What to expect from the mortgage process


So, you want to buy a home. Great!

While it's more complex than picking up a pack of gum from the convenience store, the process can be manageable if you take the right approach.

Let’s break the mortgage process down into eight essential steps to ensure you sail through smoothly:

Step 1: Determine Your Budget

Buying a house is one of your most significant financial decisions. With that in mind, it’s important to determine:

  1. How much can you afford to put down?
  2. How much can you afford to pay monthly?

Consider the down payment requirements based on your chosen loan type and whether a fixed or adjustable-rate mortgage suits you best. For instance, as a first-time homebuyer, eyeing a 30-year fixed-rate conventional mortgage with a 3% down payment is a common starting point. However, a 20% down payment helps sidestep Private Mortgage Insurance (PMI) and keeps your monthly payments easier on your wallet.

According to the Federal Deposit Insurance Corporation (FDIC) guideline, lenders require the PITI (principal, interest, taxes, and insurance – AKA your total monthly mortgage payment) to be less than or equal to 25% to 28% of your monthly gross income. So, if your monthly gross income is $5,000, your mortgage payment should be $1,400 or less.

Bonus Tip: If you’d like to see how your mortgage payments fit alongside your other expenses, use our free budgeting tool.

Step 2: Shop for Your Lender

Whether you have determined your budget, or still need some assistance doing so, it is time to keep an eye out for an experienced mortgage lender that you genuinely get along with and who will be your industry expert through the remainder of the process. They will be able to help you navigate through what you may qualify for, like down payment assistance programs, or first-time homebuyer grants.

If you prefer to apply for your loan online without working directly with a lender, be sure to find a system that is simple to use and easy to understand! And, hint hint...with IncredibleMortgage, no matter how far you get, there will always be an expert on the other end of the application in case you need them.

Step 3: Getting Pre-approved

Once you’ve found your lender, it is time to determine what you can put down and how much you can afford monthly. This step will help you create a general budget and is crucial to showing sellers and agents how committed you are to purchasing a new home.

So, what is the difference between pre-approval and pre-qualification?

Getting pre-qualified is like dipping your toes in the water – you want to have a good understanding of what you could be approved for but aren’t ready to dive into applying for a loan just yet. In this stage, you will meet with your lender and discuss your financial readiness and they will help you determine roughly how much you can borrow. A pre-qualification isn’t fully underwritten or validated but will give you a good idea of what you may be approved for.

Getting pre-approved is when things start to get serious and helps in the negotiating process when searching for your home. This starts with applying for the loan and then working with a lender to get preapproved so you can accurately determine your budget.

Lenders will check your credit score, credit history, and debt-to-income ratio to determine your creditworthiness.

Once your credit situation has been reviewed, the lender will give you a preapproval letter stating how much they’re willing to lend you, along with a Loan Estimate form, which allows you to compare lenders’ rates, fees, and other costs associated with the mortgage.

With your dream home in sight, it’s time to officially choose your lender (this could be the lender that preapproved you) and initiate the mortgage application.

Your lender will need additional information from you, such as:

  • W-2s
  • Pay stubs
  • Tax returns
  • Proof of other income sources
  • Bank statements
  • Details on long-term debts (vehicle or student loans)
  • Personal identifying documents (ID and Social Security card)
  • List of previous addresses where you’ve lived
  • And more depending on your lender’s requirements

Once all documentation has been gathered and you’ve completed your application, your lender will review and decide on whether to grant you the loan – this process is called underwriting.

What NOT to do after you’ve been preapproved:

  • Open new credit accounts
  • Have your credit pulled
  • Make large purchases
  • Deposit large sums of cash
  • Change jobs
  • Cosign on someone else’s loan
  • Close a credit account
  • Stop making payments

Doing any of these things can change the conditions under which you were approved.

Step 4: Searching for your Home

Armed with preapproval, you’re ready for the fun part – house shopping!

Apps like Zillow, Trulia and realtor.com can help you see what’s available and in your price range.

We typically recommend hiring a real estate agent because when you have a realtor in your corner, they’re working for you! The listing agent’s loyalty is to the seller, so they will always have the seller’s best interest in mind. However, your real estate agent will have your back while touring homes and setting up showings, and will help support many of the requirements you’ll have to complete throughout the closing process.

Step 5: Make an Offer

Time to make an offer. Here's where working with an experienced real estate agent has its benefits. They know the negotiation process and the housing market's current state (e.g., if it's a seller's market, you may want to make your best offer upfront to avoid being outbid). Of course, if the seller rejects your initial offer, you can counter or walk away. It’s all part of the game.

To make an offer, you’ll need the:

  • Seller’s name
  • Address of the home
  • Name of everyone signing the deed
  • Price of your offer
  • Down payment amount
  • Earnest money deposit
  • Pre-approval letter

You’ll also provide your desired closing and move-in dates, a deadline for offer review, and any contingencies you might have. With your input, your realtor can draft the offer for you.

Be prepared for counteroffers. Your agent will help you navigate negotiations with the seller to reach an agreement.

Step 6: Make an Earnest Money Payment

After some back-and-forth, the seller accepts your offer (go ahead, celebrate)! Upon acceptance, you may be required to make an earnest money payment, which goes towards the purchase of your home, a deposit, and confirms your intentions to follow through with the transaction.

This amount can vary, but typically, the larger the dollar amount of the accepted offer, the larger the dollar amount of the earnest money.

Step 7: Insure and Inspect

Once you've been granted a mortgage, just a few more items are on your to-do list.

You’ll want to secure homeowners’ insurance, as most lenders make it a condition of giving you a mortgage. It’s wise to have enough coverage to fully replace the home.

Next, schedule a home inspection – your real estate agent will be able to assist you with this and make recommendations on who to use! This will help you find issues you could face down the road, point out any necessary repairs, and save you from paying for them. For example, if your home inspection revealed a mold problem, you can negotiate to have the seller pay for the fixes.

Your home will also need to be appraised (your lender will order the appraisal) to help you and the lender determine the property's market value. The appraiser will be selected by an independent third party, and you’ll pay the appraisal fee as a part of loan closing.

Step 8: Get Ready for Closing

You’re at the finish line! The final step is meeting with your lender and a settlement agent for closing. Your real estate agent and lender will work together to determine the settlement agent.

During the closing meeting, you’ll sign a mound of paperwork. IncredibleMortgage offers an entirely virtual e-closing option, or a hybrid option where some documents can be signed electronically and some in person. The settlement agent and your lender will explain and help you understand each document. This is when you will pay your closing costs.

Once the t’s have been crossed and i’s dotted, the only remaining steps are exchanging congratulatory handshakes and getting the keys to your new home.

You did it – congratulations on becoming a homeowner!

Are you ready to become a homeowner for real? Our incredible mortgage team can help guide you through the entire process, or you can fly solo. Our online application process makes it easy!   

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