Applying for a mortgage is necessary for almost anyone who wants to become a homeowner. Depending on the state of the market, your current financial situation, and other important details, the entire application and closing process can be completed in less than a week. Still, in most cases, this process will take a little bit longer, with the average amount of time it takes to close on a house typically being 30 to 45 days.
The process can sometimes be a little complicated and, with so much at stake, it's easy to become a little stressed out. However, by breaking down each step in the process into multiple different milestones, managing can become a little bit easier.
Are you currently thinking about applying for a mortgage? While the process will be a little bit different for everyone, there are still a few basic milestones you can expect to have to complete. So before you formally begin the loan application process be sure to hit these six key milestones:
1. Planning for
Becoming a homeowner is a big commitment that, naturally, will require you to do quite a bit of planning. Start by thinking about what your general goals as a homeowner are—how long do you plan to live there? How many people will be living in your home? Is there a specific location you want to live in? What about other details, like school districts, special features, and expected ROI?
You won’t always be able to answer all of these questions right off the bat but it will still be very helpful to think about them. You should also plan the various details of your budget, including the amount of money you’ll be able to bring to the closing table and the amount you’ll be willing (or able) to spend per month.
2. Pre-Qualification and
Both pre-qualification and pre-approval can help you move closer to actually applying for the home. Pre-qualification is a general estimate of how much you will be able to borrow—lenders will briefly ask you about your income, debt, and other details, but they won’t do a “deep dive” into your finances until later.
Pre-approval is more significant than pre-qualification. When you are pre-approved for a loan, that means an underwriter has taken a close look at your finances and you will likely be able to close on a home up to a specific amount. Though pre-approval does not guarantee you’ll be able to close, it is an important step that can help you shop around with confidence.
3. Gathering Documents
The closer you get to the application process, the more documents you will need to provide. Lenders want to be confident that you’ll be able to make your mortgage payments in full and on time, so they’ll want to take a very close look at your financial situation.
To start, they will want to verify your income, which can be done with pay stubs, tax forms (W2 or 1099), bank statements, and other methods. If you are self-employed or run your own business, they might want to see some additional statements as well, such as a balance sheet or income statement. Additionally, lenders will want to confirm how much wealth you have, which might involve investment account statements, bank statements, and others.
4. Understanding Loan Options
Currently, there are many different loan options available, each with varying pros and cons. Choosing the loan that’s right for you will be a careful balancing act. For example, if you want a lower down payment, then you’ll likely have to pay a higher monthly premium. If you want to pay less in interest, then you’ll likely need to pay the loan off in a shorter amount of time.
While the 30-year fixed-rate mortgage is still the bread and butter of the mortgage industry, it definitely helps to shop around. Be sure to consider the possibility of getting an adjustable-rate mortgage (ARM), getting a loan with a different term length, or getting a loan sponsored by a government agency (such as the FHA).
5. Shopping for a Home
Now that you know how much house you can afford and are ready to begin moving forward, the next step will be selecting the home you want to live in. Currently, there are many great resources for finding homes, including Zillow, Redfin, your agent, and others.
If you aren’t sure how to narrow down your search, start by making a checklist. What are your “must-haves” in a home? What are the things you’d like to have but might be willing to sacrifice? The more criteria you can add to these lists, the easier it will be to narrow down your options.
6. Assembling Your Team
Before you submit a formal mortgage application, you’ll want to be sure you’ve got a great team by your side. The closing process involves a lot of moving pieces. At a minimum, you’ll want to have a real estate agent, a home inspector, an insurance agent, and a mortgage team ready to go when needed.
After that, it’ll finally be time to start making moves. By hitting these important milestones before submitting your application, you’ll be much more likely to get the approval you need and the entire closing process should be a bit easier.
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