You've worked hard, budgeted wisely and built your savings. Now it's time for the payoff: purchasing a home of your very own. But first, there’s the mortgage.
Here’s what you need to know about the mortgage application process:
1. Getting pre-approved
A smart first step in the mortgage process can be getting pre-approved1 for a loan amount that’s right for you. While getting pre-approved is optional, it can give you comfort in the house price range you should be shopping for. Your loan officer will ask you to provide information about your income, assets, savings and liabilities so the bank can ensure you’ll be able to make regular mortgage payments.
Charlie Oppler, 2015 vice president of the National Association of Realtors, notes that being a first-time buyer is not a hindrance to this process. The bank may simply want to know that you have a steady income and a good job history and reference.
Kevin Dwyer, a SunTrust Mortgage producing sales manager, explains that the bank is interested in the borrower’s work history, credit history and ability to repay the mortgage. Documenting the client’s income and assets is very important for qualifying for a mortgage.
In most cases you’ll need to produce the most recent month’s worth of pay stubs as well as W-2s and federal tax returns for the last two years. If you are self-employed or earning commissions instead of a salary, lenders may require extra paperwork to calculate your income.
And once the bank knows that, Oppler says, “the pre-approval process lets you go out and look at homes with some confidence you can afford it.”
2. Choosing a mortgage
Oppler says there are a variety of mortgage programs with different interest rate structures, loan terms (length of the loan in years) and down payment requirements. What’s best for you depends on your plans for the home and your finances.
Your monthly payments will reflect the type of loan chosen and its term. Choosing a mortgage is full of financial tradeoffs, so your loan officer will work with you to figure out how you can be strategic with your mortgage and keep your finances in check.
“A lender’s goal is to match your plans for the home with what you feel comfortable with as a monthly payment,” Dwyer says.
3. Locking in a rate
With your mortgage plan decided and the contract in place, it may be anywhere from 30 to 90 days until the closing date. This period before closing is when your interest rate is determined. Interest rates can change daily with the market, so your loan officer will give you the option to either lock in the current rate or float the rate.
If you choose to lock in, you’re agreeing to pay that same rate and points for closing the mortgage. You are then protected from any increases in the market.
If you choose to float the rate, you will be subject to market changes and the rates and points may go up or down until you lock in the rate.
“Once you do that, you’ll be protected from anything that happens in the market for as long as the lock is valid,” Dwyer says.
As you go through the mortgage application process, it’s important that you find a loan officer you like, and understand that he or she is looking out for you.
“This isn’t the first time the loan officer has written a loan,” Oppler says. “Which is a good thing, because you want to have comfort and trust and confidence in the person who is guiding you through this transaction.”