Mortgage Approval Process

Mortgage Approval Process

What to Expect?

Applying for a mortgage can be a lengthy, frustrating and arduous process, for many. But if you know what to expect with the mortgage approval process, it helps make the process easier.

The following are the 7 typical steps to obtain a mortgage loan:

  1. Check your credit
  2. Know what type of loan you want
  3. Shop around and get an informal pre-qualification via mortgage applications
  4. Review loan estimates for the best terms
  5. Choose lender
  6. Assemble necessary documents to obtain more formal pre-approval
  7. Shop for your dream home with pre-approval in hand

Credit Check

The first thing all applicants should check prior to applying is their credit score. Most lenders require a 620 or above to get approved. Some will allow a lower score. Keep in mind, the higher your credit score, and the higher the down payment, the better your rates you will be.

There are websites that allow you to check for free: https://www.freecreditreport.com

Types of Mortgages

Know the types of mortgages, what you need to know about them and the type of borrower each loan is best suited. This list isn’t all-inclusive.

Your chosen lender can provide more information and details.

Loan Types

Check the following link for more details and the available interest rates.

https://www.lendingtree.com/home/mortgage/rates/

Some additional terms to be aware of as you shop around.

Conventional mortgages: loans that aren’t backed by the government.

Conforming mortgages: meets local loan limits, as set by the government.

Government-backed mortgages: Loans guaranteed by the Department of Veterans Affairs (VA loans), FHA-insured loans and loans backed or issued by the Agriculture Department (USDA loans).

Reverse mortgages: A way to obtain equity in a home as a lump sum or stream of income, for homeowners over 62.

Pre-Qualification Process

This part is so important, as it advises what you can afford. And helps you narrow down your search for your next home. I never advise my clients to stretch their budget, in order to buy a home. The rule of thirds is a good guideline. Essentially, up to a third of your monthly income may be budgeted to buy a home.

Most lenders and brokers will have an initial application for you to apply to get pre-qualified online. This may be completed via an online portal or in person, if needed. This is an informal process based upon what you have provided in their application. No hard documents are required, yet. This is considered your pre-qualification. Please don’t confuse with a formal pre-approval. A pre-approval requires your personal documentation to support it.

Shop Around and Apply With Multiple Lenders/Brokers

Under TRID, Consumer Financial Protection Bureau’s TRID (TILA-RESPA Integrated Disclosure) rule, since most mortgages are subject to TRID. Borrowers are allowed to apply for a mortgage from multiple lenders and receive a Loan Estimate from each showing all fees, so they can do a side by side comparison.

The buyer can then choose a lender by giving them “Intent to Proceed.” Your credit score won’t suffer from submitting multiple applications. If a lender tries to scare you into thinking your credit will be affected, don’t use them. Just make sure you submit them all within a 45-day window. You should always submit multiple applications, so you can compare offers later.

Buyer should compare critical items on the Loan Estimate, including:

  1. Loan terms, purpose, produce and loan type.
  2. Is the rate locked? Did they want it to be?
  3. Is the loan amount what they are expecting?
  4. Is the rate fixed or adjustable? What were they expecting?
  5. Does the loan have a prepayment penalty?
  6. Is the Estimated Total Monthly Payment acceptable?
  7. Compare Origination Charges to Loan Estimates from other lenders
  8. Is the homeowner’s insurance premium accurate?
  9. Are the property taxes accurate?
  10. Is the Estimated Cash to Close as expected, and do they have enough funds to pay as required?

Formal Pre-Approval

After a lender is chosen, this is when you move to the pre-approval stage and the verification process starts. Pre-approval is more formal, as actual documents are required to back up your initial pre-qualification application.

After completing the initial mortgage application process, the lender will likely make several requests for additional documentation and information. A prompt response from the applicant keeps the process moving along. Sometimes they will ask over and over for the same documents.

Know what documents lenders in your area typically request, so they can begin compiling the information, in order to prepare for a mortgage application.

Lender requirements differ, but most require:

  1. Social security numbers and birth dates.
  2. Photo identification.
  3. Paycheck stubs showing year-to-date earnings.
  4. W-2 or 1099 tax forms for the past two years.
  5. Employer’s name, address, and telephone number (current and for the last 2 years).
  6. Account statements for checking, savings and other accounts.
  7. Statement of current assets (IRA accounts, investment accounts, employee retirement accounts, brokerage accounts).
  8. Outstanding loan balances and monthly payments along with lender information, such as auto loans, student loans, and credit cards.
  9. Current and previous addresses over the last two years.
  10. Current mortgage balance and payments or the name and address of the landlord and monthly rent payment.
  11. Copy of the purchase contract.

It could take 30-45 days to complete this process, so it is always good to start, before you start shopping around for homes.

In Summary, remember the key steps to start your mortgage approval process:

  1. Check your credit
  2. Know what type of loan you want
  3. Shop around and get an informal pre-qualification via mortgage applications
  4. Review loan estimates for the best terms
  5. Choose lender
  6. Assemble necessary documents to obtain more formal pre-approval
  7. Shop for your dream home with pre-approval in hand

One of the best ways to make sure you don’t get frustrated, is to be informed. Hopefully, this article provided a bit of insight, as to the what the mortgage approval process entails and why it takes so long.

If you need any help or require assistance, please reach out. I am happy to help!

https://hphomesgroup.com/contact/

Best,

Lisa

 

 

 

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