Buying your first home is an exciting development in anyone’s life. Whether you’re looking to lay down a foundation for your future financial security and find a place to raise your family, or just to create a little retreat to call your own, buying a house is a big deal. In order to make the process as pleasant as possible though, it is important that you thoroughly understand the mortgage application process before you set out to buy.
Here is a breakdown of the various steps involved in the mortgage application process:
1. Figure out how much money you can borrow
The first step of obtaining any loan, and thus beginning the mortgage process, is determining exactly how much money you will be eligible to borrow. Before you begin looking at potential homes to buy, you want to have an idea of what you’ll be able to afford so you start the whole process with reasonable expectations.
It is important to note that although there are some standards set according to law, the guidelines for loan approval also depend a lot on the terms of each loan. Generally speaking, you can expect two primary factors to be brought under consideration: how able you are to repay the loan and what the estimated value of the property in question is. You should consult your equity mortgage company to figure out exactly how much money you can borrow.
2. Start your mortgage application
To begin the mortgage application process, you need to contact a mortgage broker agency and an associate will arrange a meeting with you, which can take place in person or over the phone. Here you can expect to have a professional with plenty of experience in the industry walk you through the process and explain the various options at your disposal.
3. Understand the different mortgage programs available
Home financing loans do not come in a one size fits all package. There are several different types available and the one that is right for you will depend on your current financial situation and how you see yourself paying off the mortgage over time.
In order to get the package will be most beneficial for you in the future, it is necessary to understand the benefits of each available option. Here is a breakdown of the four main types of home financing loans.
Fixed rate mortgage
With a fixed rate mortgage, you are typically looking at a term that will last anywhere between 1 to 10 years. As the name implies, you can expect your monthly payments to remain the same throughout the entire period of time.
This is generally a good option for people who are planning to stay in the home on a more permanent basis, expect their income to remain the same over the coming years, and appreciate the stability of a fixed payment.
Adjustable rate mortgage
An adjustable rate mortgage has a shorter time frame, typically lasting between 3 to 5 years. A key feature here is that the interest rate will fluctuate during that time.
As the monthly payments will not be stable, this is a better option for people who don’t intend to stay in the home for more than 5 years, are more comfortable with increased risk, and anticipate that their income is likely to go up.
Combination rate mortgage
Essentially a blend of the two options mentioned above, a combination rate mortgage is a good option for those who want to manage risk while still taking advantage of both long- and short-term rates. It is important to remember that monthly payments will still change periodically when agreeing to a combination rate mortgage.
4. Consider home equity lines of credit
Home equity lines of credit are designed to give homeowners access to more funds and increased flexibility. A home equity line of credit is essentially a line of credit secured by your home that will give you access to borrowing power based on a percentage of your home’s value.
5. Collect documentation and mortgage submission
The mortgage application process also involves the submission of several different documents. These include items like job letters, pay stubs, and offer to purchase. The exact documents will depend on your unique situation, so it is important to check relevant guidelines. Once they have all been completed, your mortgage associate will then present your application and try to find you the best mortgage financing product and rate currently available.
6. Wait for mortgage approval and finalization
Once the mortgage has been approved, the associate will send the mortgage approval commitment to the client via email or fax. Following this, they should review the commitment with you and ensure that everything is clear and understood. It is important to look at things closely before signing, to confirm that the interest rate and loan terms are what you were promised and that all personal information is correct.