Steps in the Home Loan Process
Applying for a home loan can be an intimidating process. In reality, you can put aside your fears and let your real estate agent and your Citywide loan officer guide you through every step. However, the more you know and the more prepared you are going into it, the easier it will seem and the faster you will be able to achieve The American Dream—Homeownership.
Smooth sailing on the home buying journey doesn’t happen by accident. When you’re ready to buy a home, you’ll want to be pre-approved for a home loan. Consider these steps to staying on course:
Take a close look at your finances. Determine the loan payment you can afford each month on top of your other bills. To maintain your current standard of living, your mortgage payment shouldn’t exceed 43% of your monthly income. Some might recommend an even lower percentage.
Knowing how much you can spend per month makes it easier for your real estate agent and loan officer to guide you toward a home and a mortgage you can afford. Create a budget and share the results. Take these steps:
- Determine all sources of monthly Income
- Add up your fixed monthly debts
- Estimate your monthly cost-of-living expenses
- Disclose the amount you have saved for a down payment
Check your credit. By law, you can obtain one free credit report from each credit report company—TransUnion, Equifax and Experian—per year. You can request yours here: annualcreditreport.com. If you see something that doesn’t look right, ask to have it removed.
Learn about mortgage types. Your Citywide loan officer will consider the type of home you want and the assistance you need and tell you the types of loans you might be eligible for. For example, do you meet any of the following qualifications?
- A military veteran? Consider a Department of Veterans Affairs (VA) loan.
- A first time homebuyer with good credit? Consider a first-time homebuyer loan via the Federal Housing Authority (FHA). FHA loans require only a 3.5% down payment and typically come with good interest rates.
- You can pay the full down payment, normally 20 percent of the purchase price. A conventional loan can be negotiated without private mortgage insurance.
Get your paperwork together. Certain financial documents will be necessary for your mortgage application. Your loan officer can tell you exactly what you need, but the list will certainly include:
- Two forms of government identification
- Two years of tax returns
- Two years of income statements
- Proof of all assets
Fill out the mortgage application. The application will contain questions about certain aspects of your finances, such as your length of current employment and current assets. It will be reviewed and the information verified for accuracy. You may be asked for additional documentation as part of the approval process.
Get pre-approved. Mortgage pre-approval is a commitment from a lender to provide you with home financing up to a certain loan amount. You will have a letter stating that you have the money, credit history, and other credentials to buy a home up to that price.
A full review of income, assets, and credit will take place before a pre-approval is issued.
While it may seem like a painful process, you will have to do all the paperwork sooner or later anyway. Getting pre-approved for a mortgage before you make an offer on a house will help you stand out from the sea of other home buyers in a competitive housing market. You’ll have a head start on the competition and be able to shop for your dream home with confidence.