Introduction

For first-time home buyers, the mortgage approval process can be challenging. However, the straightforward process involves some basic steps; following them can result in a smooth experience. This includes getting a preapproval, property hunting, applying, followed by a home appraisal and underwriting. Closing is the last step in the mortgage loan finalization process. The process can take between 3 to 6 weeks, depending on your specific application requirements. For a successful process, you must have a good credit score history and a stable income.

From Pre-Approval to Closing: Your Guide to the Mortgage Process

Are you a first-time home buyer trying to secure a mortgage for your dream home? Whether you are a real estate investor or a homeowner trying to refinance the loan, the mortgage approval process can be complicated. Several factors can affect your approval. Understanding the basics is important to secure loans successfully and result in a smoother, successful experience.

Did you know? The 4 Cs for qualifying for a mortgage include your Capacity to pay back loans, Capital- the readily available money, Collateral- the home you are buying and your Credit score.

Here is a breakdown of the mortgage approval journey from start to closing.

• Getting a Mortgage Preapproval

In this stage, the lender checks your financial condition, credit score and history. He gives you a basic estimate of how much you can borrow through a preapproval letter.

• Finding a Home and Choosing a Lender

Visit the properties and choose a house. Submit a money deposit to your real estate agent to secure the deal. Next, check at least three different lenders and pick the one that suits your specific needs. Different lenders offer different rates and fees. Your loan rate also depends on the type of loan you get.

Important factTo avoid overspending, set up a budget upfront. The golden rule is to spend less than 28% of your monthly income on your housing payments.

• Submitting Your Documents and Application

Submit your complete mortgage application and the additional documents like proof of income, bank statements, property details and the employment history. Now the actual mortgage approval process begins. 

• Home Appraisal and Underwriting

You can choose to order a home inspection to understand the real condition of the home you are interested in. The lender will also arrange to assess the actual price and value of the home.

• You may renegotiate repairs with the seller or reconsider your home buying decision before the closing date.

• Get Notified About the Decision

While you wait for the final decision, the lender verifies your documents and prepares your file for underwriting. They may ask you to submit any additional documents. Depending on your situation, the process may take 1 to 2 weeks.

• You will get notified about the lender decision in the form of a denial, approval or approval with conditions.

.

Fast FactLenders usually give the best loan terms to borrowers with credit scores in the mid 700s or above and a debt-to-income ratio of less than 45%

• Closing Process

Consult with the loan officer to fulfill any additional conditions to get your loan approved. They may ask you to improve your credit score or increase your down payment. After the final approval, you will get the final disclosure document that will tell you about your monthly loan payments, loan terms and closing costs.

• Sign the documents, pay the costs and down payment, and the property will be transferred to your name.

• Factors That Can Impact Your Loan Approval

• A good credit score history of at least more than 600 shows you can pay off your loans easily.

• A good debt to income ratio of less than 45% is ideal. It compares your monthly income to the amount you have to pay in debt.

• Frequent job changes are a red flag. Stable income for more than 2 years makes you an ideal candidate.

• Down payment is the amount of money to be paid up front. It can affect your loan terms. A minimum of 3% to 6% is required.

• Your home appraisal value and the loan requirement must align.

• Borrowing less money than the worth of your home increases your chances of getting approved.

• Any cash reserves show you are a sound candidate and result in a successful mortgage approval process. 

Conclusion

Typically, the mortgage approval process takes between 35 to 45 days from application to closing. Factors that can affect the process include the type of loan you are applying for, your financial condition and whether you have submitted all the documents. Understanding the process and responding quickly to the loan officer’s demands for documents can result in a swift and smooth process.

Read More

FAQs

For how long are the preapproval letters valid?

Preapproval mortgage letters remain valid for 60 to 90 days from the date of approval.

What is the 222 rule for securing a mortgage?

It means that your lenders will see that you have at least two credit accounts open for at least two years with at least a two thousand dollar credit limit each.

Can a mortgage be denied after final approval?

Although very rare, a mortgage can be denied after final approval if your financial situation changes or you fail to provide all the necessary documentation.