For many, a home mortgage is the biggest financial decision they’ll ever make. Before you apply for one, it’s important to understand what each step in the process requires, so you’re fully prepared for a successful close and a good homeownership experience.

Here are 7 steps to obtaining a home mortgage:

1. Review your finances

First, take stock of your current financial situation and make sure you’re ready to meet a monthly mortgage commitment. Through the underwriting process, a lender will review your finances in detail to verify your income and creditworthiness, so ask yourself: Are you carrying a lot of debt? Do you have enough cash for a down payment? Can you afford closing costs? How much do you earn each month? A licensed mortgage loan originator can help guide you through these questions. Your credit score also impacts your interest rate, so it’s important to minimize debt before you buy. Refrain from opening and closing credit accounts and always make on-time payments.

2. Plan your down payment

While a 20% down payment is often misconceived as the “standard”, there are many options available. There are loans that require as little as 3% down and income-qualified down payment assistance programs that allow for 100% financing. If you close with less than 20% equity in the property you’re buying, your lender will usually require you to carry private mortgage insurance (PMI). PMI is a monthly premium that protects the bank in

the event of a default. However, in most instances it can be canceled once you surpass 20% equity in the home.

3. Research lenders

Not all lenders are created equal. There are large banks, small banks, credit unions, private lenders that only do mortgages and more. Each offers a unique set of terms,

rates and advantages. You may opt to work with a broker or a mortgage lender that can help you shop around, or you can seek pre-approval by going directly to a retail bank. As a Licensed Mortgage Loan Originator with Meadowbrook Financial Mortgage Bankers Corp., I procure one thing – home mortgages. While some people may think they need

the brand name of a large bank, where mortgages are one of several business lines,

4. Get pre-approved

Pre-approval is a critical part of the mortgage process, especially in a competitive market. It gives you a solid understanding of how much home you can afford and shows the seller that you can back your offer with financing. A pre-approval may also disclose

the lender’s requirements for issuing a commitment, and if you get multiple

pre-approvals within 30 days, it usually only counts as one hard credit report inquiry.

5. Apply for a mortgage

This is the big part. After pre-approval and an accepted offer, you must go through the application and underwriting process. This requires you to submit necessary financial documentation, including (but not limited to) two years of W-2s and federal tax returns, pay stubs from the last 30 days, recent bank statements, details on any long-term debt, and documentation about other income sources, recent large deposits, gifts and any other money you’ll use toward the down payment and monthly mortgage. This is where doing step one thoroughly can be a big help.

6. Go through underwriting

Underwriting is what lenders call the process of evaluating your application package. During underwriting, they factor in your credit and job history, current debt obligations,

debt-to-income ratio and other data, such as a recent credit report and home appraisal. Remember: the lender is co-investing in your property, so it needs to work for them, too. That means no incurable title issues, your ability to source funds, verified employment up to and including day of closing, etc. Also, your loan is based on appraised value, not market value. If the home you’re buying appraises for $300k but you offered $315k to close the deal, the bank will only lend based on the appraised value.

7. Prepare to close

When closing day is finally on the calendar, be prepared by getting a homeowner’s insurance policy, which lenders require. You should also get an owner’s and lender’s title insurance policy, which offers protection in the event of a titling issue. Before your final walk-through, review your updated closing disclosure, which you’ll receive at minimum

three days prior to closing. Compare these new documents to your original loan

estimate and see if anything changed. Finally, gather the cash needed to close. Your attorney can advise you on final figures and how they want your funds transferred. Congrats on a successful closing!

About Biagio P. Maffettone

Biagio P. Maffettone is Vice President of Sales for Meadowbrook Financial Mortgage Bankers Corp and a Licensed Mortgage Loan Originator (NMLS ID 409994). Over more than two decades, he’s built an award-winning practice as a licensed mortgage loan

originator, sales manager, and real estate financier with New York’s leading mortgage banks. He is an expert in home financing solutions, including jumbo financing, condo/co-op, new construction, first-time homebuyer, renovation, foreign national,

commercial, bridge financing/hard money, fix-and-flip, cross collateralization, and FHA/VA loans.

 

Disclaimer: This article is made available for educational purposes only, as well as to give you general information and a general understanding of home mortgages – not to provide specific advice. By using the above information, you understand that there is no relationship between you and the content publisher. The information in this article is intended to be general and may not apply to each individual’s unique situation.