Purchasing a home is an exciting milestone, but navigating the mortgage approval process can feel overwhelming. If you're considering a conventional, FHA, or VA mortgage, understanding the steps involved can help simplify the journey and increase your chances of a smooth approval. Here’s a comprehensive guide to help you through each stage of securing a conventional mortgage.
Step 1: Check Your Credit Score
Your credit score is a crucial factor in determining your eligibility for a mortgage. Lenders use your score to assess your creditworthiness and the risk associated with lending to you.
Action Steps:
- Obtain a free copy of your credit report from annualcreditreport.com.
- Review your report for any errors or discrepancies.
- Aim for a credit score of at least 620, though a higher score (700+) can qualify you for better rates.
Step 2: Assess Your Financial Situation
Lenders will evaluate your financial stability, including your income, debt, and savings. Understanding your financial health will help you determine how much you can afford to borrow.
Action Steps:
- Calculate your debt-to-income ratio (DTI) by dividing your monthly debt payments by your gross monthly income. A DTI below 50% is ideal.
- Ensure you have enough savings for a down payment (typically 3-20% of the home’s purchase price) and closing costs (usually 2-5% of the loan amount). Note - VA loans require no down payment.
Step 3: Get Pre-Approved
A mortgage pre-approval gives you an estimate of how much you can borrow and shows sellers that you’re a serious buyer. It involves a preliminary review of your financial information by a lender.
To get pre-approved, you'll need to:
- Fill out a mortgage application with all your personal information (including any real estate you currently own).
- Submit your documents to your lender of choice. Documents typically requested include:
- proof of income (pay stubs, tax returns, W2's)
- proof of assets (bank statements)
- identification
- real estate documents (if you currently own any real estate)
Pro Tip: Armenta Realty can assist you with getting pre-approved. Our team is ready to help streamline the pre-approval process and ensure you get the best possible rates and terms.
Step 4: Find a Home and Make an Offer
Once you are pre-approved and have a pre-approval letter in hand, you can start house hunting within your budget. Once you find a home you love, make an offer through your real estate agent.
Action Steps:
- Work with your agent to determine a fair offer based on the home's value and market conditions.
- Submit your offer to the seller, along with your pre-approval letter.
- If your offer is accepted:
- You and the seller will sign a Purchase Agreement with the agreed upon purchase price, as well as any other stipulations.
- You'll need to pay the Earnest Money Deposit within the timeframe mentioned on the Purchase Agreement. The EMD counts towards your down payment.
- You'll need to schedule a home inspection ASAP to make sure there aren't major issues with the home that need tending to.
Step 5: Complete the Mortgage Application
After your offer is accepted, a formal mortgage application will need to be completed and signed.
Action Steps:
- Provide any additional documents requested by your lender.
- Sign the "Intent to Proceed" and "Initial Loan Estimate".
Step 6: Underwriting Process
During underwriting, the lender will thoroughly review your application and documents to assess your risk as a borrower. They should also order an appraisal to determine the home's value, which you (as the buyer) are typically responsible for covering.
Action Steps:
- Cooperate with your lender and promptly respond to any requests for additional information or clarification.
- Ensure the home appraisal meets or exceeds the loan amount. If the appraisal comes in low, you may need to negotiate with the seller.
Step 7: Receive Loan Approval
If the underwriter is satisfied with your application and the appraisal, you’ll receive a conditional loan approval. This means the lender agrees to provide the loan, pending any final conditions.
Action Steps:
- Satisfy any remaining conditions, such as providing further documentation or clarifying certain aspects of your application.
- Review the loan estimate and closing disclosure forms to understand the terms and costs associated with your mortgage.
Step 8: Closing the Loan
The final step is the closing process, where you’ll sign all necessary documents and officially become a homeowner. This step involves paying closing costs and receiving the keys to your new home.
Action Steps:
- Attend the closing meeting with the title/escrow company.
- Review and sign all documents, including the promissory note, mortgage agreement, and closing disclosure.
- Pay the required closing costs, which may include fees for the loan origination, appraisal, title insurance, and more. At this day and age, most people pay via a wire transfer.
- Receive the keys to your new home!
Final Tips for a Smooth Mortgage Approval Process
- Stay Organized: Keep all your financial documents in one place and readily accessible.
- Communicate Promptly: Respond quickly to your lender’s requests to avoid delays.
- Maintain Financial Stability: Avoid making large purchases or opening new lines of credit during the mortgage process.
- Ask Questions: If you’re unsure about any part of the process, don’t hesitate to ask your lender or real estate agent for clarification.
By following these steps and staying proactive throughout the process, you can enhance your chances of securing a conventional mortgage and move closer to achieving your dream of home ownership. And remember, Armenta Realty is here to help you get pre-approved and guide you every step of the way. Give us a call at 520-833-8056.
