The home-buying process can be confusing, especially for first-time buyers. But it’s important to understand the ins and outs of the process so you can be confident you’re receiving the best possible deal while still ending up with your dream home. It often helps when the approval process is broken up into steps, that way even first-time buyers can have a better idea of what to expect and gain a sense of what the process looks like.
The first thing any potential home buyer needs to do is get pre-approved for a home loan. Essentially, this involves your lender letting you know how much money they would potentially offer you ahead of time. Your lender will closely examine your financial past, such as your income, assets and credit history, to determine how much money you could be approved for.
Getting pre-approval helps for two reasons: First, it helps narrow your home search. If you know how much you can spend, you won’t waste time looking at houses out of your price range. Second, realtors will be more willing to work with you when you have your pre-approval letter in hand. Before the housing crisis, it was common for loans to be hastily handed out, and realtors worked with buyers before they were pre-approved. These days, all parties are more cautious, which makes getting pre-approved a necessary step.
House Shopping and Making an Offer
After you’re pre-approved, you can begin house shopping. You won’t be working with a lender at this juncture. You will primarily be working with a real estate agent to find a home that fits your needs and is in your price range.
Once you find your dream home, your next step would be to make an offer. Making an official home offer often includes structuring your offer with some contingencies, such as having an appraisal performed, a home inspection conducted and of course being approved for the loan. Having contingencies in place helps protect your “earnest money.” Earnest money is a deposit the buyer puts down that shows commitment to buying the property. After closing the earnest money is counted toward a down payment. After the offer is accepted, both parties sign a purchase agreement.
Mortgage Loan Application
Your next step is applying for a mortgage. You’ll need to gather documents and information to fill out your mortgage application, such as two years of W2s, employment information, a list of assets, property information and much more. It’s common for lenders to use a Uniform Residential Loan Application, sometimes referred to as a Fannie Mae form 1003.
Your application determines your loan estimate, which lays out the total costs you will pay with your loan. You will receive your loan estimate within three days of filing your application. In addition to closing costs, monthly payments, interest rates and taxes, a loan estimate also includes information about changing interest rates in the case of having an adjustable rate loan.
Although you’ve already been pre-approved, you’ve applied for the mortgage and received your loan estimate, you’re still not 100 percent approved for the loan. But the finish line is in sight!
The mortgage processing step primarily involves a loan processor gathering necessary documents and information together, such as the purchase agreement, bank statements, employment letters, tax records and loan application, for review and to eventually hand off to the underwriter. Other aspects of the processing stage include verifying employment and income, ordering credit reports, a home appraisal and title search.
The underwriting process is all about cross checking everything in your mortgage application package. The underwriter reviews your credit history, analyzes your ability to repay the loan, double checks for accuracy and looks for any warning signs the lender should be concerned about in the loan application package. This part of the underwriting process is referred to as the underwriting decision. This is when loan approval or denial occurs. Sometimes the underwriter will request additional information or clarification before deciding, often known as a conditional approval.
Mortgage Loan Approval and Closing
When the underwriter declares the loan application package clear to close, that means you’ve been approved. Now it’s time to close, which will involve drawing loan documents and sending them to the title company for the closing meeting. Depending on where you live, you and the seller may not have to meet with the escrow or title company to sign all the documents. All your most pertinent information will be available to you in your closing disclosure, which is provided during closing. It’s a standardized, five-page document that will include your loan terms, monthly payments, fees and other closing costs.
Get Your Home-Buying Process Started Today!
It’s a good idea to have a general understanding of the home buying process before you begin, but it’s also critical to remember the process is different for everyone and will likely be much more time intensive than this simplified summary may lead you to believe. Working with an experienced lender who will have your best interests in mind throughout the process is one of the best ways to ensure the process is as easy and smooth as possible. Expert home lenders, such as Pinnacle Capital Mortgage, can help you find your dream home for the best possible rate. If you’re ready to begin your home-buying process, contact PCM online today – PCM has multiple locations across the Southwest!