The home loan process can seem intimidating, especially for a first-time homebuyer. It is not a simple process, but it doesn’t have to be too complicated. There are many resources available to help you prepare for your home buying journey, and your mortgage lender can answer the questions you have throughout the process.
“We’re finding that many of our customers come into the home loan process with limited knowledge of how the home loan process works,” says Eric Hamilton, President of Vanderbilt Mortgage and Finance. “It’s important to take the time to familiarize yourself with the process so you know what to expect.”
Here are some of the key steps to the home loan process, as well as some tips to help you understand what you can expect:
1. Preparation and self-assessment
Before you dive head-first into buying a home, make sure that you know how much you can afford. The first step is to calculate your “debt-to-income ratio.” You can do this by adding up your current monthly bills then subtracting your total current income. This will help you determine whether you can afford a mortgage payment, and if so, what amount might fit into your budget. Using an online mortgage calculator is a good way to help you determine what the estimated cost of your monthly mortgage payment will be. Doing these calculations first will help you assess your resources and determine your budget to purchase a home.
2. The loan application
Download a blank loan application ahead of time so you can look it over and familiarize yourself with it. This will give you an idea of the information you need when completing and submitting the application. The necessary documents may include: proof of income, proof of employment for the past two years, proof of identity, proof of residency and your social security card.
3. Origination and Underwriting
Origination – The loan officer will review your financing options, work with you to complete the credit application and create the loan account.
Underwriting – An underwriter will review the application and determine the level of credit risk you represent based on your credit score, income, existing debt and down payment. You may be asked to provide additional information about your finances during this step.
4. Satisfying loan conditions and full loan approval
In this step, you will receive a “conditions to approval” list from your lender, which outlines the tasks you must complete before the loan can be closed. For example, the lender may ask for additional documentation to verify income, savings or emergency funds or other proof that you can afford to repay the loan. At this point in the process the lender may offer a conditional loan approval and start the document verification process. If you accept the conditional loan approval offer, once all conditions have been met, the lender will issue a full loan approval.
Once you’ve selected your dream home, you’ll sign a purchase agreement with the seller. The purchase agreement tells the lender how much you have agreed to pay to purchase the home. The lender may then have the home appraised and will provide you with a copy of the appraisal.
In the final step of the process, the lender works with a title company to obtain and review a title report and then finalize your title on the home. The titling company receives a closing package, which contains the documents that need to be signed, recorded and become part of your mortgage loan file. At the closing, you will sign all closing documents and pay any closing costs. The lender then receives all of this signed paperwork to complete the process.
Once this process is complete, you’re ready to move into your dream home. The home loan process may take some time, but these steps are well worth the wait.