Buyers September 13, 2017

How To Apply For A Home Loan

If you’re a homeowner who needs a loan, it may be the right time to start seeking a mortgage.
However, even though most requirements are similar, each application changes at some point or another. In this guide, we will be going through how to apply for a home loan, what you need and how to get approved with ease. 

Understanding the Mortgage Market

Even though it’s been about eight years since the crash of the housing market and recession, the economy is still slowly rebuilding, making it harder to get a mortgage than ever before. However, over the past few years, mortgage rates have been at a record low. This has been causing people to purchase homes, even though the market is not necessarily as good as it was. 

Documents You Need

Here are a few of the documents that you should prepare, as your lender will likely ask for them.
– Paycheck stubs
– Recent tax returns
– W-2 forms
– Complete list of assets
– 1099 forms
– Complete list of your debts
– Canceled checks for your mortgage payments

Other documents you may need:
– Home sale contract with the purchase price
– Bankruptcy discharge papers
– Investment property papers
– Letter of giver if you receive a grant or cash gift to pay off your payment
– Records that your gift isn’t a loan
– Lease agreement if you’re renting 
– Copy of your divorce decree
– Records of rental property income

Approval for a Mortgage

Below, are the following steps you should take to prepare your application to make sure it gets approved. 

Step 1: Prepare Your Finances

Lenders always like seeing that you are financially responsible when getting a mortgage. That way, they’re ensured that you can pay it back over time. However, they’ll want to see your job history, income sources, and credit history. 
If you are self-employed, your lenders will want to see the records of your previous tax returns to make sure your income is consistent. They also do this to make sure you have a proper debt-to-income ratio, which is a ratio of your monthly payments divided by your gross monthly income. This ratio helps lenders determine your ability to pay off your pre existing debt, along with your mortgage too. Usually, they like seeing a debt-to-ratio of at least 43 percent. 
For your credit, lenders enjoy seeing a strong credit history with an average credit score, depending on the type of mortgage you’re looking to take out. If you’re looking to apply with a spouse for a mortgage as your co-borrower, their credit will be checked as well. Both of your scores will determine what interest rate you will be offered, as long as you maintain a healthy credit score. 

Step 2: Decide on Your Mortgage Budget

Next, you need to determine what size house you can afford. Your current debt and income will come into play to help lenders choose what kind of loan to approve you for. However, no matter what you get approved, make sure that your monthly expenses are under 35 percent of your previous taxed income. 
At some point, you should determine your mortgage spending budget based on how much you spend each month. Using a home affordability calculator can help you do so without needing to consult a professional. 

Step 3: Determine How Much of a Down Payment You Need

The last step you need to take is to determine how much of a down payment you need. However, the majority of down payments vary on what type of mortgage you need. Below, are the most common down payment types: 
Conventional: five percent of the total home cost 
VA: nearly zero percent for the total home cost
FHA: 3.5 percent of the total home cost
Even though you can purchase a home with next to no down payment, if you pay less than 20 percent, you may have to get PMI, or private mortgage insurance. However, you may be able to get rid of your PMI, but your monthly house expenses might still increase. 
Mainly, your private mortgage insurance depends on your down payment and the loan you’re applying for which usually ranges from .3 to 1.15 percent per year. 

Choose a Home Loan Lender

There are a lot of mortgage lenders out there for you to choose from. The important thing is that you take the time to find the best lender for your needs. Look around and do some comparison shopping. This way, you can increase your chances of approval and get the best rates possible. One of the best ways you can do this is by searching online. This is safe and easy, plus, it often does not require a credit check.
First things first, you should decide what you are looking for in a home loan lender. Look for a lender that specializes in the type of loan you would like to take out. After you have all this information together, you can get multiple quotes. Then, you can use these quotes to work out deals and discounts with lenders. You should also keep in mind that mortgage loans are typically sold off after you make the first payment. Pay less attention to the brand of the lender and put more emphasis on the loan’s costs and fees. 

How To Apply For a Home Loan

Now that you are prepared and you have found the best lender, you can begin the whole application process. This entire process can take a few weeks to complete. When you decide what type of loan you want to get, you can start with the pre-qualification. This part of the process does not take a long time at all. The lender will run a credit check. They will use your credit score and history to figure out how much money you can borrow for your home loan. With this approval, you can begin looking for your new home. After you find your house, you should get it inspected and put in an offer.
Once you make your offer, you can begin the mortgage application process. We reviewed the types of documents that are needed to apply for your mortgage above. If you are filing an application for a government first-time home buyer’s program, you may need different documents. Be sure that you check the requirements before you apply. With all of the proper documentation, you can submit your application.

After you finish the application and submit it, the lender will verify all of your personal information. They may also ask for other additional documents if needed. Once your application is processed, you will receive a loan estimate and a commitment letter from the lender. A loan estimate is an approximation of your closing costs and the commitment letter contains the detailed conditions of your loan. Until the papers are signed, you should try your best to avoid any large changes in your financial situation. This means that you should not refinance a loan or apply for new lines of credit. Doing this can throw off your approval process.

The lender will get all of the documents organized and give them to an underwriter to process them. A mortgage underwriter makes the main decisions when it comes to your loan. During the underwriting process, they will look over your paperwork and offer a final verification. When the underwriter approves the loan process, you will begin the closing process. During this time, you will look over the specific details of the loan terms, pay the closing costs, and take one last walk through of the house. Next, comes the closing meeting. Be sure to review all of the documents you receive very carefully before you sign them. As soon as you finish signing everything, you will finally have your loan and you can move into your new home.