Applying for a home loan can be a daunting process, especially for first-time home buyers. With so many options available and a seemingly endless list of requirements to meet, it can be overwhelming. However, with a little research and guidance, the process can be simplified and made more manageable. In this blog, we’ll take a closer look at the process of applying for a home loan and provide valuable insights to help you navigate it with confidence.
Essential Items You Will Need When Applying for a Home Loan
When you are thinking about purchasing a home, there are several things to consider. Here is a list of items you will need when applying for a loan:
- Valid ID– Driver’s License, Passport,
- Proof of Income and Employment Verification– To apply for a loan or mortgage, you will need to provide some important documents such as recent paycheck stubs, W2, Social Security or retirement award letters, and tax returns if you are self-employed. If you are currently employed, you should also have a two-year work history. However, if you are a full-time student, you can include your college years as part of your work history.
- Credit History– Lenders will assess your credit score. A score of 580 or above is desirable, but a higher score can help you secure a better rate, thereby reducing your monthly payment.
- Debt Information– You do not want a lot of debt when applying for a home loan. Your debt-to-income ratios should be no more than around 50 percent of your income. This includes your house payment, car payments, credit card bills, and a percentage of any student loans you currently have.
- Down Payment– On average, you will need between 3 – 10 percent of the purchase price for your down payment. There are some zero-down options, but your rate will be a little higher with these types of loans. The lender must verify that you have down payment funds in your account. You can receive a gift from a relative for the down payment. This will be verified with a letter signed by the person gifting the money to you.
Roadmap to Closing: A Step-by-Step Guide to the Home Loan Process
After you submit your loan application, a lender will review it and ask for all the required documents. If your application is approved, you’ll receive a pre-approval letter. This letter can be used to make offers on houses and should be provided to your realtor.
Here is a basic outline of the steps involved in the home loan process once you have your pre-approval:
- You will work with your realtorto make an offer on a house. In your offer, you will outline the price you are willing to pay and any seller credits you are asking for as part of your offer. Seller credits can be used to buy down your interest rate and/or pay for closing costs/prepaid.
- Closing costs are in addition to a down payment. This pays for all your prepaid, such as taxes and insurance. It also pays for origination fees, title searches, surveys, appraisal fees, deed recording fees, and any additional fees over the property’s price. This is usually around 2 – 3 percent of the purchase price.
- Once your offer is accepted, your lender will lock your rate and send disclosures for you to look over and sign. This allows you to review the loan terms. It is ok to ask questions if you don’t understand something. These are just initial disclosures. You will receive final disclosures closer to your closing date.
- An appraisal will be ordered on your behalf, and an appraiser will make an appointment to go out and determine the fair market value of the home you are purchasing. An appraisal is required for the home loan.
- Your loan application will be subject to the underwriting process, during which additional documents may be requested to verify the conditions of the loan. It is crucial that you avoid making any significant changes to your credit or employment status during this process. Therefore, refrain from changing jobs, opening new lines of credit, or making any significant purchases without consulting your lender first. Such changes can potentially lead to the rejection of your loan application if your debt-to-income ratios change or your employment cannot be verified. Therefore, it is highly recommended that you keep everything stable until the final approval of your loan application.
- Once all of your conditions are met, you will get a notification that you have a Clear-To-Close (CTC)! Clear-to-Close means that you have received approval from the underwriter on all documentation necessary to schedule the loan closing. This is a very happy day!
- On your closing day, you will sign documents and receive the keys to your new house! This is the BEST day!
If you need assistance with the loan process or have any questions, don’t hesitate to reach out! I am Angela Lurvey, and I am here to help you navigate the process and provide answers to any queries you may have.
