How to Apply for a Home Loan
The overall process of acquiring mortgage approval can get pretty confusing, especially for first-time home and property buyers. But the good news is, this article will guide you through the basic steps of applying for a home loan approval process. This guide will help you find the right home loan for your financial needs in the best possible way.
Step 1: Pre-Approval of Mortgage
Pre-approval is similar to pre-screening; this process determines if you're qualified for a home loan. It evaluates the financial capability of the lender, primarily his or her assets, debts, income, credit scores, and reports. During this process, the lending institution will inform you about the amount they're willing to give you, and they will also provide you with a pre-approval letter.
This is a crucial and beneficial step in the home loan approval process, as it narrows down your options. Without this step, you may end up wasting your time and energy by looking at house and property options that are way above your budget and financial capability.
Step 2: Home Searching & Offer
After you passed the pre-approval stage and were granted a certain amount of loan, you can now proceed on searching for a house that is within that cost. This stage allows little to no involvement for the home loan lender, as this solely and heavily rely on the real estate contractors and buyers.
The home loan lender then returns to the picture right after you've decided to buy a certain home. Right then and there, you'll be needing to move into the next stage of the home loan approval process.
Step 3: Application of Home Loan
Once you've finished the first two steps, now is the time to process your mortgage approval and apply for a home loan. The process may vary depending on where you live. However, most lending institutions comply with the standard form--the "Fannie Mae form 1003" or also known as the Unifrom Residential Loan Application.
In this type of application, information about the property will be asked, the type of home loan to be used, and information about the borrower will be asked.
Step 4: Processing of Mortgage
This stage involves the collection and reviewing of the submitted documents relating to the borrower and the intended property to be purchased. In here, the lending institution will be needing to review and ensure that all the submitted documents met all the needed requirements for the next step, which is the underwriting process.
The necessary documents may include:
- Tax records
- Home appraisal
- Bank statements
- Asset and income order
- Credit report
- Employment letters
- Purchase agreement
Step 5: Underwriting of Mortgage
In this stage, an underwriter will carefully examine all the submitted documents given by the borrower, in order to make sure that the borrower has complied with all the guidelines and requirements for the approval of the home loan.
The three C's involved here:
- Credit
- Capacity
- Collateral
The underwriter will evaluate if the borrower and the property match the criteria and eligibility requirements for the loan to push through. This stage also involves the review of the borrower's assets, debt-to-income ratio, credit history, and other financial documents that show the borrower's financial capability.
Step 6: Approval of Home Loan
After the evaluation of the submitted documents by the underwriter, the documents will be labeled "clear to close", which means that all the requirements for the home loan are met. This last step of the home loaning process involves the finalization of the borrower's monthly payments, loan terms, fixed amount to be paid, and other fees.
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