From preapproval to closing, here's a step-by-step guide for successfully navigating the mortgage landscape.
1) Find a Lender
Your home buying quest shouldn't start with looking for a house — it should start with finding a lender. Mortgages are long-term relationships, and you'll want to be confident that your mortgage provider offers a strong combination of quality service and competitive pricing.
2) Get Preapproved
Most real estate agents need you to get preapproved for a mortgage before they'll take you to look at homes. Doing so will help you save time later in the process and, even more importantly, be in a stronger position to make a credible offer to a seller. A preapproval is a preliminary indication of how large a mortgage you qualify for. The lender will do a quick evaluation of your ability to afford a mortgage payment based on your credit score, income and debts. If you are preapproved, you'll get a preapproval letter to help with your home search. The process may also help identify any potential problems with your credit.
3) Make an Offer
Once you've found an affordable property you like, make an offer. Be sure to put the seller's asking price into context by researching the selling prices of comparable homes in the area. Determine how motivated the seller is to part with his home. Has the house been on the market for a long time — say, more than 90 days? Has the seller been coming down in price? An experienced real estate agent can be very helpful in the negotiation process. If the offer is accepted, you'll create something called a purchase contract, which formalizes both parties' intention to go through with the deal. Send a copy to your lender.
4) Finalize the Loan
If the seller accepts your offer, it's time to finalize your mortgage application. The lender will formally evaluate you through a process called underwriting. The goal is to assess your ability to pay back the money that you borrow. Doing so requires a check of your credit score, income, assets, and past and current debts. This process isn't just about whether the lender will give you a mortgage. It also determines how much you can borrow and the interest rate you'll pay. You may need to submit various documents. See our Mortgage Checklist. To keep things moving, be ready to quickly respond to any requests for additional documents or details. The underwriter will generate a list of items you must provide to meet the lender's requirements. These tasks constitute conditions for approval and may include:
- Additional documents that prove your income.
- Proof of property appraisal.
- Sufficient cash reserves to cover your first few monthly mortgage payments.
The lender will also order a professional appraisal of the property to make sure the price you've agreed to is reasonably close to its true value.
5) Close on Your Home
Closing is the last stage in the mortgage process. It's a meeting of the buyer, seller and other professionals involved in the transaction. At closing, you'll sign documents specifically associated with the mortgage.