The common myth that the mortgage loan process is a nightmare is just that…a myth. Though it is a process, it can easily be broken down into six key phases: pre-approval, house shopping, mortgage application, loan processing, underwriting, and closing. At Assurance Financial, our goal is to help you realize your dream home and our team of home loan experts are here to help you along the way. Let’s dive in and help you understand the six phases before you begin the process:
1. Mortgage Application
Before you start your mortgage application, obtain copies of your most important financial documents. Lenders review your application to see if you’re financially prepared to handle a mortgage and pay it back over time. Your application is examined by lenders seeking information about your sources of income, credit history, job history and self-employment income. If you are self-employed, they’ll need to see your last two tax returns to prove consistent income.
After you’ve completed the loan application, your lender will verify the information you’ve provided. Expect to receive a loan estimate and a commitment letter from your lender shortly after submitting your application.
2. Housing Payment/Debt-to-Income Ratio
Lenders also consider your debt-to-income (DTI) ratio before pre-approval. Dividing your projected total housing payment by your gross monthly income produces a figure known as a front-end DTI ratio. Including your current monthly liabilities along with the proposed monthly housing payment in the calculation generates your back-end or total DTI ratio. The ideal front-end DTI to back-end DTI ratio is about 25%/41%. More conventional loans will allow a back-end of 50%, and FHA will even allow 56.99%.
3. House Shopping
It takes time to find the right home. At the beginning of the house shopping process, you should make a list of the things you need to have in your future home. Start by considering how many bedrooms and bathrooms you’ll require and always take into account how your family may grow in the future. Will you need a large backyard for your children or pets to play? After considering the basics, take some time to determine what kind of neighborhood you’d like to live in. Gather details on local school districts, shopping centers, commute times, and any safety concerns.
4. Loan Processing
Next, your loan is sent over to the loan processors. Once it’s in their hands, they begin double-checking everything on your application. The processor will prepare and organize the file before it’s sent over to the bank or mortgage lender for approval. They will contact your employer to verify your job and the salary on your application. If there are any questions regarding the information on your application, they will have your loan officer contact you for details. Any mistakes you’ve made will arise during this stage, giving you a chance to make corrections before the file is handed off to the underwriter.
The underwriter will examine your application to determine whether you’re a risk to the lender. Your income, debt, and credit history are the greatest factors in the underwriting process. Your total monthly debt obligations, including the potential mortgage payment, shouldn’t be more than 43% of your pre-tax monthly income.
Once you’re approved, the realtor will complete a final walk-through to ensure all contingencies are met. Closing is next! Along with a representative, you’ll sign all the final documentation and verify the money from the sale is properly distributed. The closing officer will review the mortgage note and the mortgage document with you, then move on to the closing disclosure.
Next, they will review the deed and the commitment for title insurance. The final activity is the distribution of the money from the sale. The closing agent will issue checks to the sellers, the seller’s lender, the real estate agent, and any other person indicated on the closing disclosure. Once you’ve signed all the documents and made the appropriate payments, the closing is finished and the home is yours!
Purchasing a home is one of the biggest decisions an individual will make in their lifetime. No matter where you are in your life, it’s a process that requires experts and those interested in the best outcome for you. Our loan officers are here to help you find the best mortgage possible. Find a loan officer near you today!