What to Expect When Applying for a Mortgage

Buying a home is a big decision, and one of the most important steps is getting a mortgage. The mortgage application process can be daunting, but it doesn’t have to be. Whether you are a first time or seasoned home buyer, you can make the process go more smoothly and reduce stress by understanding what to expect.

• Financial Preparation. Before diving into the mortgage application process, it’s crucial to evaluate your financial situation and make necessary preparations. This includes reviewing and improving your credit score, gathering financial documents such as bank statements, tax returns, and pay stubs, and saving up for a down payment. Lenders will assess your financial stability and ability to repay the loan, so being prepared in advance will expedite the process.

• Pre-qualification. Pre-qualification is a quick and informal process that gives you an idea of how much you can borrow. To get pre-qualified, you will need to provide the lender with some basic information about your income, assets, debts, and credit score. You will also need to provide the purchase price, down payment, type of home, and location.

• Pre-approval. Pre-approval is a more formal process that includes obtaining your credit history through a hard pull of your credit report. It is wise to get pre-approved for a mortgage before you start shopping for a home so you can save time focusing on homes that are within your purchasing power. If you find a home that you want to make an offer on, you will often need to submit it before the seller’s deadline. You will save time and stress by having a pre-approval ahead of time. You will need to submit a completed mortgage application and provide documentation to support your income, assets, and liabilities. After reviewing your application and documentation, the lender will be able to provide you a pre-approval letter.

• Underwriting. After you receive a pre-approval, the next step is for the underwriter to review your application and make an underwriting decision on whether to approve your loan. If your loan is approved by the underwriter, you will receive a credit approval letter. You can use this instead of the pre-approval letter to show the seller that you are in a stronger and more confident position to close escrow faster.

• Appraisal. The lender will order an appraisal of the property you want to buy ensure that the property is valued at your purchase price, at the minimum. The appraiser will take measurements, take photos and compare other similar properties that have recently sold. The appraiser will then write up a report that includes justification for the valuation.

• Closing. Once your loan is approved and the appraisal is complete, you’ll need to close on your mortgage. This is the final step in the process, and it is when you will pay for the remaining down payment, closing costs, and sign all of the closing paperwork.

Here are some additional expectations when you apply for a mortgage:

• If you are applying to different lenders and want to compare for the “best deal”, make sure to compare beyond just the rate and APR. Look at the points (if any), fees charged by the lender and third parties, and the pre-paid items.
• A quoted interest rate is usually tied to an “excellent” credit score. Ask the lender what is the assumed credit score for the quote that is quoted.
• If you are applying for a “jumbo” loan, you will likely need 6 months or more of PITI reserves. This tells the lender that you can pay for your mortgage, insurance and taxes in case you need time to look for a new job.
• If you submit an application with inaccurate fields and missing documentation, it will delay your pre-approval. You should ask the lender for help if unsure about what to provide.
• Be patient during underwriting. Once your loan is submitted to underwriting, it goes into the underwriting queue with other loans. It can take several days for your loan to be next in line for review by the underwriter.