Estate agent shaking hands with his customer after contract signature
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Many buyers, especially first-timers, have a lot questions as to how the mortgage process works. To that end, I’ve laid out the process from start to finish. Read over the steps below to get a sense of what you need to do in order to be approved for a home loan.
Getting a pre-approval letter
The first step is the mortgage process is getting a pre-approval letter. This letter tells you how much the bank is willing to lend you, based on your current financial situation. Many buyers find it helpful in letting them know how much they can afford to spend on a home, so it’s a good idea to start this process before beginning your home search.
With that in mind, here are the documents that you need to provide in order to be pre-approved for a loan:
- Two years of W-2s (or tax returns, if you’re self-employed)
- A recent pay stub with your year-to-date income listed
- Recent statements from any bank accounts
- Recent statements from any investment accounts
Submitting a mortgage application
Once you’ve found a home and your offer is accepted, the next step is to officially apply for a loan. For the most part, this involves working with your lender to fill out a fairly straightforward application, which includes information about the property, your loan program, and your financial history.
Shortly after you submit your application, you’ll receive the following documents from your lender:
A loan estimate
This document will include important details about the loan you’ve requested, including your estimated monthly payment and interest rate. It will also include a summary of the costs associated with applying for the loan such as a loan origination fees and recording fees.
A conditional commitment letter
A conditional commitment letter is an initial offer from the lender to provide you with a loan. However, this letter will specify certain conditions that need to be met prior to closing. It can include showing proof of a home insurance policy and conducting a satisfactory appraisal.
Assisting with the loan processing
Afterwards, you’ll start working with a loan processor to gather all the materials needed to secure your loan. Essentially, by the time you’re ready to go to closing, you’ll need to provide written proof that every condition of your commitment letter has been properly satisfied.
While the exact conditions on your loan will vary, you should be prepared to provide documents similar to the following:
- W-2s
- Pay stubs
- Tax returns
- Recent statements from your bank accounts and assets
- Proof of any required insurance policies
At the same time. the loan processor will also be working alongside your real estate agent to satisfy additional conditions such as ordering a title search and conducting an appraisal.
Undergoing the underwriting process
After your file is complete, it will be transferred to the underwriter. It’s the underwriter’s job to review all the documentation you’ve provided to make sure its accurate. They’re also in charge of making sure that all the necessary proof has been provided to satisfy the conditions on your commitment.
Ultimately, the underwriter is the one who will approve or deny you for your loan. If all goes well, they’ll issue you another mortgage commitment – this time without conditions – which will serve as the official approval for your loan.
Before closing you’ll also be given a closing disclosure, which is similar to your initial loan estimate, except it includes all the finalized details that are pertinent to your loan, including your monthly payment, interest rate, and closing costs.
Going to closing
At closing, the lender will release the funds that you’ve borrowed to purchase the property. For your part, you’ll bring a certified check to cover the remainder of your down payment and closing costs.
Then, you’ll sign any final documents before being given the keys to your home and officially becoming a homeowner.