Demystifying the Mortgage Approval Process: A Step by Step Guide to Get Your Dream Home This Year
Purchasing a home is a big step, and it can be overwhelming to figure out how to finally get those keys for a house of your very own. However, understanding exactly what’s required to get your foot into the door of your dream home can take much of the stress out of the process, leaving you feeling ready to start seeking out the perfect abode for your needs. Here’s what you need to know about the mortgage process.
Before even talking to a lender, it’s important to take a good look at your credit score and know exactly what it means in terms of your purchasing power. A credit score is, in essence, a record of how well you manage your credits, as well as how much credit you have access to. Scores range from 300 to 850, with different tiers of quality based on the number.
In general, the higher the credit score, the better lending rates you’ll be able to secure because you’ve proven that you’ll be responsible and pay back your loan on time. Those with a score of 670 or above will be able to access better rates than those with a score in the low 600s or high 500s, and those below a certain threshold may not be able to get a mortgage at all. Bad credit makes it much harder to access loans and will probably involve high-interest rates.
Once you see your credit score, you can research what types of rates you may be eligible for, then begin the process of finding a lender.
Mortgages are a type of installment loan, meaning that you will receive the money in one lump sum payment – in this case, to purchase the house – and then pay it back over time with interest. There are typically two ways to get a mortgage: going with a direct lender, such a bank or financial institution; and working with a mortgage broker, who will shop around and find you the best rate.
District Lending can help you get access to the very best interest rates for your purchase. Mortgage brokers work with a variety of lenders and will find best rates on your behalf, based on the information you provide to them. The best part is that many mortgage brokers will help you refinance if a better rate becomes available, so you can be guaranteed that you are always paying the lowest interest possible on your mortgage.
Once you’ve decided whether you would like to work directly with an institution or use a mortgage broker, it’s time to get to work getting your approval.
Your pre-approval verifies the information you’ve given to either the direct lender or the mortgage broker and determines how much money you can be lent based on that information. The process will include your credit score, your income, your debts and assets, and what type of property you would like to buy.
Some common types of debts include existing mortgages, student loans, and car loans, while assets can include homes, land, and cars. In short, things you’ve bought that could theoretically be sold off are assets, while any money you owe on those items is a debt. The pre-approval will also look at your credit history and see whether you’ve made good on payments for those debts, and this will factor positively into your approval odds.
The lender or mortgage broker will assess the information and, once they’ve determined what interest rate you can access, will send you an approval letter. This letter explains how much you can borrow and what interest rates you’ll be eligible for. You’ll need this as you get into the next steps of the process, which includes finding a property and making an offer.
You’ve probably been dreaming about exactly what property you’d like to buy, and it’s time to bring that dream to life! Once you select a home, you’ll make an offer on it, and then you’ll have that verified by an underwriter, who will help you finalize the deal. The underwriter will ensure all the financial information you provided is correct, and then will take a look at the property itself; they will ask for the home to be appraised and inspected, as well as ensure the title is legal and can be transferred.
Once this is finished, you’ll receive a Closing Disclosure, which has all the details of the loan you signed: this includes your monthly payment, the down payment, the interest rate, and any closing costs associated with finishing the deal. You will officially sign this at a closing meeting, where the loan will be complete and you’ll begin making the monthly payments you’ve agreed upon.
Congratulations! You’re now a homeowner with the flourish of a pen. Applying and being approved for a mortgage can be stressful, but the help of a good mortgage broker and plenty of knowledge can make the process of owning your dream home much easier. At last you can get to the best part of applying for a mortgage: enjoying your new home.