If you have never done it before, applying for a mortgage to buy a house can be a daunting experience. It is a complex, multi stepped process that requires the involvement of many people and agencies.
Before you begin, get your financial documents in order. This includes anything related to your income, bank accounts, and investments. Here we will outline an overview of the steps involved in the home loan process.
The first step in the home loan process is obtaining a pre-approval. This involves speaking with a mortgage lender who will need to know where you work, how long you have been at that job and your annual income. If you have a co-signer the same information will be required for that person as well.
The lender will generate a 3 bureau report from the major credit agencies. This will show your credit scores, the debts that you currently owe, as well as your payment history. This credit history together with the income information you provided will allow the lender to provide you with a preliminary approval to purchase a home. It is at this stage that a price range will be determined. The pre-approval letter will accompany the offer you will make on your dream home.
The next step is to formally complete a loan application. The lender will require documents from the following categories:
Proof of Employment
- The lender will need the name and address of your employment and a telephone number
- You will provide your job title with the company
- You need to provide the start date of employment
- You will need to explain how you are paid: hourly, salary, commission, bonuses, etc.
Proof of Income
- Most recent paycheck stubs covering the last 60 calendar days
- W-2 forms from the past 2 calendar years
- If you are self-employed, you must provide the previous 2 calendar years’ personal and business tax returns
- Copies of child support decree and payments
- Social security benefits statement
- Pension or other retirement income
Financial Resources (also called assets)
- Recent statement from all checking and savings accounts
- Recent statement from any certificate of deposit
- Investment portfolio balance (bonds, stocks, 401k, Roth IRA)
- Any gift funds that have been provided by a family member
List of Debts
The vast majority of your debts should come from the credit report. It will include things such as:
- Any existing mortgage on other property
Things that may not appear on the credit report but should be relayed to your lender are items like:
- Monthly alimony payment and expected duration
Details of the Prospective Home
Once you are under contract, your Realtor will provide the following information to the lender:
- Physical address of the home
- Annual property taxes for the home
- Square footage of the home and size of the lot
- Any presence of a Homeowner’s Association and the yearly expected fee
- Property type (i.e. condo, duplex, single family, etc.)
You should understand that the lender will ask about any type of blemish that appears on the credit report. You may need to offer an explanation for why a blemish occurred and the steps that have been taken to prevent such a problem in the future. Some examples are:
- Delinquent payments on debt
According to federal law, your lender must present you with a loan estimate no later than 3 business days after you provide the above financial information. The loan estimate will spell out the specific terms for your anticipated mortgage along with an estimate of the closing costs.
This document will show you the proposed interest rate for your loan, the specific term for the loan (expressed in years), the type of loan (fixed or adjustable), and the calculated principal and interest payment. If you are receiving an adjustable rate loan, this document will explain how and when the rate may change during the life of the loan.
Processing, Underwriting and Approval
From this point the application is sent to a processor. They will verify the employment and asset data independently, order an appraisal, title search and verify that the home is insurable. After all of this is verified, all of the data/documents is sent to the underwriter.
The underwriter is like an inspector, detective and judge all rolled into one. This person will verify the provided information meets the guidelines and rules of the particular loan product. They will also determine if the borrower(s) has the ability and inclination to pay back the mortgage loan. These decisions are based on the income & asset information and the credit report.
If the loan meets the proper criteria and is considered a healthy risk for the lender, the loan will be approved.
During this entire process it is critical that you do not make any major purchases or open additional lines of credit. Your loan may be denied if you do.
For more information or to apply for a loan, please click here.
If your plans include a home purchase in Greater Saint Louis, REALTY MASTERS, STL are the local experts. Let’s get together to discuss your options and to help you make one of the most powerful and confident decisions for you and your family.
To reach us please call 636-220-7830 or send us an email: info@RealtyMastersStl.com
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