July 25th, 2017 7:17 AM by Jackie A. Graves
feel you’re ready for home ownership and will need a loan, you’ll want to start
looking into applying for a mortgage. A mortgage application
requires several steps and there are different routes you can take, depending
on which type of mortgage you wish to obtain.
while many of the qualifications and requirements you need are similar, they
are subject to change each year. In this article, we’ll explain how to apply
for a mortgage from start to finish, along with what down payment you need to
consider and how to get approved.
been about 8 years since the ’08-’09 recession and housing market crash. While
the economy is slowly continuing to rebuild, it is no longer as easy to obtain
a mortgage as it was during pre-recession years.
the past year, mortgage rates have been historically low,
motivating many Americans to pursue their dream of home ownership, but the
mortgage crisis of ’08 has certainly left its mark and caused mortgage
underwriting to be more stringent.
is not necessarily a bad thing since all applicants should be fully prepared
and stable enough to take on a mortgage. However, knowing how to navigate the
mortgage application process will make it less stressful for home buyers to
secure their mortgage.
applying for a mortgage, there are a few steps you want to take to get prepared
and ensure your application is approved.
want to see that you’re financially prepared to obtain a mortgage and pay it
back over time. They’ll want to look at all sources of income, your job
history, self-employment income, and your credit history.
you’re self-employed, they’ll want to see copies of your last two tax returns
to show consistent income. They require this to make sure you have an
acceptable debt-to-income ratio. A debt-to-income ratio is
basically all your monthly payments divided by your gross monthly income. This
number helps lenders measure the ability you have to pay off your existing debt
along with your mortgage. Generally, lenders like to see a debt-to-income ratio
lower than 43%.
it comes to your credit, lenders will like to see a solid credit history and
often require a minimum credit score, depending on the type of mortgage. For
example, you need at least a 620 credit score for some mortgages and at least a
580 credit score for an FHA mortgage.
you are applying for a mortgage with a spouse who will be your co-borrower,
their credit will also need to be run. Your score will also help determine what
type of interest rate you get, making it essential to maintain a good credit
next step involves determining how much house you can afford. Your income and
current debt amount will help lenders decide how much to pre-approve you for.
No matter what amount you get approved to borrow, keep in mind that a good rule
of thumb is to keep your total monthly housing expenses at or below 35% of your
gross (pre-tax) income. For example, if you earn $70,000/year or 6,250 per
month, your maximum housing costs should never exceed $2,187.50 per month.
in mind that other costs may be tied into your house payment like property
taxes, private mortgage insurance (PMI), and homeowner’s association fees. It’s
best to go through your existing budget and determine how much you can
comfortably spend on your mortgage each month. You can also utilize our home affordability
calculator to help you determine how much home you can afford.
you’ll want to determine how much your down payment will be. Your down payment
requirements can vary, depending on what type of mortgage you get. Below are
down payment minimums for three popular mortgage types:
around 5% of the home’s purchase price
as little as 0% of the home’s purchase price
3.5% of the home’s purchase price
it is clear that you can purchase a home with little to no money down, if you put less than 20% down you will
have to pay private mortgage insurance (PMI), which will add to your monthly
mortgage insurance. Depending on the type of mortgage you get, you may be able
to get rid of PMI after a while but it still raises the cost of your housing
expenses as long as you pay it.
varies depending on the size of the down payment and the loan. It generally
ranges from .3 percent to 1.15 percent of the original loan amount per year.
it comes to finding the right lender, you have many options to choose from.
It’s important to shop around and compare different loan options. You can do
this in a secure and easy manner online without even having to have your credit
what you’re looking for in a mortgage lender, along with if they specialize in
the particular type of mortgage you want. Once you have all your information
gathered, it’s not hard to work through multiple deals and bargains with
lenders. Also, be sure to keep in mind that loans are normally sold after the
first payment of the loan, so don’t worry about the lender’s brand as much as
you should worry about the cost associated with the loan.
you’ve found your ideal mortgage lender, you can start the mortgage application
it begins with a pre-qualification once you determine the type of loan you’d
like to qualify for. This usually doesn’t take much time at all. Generally, the
lender will run your credit score and credit history to determine how much
money you can borrow for your mortgage. Once you get approved, you can start
house shopping. Once you’ve found a home you like and have it inspected, you
can make an offer.
next step is the mortgage application process.
you’re filling out an application for a government-sponsored, first-time home
buyer’s program, have your lender explain the requirements beforehand. In most
cases, for all types of mortgages, you’ll need to submit information and
documents like your driver’s license, employer information, copy of your social
security card(s), pay stubs, bank statements, tax returns, your profit and loss
statements (if you own a business), and specific information about the property.
you’ve completed the loan application, your lender will verify all the
information you provide and ask you for any additional supporting documents.
Shortly after you apply for your loan, expect to receive a loan estimate
(estimate of your closing costs) and a commitment letter (specific conditions
of the loan) from your lender. At this time, you should avoid any major changes
to your financial situation. Do not finance a new car or apply for any credit
cards or other loans because that could derail your mortgage approval.
the lender should get everything organized and processed for underwriting. The
mortgage underwriter is the key decision maker and they carefully evaluate all
the documents prepared by the loan processor for a final verification. Once the
underwriter approves your loan process, you’ll enter the closing process.
You’ll review all the terms of the loan, pay closing costs, and do a final walk
through of the property. During your closing meeting, you’ll receive a lot of
documents that you need to carefully review and sign. Once everything is
signed, you’ll have your loan.
the entire process can take a few weeks on average.
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