s. If you are self-employed, we will need a statement indicating your profits and losses. We will also need an idea of any pensions or social security benefits you may be entitled to. We may request things like pay stubs or tax returns to get a better understanding of the full picture.
- Your assets, which include things like the number of bank accounts you have open, investments you might have made, and any gifted funds. Sometimes family members will gift money for a Federal Housing Administration (FHA) loan.
- Your debts, which include things like your current mortgage if you have one, any liens, credit card debt, car loans, etc. This will be measured against your income to provide a debt-to-income ratio, which will be important throughout the application process.
- We will need some information about the property. This includes things like the street address, the anticipated purchase price, the size of the property, what property taxes might look like, and more.
- Lastly, we will need your credit history. Your credit history will include any bankruptcies, foreclosures, delinquencies, or collections you may have experienced.
Of all of this information, your credit history is the piece of the equation most critical to getting approval for your mortgage. We recommend getting a credit report before starting the mortgage application process to give you an idea of what your credit score looks like.
Starting to feel overwhelmed? We get it. Try to relax; millions of first-time homebuyers go through this exact process every year. With a good lender team like the one at Delmar Mortgage supporting you, you can work through all of these steps to finance your new home.
We recommend keeping all of this information and paperwork in a safe, secure location. This information will be necessary in the future if you ever decide to refinance your home, or possibly decide to buy a new home. Taking steps to keep this information together now will save you time and headache down the road.
Mortgage Loan Processing
At this point, as a lender we will compile all of this information into a loan estimate, upon receipt of an origination fee. This document gives you home loan and mortgage rate details, with explanations and reasoning to ensure you are getting the best possible deal for yourself and your family.
Assuming your application is approved, we will provide the loan estimate document in just a few business days, and it is valid for 10 business days upon receipt. If you choose to accept a loan offer, we recommend doing so as quickly as possible. This helps ensure all parties are satisfied and that the process moves along in a timely manner.
Should you choose to accept our loan estimate, we will begin processing your loan. A few things happen at this point which include: requesting a credit report (if you haven’t already done so), confirming your employment and bank deposits, requesting a home inspection and appraisal (with corresponding appraisal fees), and requesting a title search.
After completing the mortgage loan processing, your application will be reviewed by underwriters. The underwriters are the ones who give final approval, rejection, or approval with conditions to your mortgage.
Throughout this step, underwriters will review the application, information you have provided, review the property appraisal, and more. This is important, as underwriters need to be sure that the money from the sale of the house or property is sufficient to provide the funds you will be lent for your mortgage.
After reviewing your application, the underwriters will provide their approval, rejection, or approval with conditions. If your application is approved, we will confirm your interest rate (this is typically a fixed rate of interest that you will pay throughout the term of your mortgage).
Get excited. This is the last step in your mortgage application process, and you’re near the finish line! If we approve your application, we will invite you to a meeting with the title company for one last closing meeting, where you will sign a variety of documents detailing the terms of your mortgage.
Among these documents is the closing disclosure form, which is one of the most important pieces of paper. This will indicate some of the original estimated costs in addition to some of the costs for the final close. For your information, closing costs may amount to 5% or less of the purchase price of the home, which is due at the time of the close. This amount is subject to change and may vary depending on your situation, but we’ll work through these details with you throughout the process.
Once everything is in order, you’ll sign the mortgage and walk out of the office with keys in-hand to your new home.
Don’t take that deep breath just yet. After all of this work, there is a three-day review period, which includes a final walk-through of the house. As the buyer, you are entitled to spend the next three days double checking the paperwork. We recommend you use this time to review and ensure you understand everything that was signed, make sure the previous homeowner has vacated the premises, and completed any repairs or agreed-upon maintenance.
After this three-day period, your mortgage will automatically take place. Assuming no further actions are taken, we will establish an escrow account with a portion of the monthly payment until tax and insurance payments are due.
Congratulations! You have the keys to your new home and everything’s been sorted. Everything’s all done, right? Well, almost. There is one last step we forgot to mention…
Put the champagne on ice, think about how to turn this house into your dream home, and start planning your housewarming party with family and friends! You just bought a house!
Though this process can be challenging, the end result is extremely rewarding. We at Delmar Mortgage like to view ourselves as a catalyst that can help turn your dream into reality. Our team of experts will work with you step by step so that you won’t walk alone through the complications of the home buying process.