Buying a home is one of the most exciting things you will ever do in your life. For most Americans, buying a home is done with a mortgage. Getting a home loan isn’t just a big step, it’s a whole set of stairs- and it can take a long time to get to the top. Ready to learn how to get a mortgage loan? Here‘s how to get a mortgage loan, step-by-step we provide you.
How to get a mortgage loan- Step by Step
Step 1: Financial check
Before you start taking out a mortgage, make sure you’re financially prepared for home ownership. A home is a big purchase- possibly the biggest purchase you’ll ever make- so it’s no surprise that lenders really do research a borrower’s finances before making a loan.
Step 2: Choose a mortgage type
You’ll need to evaluate your options to decide which type of mortgage is best for your needs. Mortgages can have a fixed or adjustable interest rate, meaning that the interest rate stays the same for the life of the loan or changes over time, respectively. Most mortgages have maturities between 15 and 30 years.
Step 3: Gather the necessary documents
Lenders require quite a bit of documentation as part of the mortgage approval process, so it’s a good idea to gather everything before you’re ready to apply. Here’s what you’ll need:
- Income Verification: First, you’ll need to show that you have the income to support your mortgage payment.
- Proof of Assets: You can get a mortgage with the help of additional assets in addition to income. Ask for bank statements for checking and savings accounts, retirement accounts, and other brokerage accounts.
- List of liabilities: Lenders may also ask you for documentation regarding outstanding debts, such as credit card balances, student loans, or any existing home loans.
Step 4: Submit your application
Even if you are pre-approved, you will have to submit your most recent financial information when you officially apply for a home loan. Within three days of receiving your application, the lender will provide you with an estimate of the initial loan and associated costs you will have to pay.
Step 5: Wait for loan approval
Your application will be examined, and a credit check will be done by the lender. If your application is accepted, you’ll get a loan estimate outlining the conditions and fees of the loan.
Step 6: Close the loan
If you accept the loan estimate, you’ll sign the loan documents and provide any necessary funds. The loan will then be funded and the property will become yours.
What are mortgage lenders looking for?
- Credit score: If your credit history shows a reliable repayment pattern, low credit utilization, a good credit mix and not too many credit requirements, you may have a credit score that will yield and gives you one of the best interest rates.
- Income and employment: The amount of money you bring in and a steady job are key factors in getting a mortgage approved. A steady job and income high enough to pay monthly will help you qualify for a mortgage.
- Asset: Your lender will want to see how much the money in your bank account and any other assets (like a second home or investment) are worth.
- Debt-to-income (DTI) ratio: As mentioned above, the debt-to-income ratio is a calculation that lenders make to gauge a borrower’s ability to manage mortgage payments. If you have too much debt and your DTI ratio is too high, you may have trouble qualifying for a mortgage, even if you have a steady income.
Frequently asked questions about mortgage loans
– What distinguishes an adjustable-rate mortgage (ARM) from a fixed-rate mortgage?
A fixed-rate mortgage has an interest rate that remains the same for the life of the loan, while an adjustable-rate mortgage has an interest rate that can change over time, typically every 1, 3, or 5 years.
– How much money do I need for a down payment on a mortgage loan?
The amount of money required for a down payment on a mortgage loan can vary, but a common requirement is a down payment of 20% of the purchase price. However, there are loan programs that allow for lower down payments.
– Can I prepay my mortgage loan?
Yes, you can prepay your mortgage loan by making extra payments toward the principal balance. This can reduce the overall cost of the loan and help you pay off the loan faster. Some mortgage loans may have prepayment penalties, so it’s important to check with your lender before making extra payments.
– How is my monthly mortgage payment calculated?
Your monthly mortgage payment is calculated based on the amount of the loan, the interest rate, and the loan term (the number of years you have to repay the loan). The payment amount is usually divided into principal and interest, with a portion going towards paying down the loan balance and a portion going towards paying the interest on the loan.
Getting a mortgage loan can be a complicated process, so it’s important to work with a lender you trust and carefully review all the terms and costs involved. Make sure to give your options considerable consideration and take your time. Hope this article has given you a detailed look at how to get a mortgage loan in 6 steps.