1. Pre-approval
The first step in the mortgage process is pre-approval.
Mortgage pre-approval gives you insight into how much you can afford so you can shop for homes within your budget.
It also proves to real estate agents and sellers that you are serious about purchasing a home—and that you have a letter from your lender to prove it.
To get pre-approved, you’ll submit the following information to a lender:
- Social security number
- Income
- Employment
- Assets
Your lender will use your SSN to run a credit check and will verify your income and employment information.
They also will calculate your debt-to-income ratio (DTI) and loan-to-value ratio (LTV) to determine the loan type, terms and amount for which you are eligible.
Remember that pre-approval is different from pre-qualification.
Loan pre-qualification is an estimate of what you can afford, but your information isn’t verified. Pre-qualification doesn’t hold much weight with sellers or real estate agents.
Once you are pre-approved, however, you will receive a pre-approval letter that you can use when you make an offer on a home.
2. Loan application
Once you’ve provided the required documentation to your lender for pre-approval and your information is verified, you will complete your loan application.
You will either complete the application in person with your lender or online.
A loan application includes the following information:
- Loan type and terms
- Property address and loan purpose
- Borrower address and marital status
- Employment details
- Monthly income and expenses
- Assets and debts
- Purchase price
- Borrower declarations, including bankruptcies or lawsuits
- Signatures
Once you’ve completed these steps, TBD Bank can issue you a loan commitment that will definitely be to your advantage when you make an offer.
A loan commitment takes pre-approval a step further because you have been fully approved financially. The only thing left to clear at this point is the property appraisal.
3. Submit file to processing
After you submit your loan application, a processor will review it to make sure it is complete and accurate.
Loan processors perform the following steps:
- Evaluate your bank deposits and check for any problems with your credit
- Provide verification for employment, income and assets, and if you have limited credit history, help you consider non-traditional credit sources possibly available to you
- Look for errors, discrepancies and anything that may need clarification for your loan to get approved
- Assist you in compiling documentation and explanations for any errors or discrepancies
- Order a title search and your tax transcripts
4. Order appraisal
During or after loan processing, your lender will order an appraisal from a licensed, unbiased appraiser.
The appraiser’s job is to evaluate the home and determine whether the listed home price is fair.
The appraiser will evaluate the following:
- Recent sales of comparable properties in the area
- Current market trends
- Home details, including the square footage, condition, age and features
5. Underwriting
The loan underwriter’s job is to scrutinize the borrower’s application and supporting documents and determine final approval.
The underwriter will evaluate your income, debts and credit to determine whether you can make your monthly payments.
They also will review the appraisal to determine whether the home’s value and purchase price are within the required limits.
6. Closing
Once underwriting has issued final loan approval, you will be cleared to close!
Closing is the last piece in the loan processing puzzle.
About three days before closing, you will receive a Closing Disclosure with the final details of your loan.
On your closing date, you’ll have several papers to sign. Upon completion of the signings, you’ll be handed the keys to your new home. Congratulations!