Applying for a mortgage loan is simple. Whether you are purchasing or refinancing, it is important for you to understand how the process works before contacting a lender or broker. The application process will involve some work on your part. You will be required to provide your loan officer with specific information regarding your finances, fill out an application package and have your credit report examined. Paying attention to the steps below will ensure your application goes as smoothly as possible.
Step 1: Shop for the best home loan package
Lenders and brokers place price tags on their home loans. This is includes interest rate and closing costs. It is crucial to obtain the best deal based on your situation. This is easily accomplished by contacting the lenders and brokers in your area to determine which ones offer the best rates and lowest closing costs.
Note: Do not allow a loan officer to obtain a copy of your credit report until you have decided on a lender. Multiple credit report requests may negatively-affect your credit score.
Step 2: Complete the initial appointment with your loan officer.
After you have decided on a lender and you are satisfied with what the loan will cost you, you may safely proceed. If you are purchasing a home, it is wise to know how much you can safely afford before looking at houses. Your first contact with a lender will likely take place over the phone or online. During this first call, you will be required to provide the following information:
- Your monthly income.
- Your personal debt payments.
- Amount of down payment you wish to contribute, if purchasing.
- Bank account balances.
- Your Social Security Number.
After you provide this information to your loan officer, he or she will examine your credit report, calculate your income and your existing debts and determine whether or not you will qualify for a home loan. If it appears that you will qualify, you will be required to meet face-to-face with your loan officer. During this meeting, you will be required to provide physical documentation of the information you provided over the phone or online.
Step 3: Have your financial information available.
When you meet with your loan officer in person, you will be required to provide evidence that the information you provided during your initial call is accurate. You will need:
- Copies of your last 2 paycheck stubs.
- Copies of your last 2 monthly bank statements. This includes, checking, savings, retirement and stock accounts.
- Bankruptcy discharge paperwork, if applicable.
- Any collection account information.
You may also need to pay an application fee to your lender. This fee is typically used to pay for an appraisal on your home and a copy of your credit report. Application fees are typically non-refundable. Therefore, be sure you are ready to proceed before contacting a lender.
Step 4: Sign your application and disclosure statements.
During your face-to-face interview with your loan officer, you will be required to sign and date an application package. This package may contain 25 to 30 documents and will include a Loan Application, Truth-In-Lending Statement, Good Faith Estimate and state-specific disclosures. You may also have an option to lock in an interest rate.
Note: If you are purchasing and have not settled on a property, it is wise to wait to lock in an interest rate. After you have finished signing the documents in your application package, your loan officer may give you a Pre-qualification Letter. If you are purchasing, this letter may be given to a real estate agent as proof that you are in the process of obtaining financing.
Step 5: Communicate with loan officer until closing.
After you have been prequalified, you will need to be readily available to speak to your loan officer if issues with your loan arise. You will also need to have your home appraised. A copy of the appraisal will be given to your loan officer so he or she may complete the approval process. You will also receive a copy of your home appraisal at closing.
Step 6: Begin looking at houses.
If you are purchasing and have completed the application and pre-qualification process, you may now contact a real estate agent. He or she, based on what you and your loan officer have determined you can afford, will direct you to a house that suits your needs. Once you settle on a home and make an offer, you will sign a purchase agreement. (sales contract) This contract will be given to your lender.
Step 7: Final Tips
Refrain from obtaining new credit accounts such as credit cards or vehicle loans during the loan approval process. New debt payments may negatively-affect your credit rating with your lender, rendering you ineligible for financing.
Be prepared to settle old debts. You may be required to settle old debts and collection accounts before closing.
If you are purchasing you will likely be required to make an earnest money deposit. This is a good-faith payment to your real estate agent. These funds will be held in escrow and be deducted from the sales price of your home at closing. Earnest money is also non-refundable.
Always be honest about your monthly income and negative marks that could show up your credit report. If you provide your lender with false or inflated information during your initial call, you may complicate the process, resulting in a loan denial.