When it comes to buying your first (or even your second or third) home, it is important to have a basic understanding of the home mortgage process in order to find the mortgage that is right for you.
Looking for Your First Home Mortgage
Shopping for your first home mortgage can be overwhelming. There are so many questions to ask…
- What monthly payment can I comfortably afford?
- How much of a down payment do I need?
- Do I qualify for a conventional home loan, such as FHA or VHA?
- What is my current FICO score and how does that affect my interest rate?
- What fees are involved with my home loan?
- Do I need a mortgage broker?
… and it is important to find someone to give you the right answers. The best place to start is with the actual home mortgage process.
Applying for a loan is as simple as filling out an application. A standardized application form collects all the information required to determine your qualifications in securing a loan. Once the application is completed, the next step is verification of income and assets.
Processing your loan application requires you to submit documentation to substantiate the information provided on the application. This includes items that verify your current income, such as W2s or other tax documents and paystubs, and your current level of debt, typically obtained by the lender in the form of a credit check.
Once all the information on your application is verified, the entire “loan package” will be submitted to an underwriter. Underwriters determine if you are an acceptable risk based on the loan amount you want to borrow and your current debt-to-income ratio.
If the underwriter gives a green light on you and your loan, they still may generate a list of additional conditions that you will need to meet before the loan is finally approved. These can include items such as additional income documents or, if you currently own a home, proof of its current value via an appraisal.
Closing is the final step in the process. It occurs when all the paperwork is signed, money exchanges hands, and you receive the key to your new home.
Answering the Important Questions about the Home Mortgage Process
Before you even begin the home loan process, you should investigate your options and questions.
What monthly payment can I comfortably afford?
Lenders base their decision of how much you can afford based on how much you can repay each month. How much you can repay is determined by reviewing your current income, current debt, available cash, and credit history.
Do I qualify for a conventional home loan, such as FHA or VHA?
There are several types of loans, including those backed by the federal government such as FHA (Federal Housing Administration) and VHA (Veteran’s Housing Administration). It is always wise to ask your lender about the type of loans for which you might qualify.
How much of a down payment do I need?
It depends on the type of loan you secure. For instance, FHA loans are for first-time homebuyers and require a 3% down payment. A typical down payment for non-government-backed loans is usually 10% to 20% of the purchase price.
What is my current FICO score and how does that affect my interest rate?
Your FICO score (Fair Isaac Corporation) is a credit rating up to 850. It is based on your credit worthiness – how much you have borrowed and how well you have repaid your debts. The higher the number, the better your credit, and the lower your interest rate.
What fees are involved with my home loan?
Home loans may have many different fees, including loan origination or underwriting fees as well as transaction, settlement, and closing costs. Lenders should be able to give you an estimate of the cost. Some fees are negotiable.
Do I need a mortgage broker?
Brokers find a lender for you. The benefit of using one is that they can help first-time buyers navigate the stressful home-buying process. Brokers are paid when a loan is originated. Because the lender frequently carries the cost, you might get a better deal if you work with the lender directly.