Applying for a mortgage is a significant step in building a solid financial future. There is nothing quite like owning your own home; using a mortgage is one of the most common methods of becoming a homeowner. The loan application process is your way of providing lenders with the information they need to decide whether to lend to you or not. You’ll submit a lot of information, answer numerous questions, and verify data throughout this process.

It can seem overwhelming, but today’s mortgage loan application process can often be done online, over the phone, or at a local bank or credit union. Here’s what you can expect throughout that process.

Preparing for the Application

Before applying for a mortgage loan, gather all the information you can about the lender. Remember that you are agreeing to a long-term loan here. As a result, you need to be sure you’re working with a reputable lender that can offer a competitive loan to you. Learn about the lender’s:

• Financial health
• Types of loans offered
• Required credit scores and other qualifications
• Lending process
• Restrictions on who they lend to

Ask them if you are unsure of this information when researching the company. You don’t have to apply first and then find out later they have higher interest rates than the competition.

Choosing the Right Mortgage

The next step is to select the best mortgage for you. Most mortgage brokers can help you with that process. Still, it’s a good idea to understand your options before deciding. Here are some of the most common types of mortgages available today:

• FHA loans: Often available to first-time home buyers who may not have a sizeable down payment. FHA loans are government-backed, which means they tend to offer lower interest rates, though you’ll likely have to pay mortgage insurance.
• VA loans: These loans are available to current or former members of the U.S. Armed Forces. Qualified individuals have no down payment requirements and much lower credit score requirements.
• USDA loans: These loans are available in rural areas where development is desirable. They also have lower down payment requirements.
• Conventional loans: Available through traditional banks and credit unions, these loans often have higher down payment requirements but may not require mortgage insurance.

Loan Pre-Approval

Once you apply for the loan, you will be initially pre-approved. That means that the lender has reviewed your information, and from an initial examination of it, you’ll likely qualify to borrow the money.

Completing the Loan Application

The loan application will likely be completed online or at a local bank or credit union. You’ll need to provide:

• Proof of your identification
• Your Social Security number
• Proof of income
• Proof of employment
• Past tax returns for the previous two years
• W-2 information and paycheck stubs
• Information about your monthly expenses

Loan Processing

Once you provide the requested information to the lender, you will submit it and wait. It can be challenging, but loan processing is typically relatively quick. This initial step verifies that all information needed to decide is present. The loan then goes to the underwriters.

Underwriting the Loan

The underwriters are the people who work for the lender to verify all the loan details and the documentation you've submitted. They want to be sure that you have the credit history and financial ability to make payments on time consistently. They will verify all of the information provided, contact references, gather any information about your employment, and ensure that the home is in good condition and worthy of the money you are borrowing.

Loan Approval and Conditions

Once you have assured the underwriters you have what it takes to make payment, they approve the loan. However, there can be conditions in place. For example, you’ll receive initial approval for the ability to borrow. Still, it may be dependent on the home’s value and inspection. An appraisal is a big part of this process, as lenders want to be sure the home is worth what you are expecting to pay for it.

Closing

Once you've completed the preliminary steps, you can purchase the home and begin closing. This stage entails signing documents that the lender and the title company have prepared. The closing process has two primary aspects:

• You commit to buying the home, ensuring the correct transfer of title to reflect the change in ownership.
• You'll also sign agreements with the lender, adhering to the stipulated terms and conditions. These contracts are legally binding, so addressing queries or concerns is essential before signing.

Upon concluding the closing process, the lender disburses the purchase funds to the seller. Consequently, you'll receive the keys to your new home.

Takeaways

The mortgage application process is thorough, and it can involve numerous questions and steps to prove you have the financial means to buy the home and make payments over time. If you are unsure of any component of this process, ask questions and verify all the details to ensure you’re on track to getting a loan that fits your needs.