This article explains the five primary stages of the mortgage loan process. There may be steps in addition to what’s covered here, but in general this article will let you know what to expect.
- It’s a good idea to do a self-evaluation of your finances before applying for a mortgage.
- Your information is verified in a step called processing, then during underwriting an approval decision is made. If your mortgage is approved, funds are transferred for you to buy the home at the closing.
- Your mortgage loan officer is available to help through the entire process. If you have a question—just ask!
As you get started on your home buying journey, you may be wondering what the process of taking out a mortgage looks like. We’ve broken the mortgage loan process down into five simple steps.
1. Evaluate Your Finances
The first step of taking out a mortgage is to evaluate your finances. You want to make sure you can handle your new monthly mortgage payment, so it’s a good idea to compare your monthly income to your monthly expenses. Remember to also plan for any large future expenses or lifestyle changes that may impact your income or outgo. It’s wise to consider the future when answering the question “how much home can I afford?”
It may also be helpful to use our Mortgage Payment Calculator to see what your new monthly payment would be using the current rates. Don’t worry if you feel overwhelmed by your various loan options. We’ll help you understand these options so you can decide which mortgage is best for you.
If you’re buying a new home, you may want to consider getting preapproved. While a preapproval is not a guarantee for a loan, it will give you a better idea of how much money you can borrow, while also showing sellers you are a serious buyer who has the financial strength to back your offer.
“Applying” for a mortgage is simply the process of requesting a specific loan, for a specific amount and period of time, for a specific property.
You will be ready to formally apply for a mortgage once you’ve found the home you want to buy. It may, however, be a good idea to start collecting documents and the needed paperwork before that point. The full list of documents you’ll need will vary depending on the type of loan you’re applying for, but here’s a starter list:
- Tax returns
- Pay stubs, W-2s or other proof of income
- Bank statements and other assets
- Credit history or credit check
- Gift letters (if anyone gives you money to buy your home)
- Photo ID
- Rental payment history
Your mortgage loan officer will be available to help answer any questions you have during this process. They will help you understand the various mortgage products available so you can determine the solution that’s best for you. If you’re ready to get started on your application you can do so here. You can save your progress to come back and finish later.
After your application is submitted it moves to processing. The Loan Processor is responsible for verifying and organizing the information provided in your application, and making sure everything is in place so the Underwriter can make a formal decision on whether to approve your loan.
The most important thing you can do during this step is to quickly respond to any requests for additional documents or information. Delays in your response time can lead to delays in the overall time it takes to process your application.
Once the Processor’s work is complete, your application will go to underwriting. The underwriter is the person responsible for analyzing your application with a fine-tooth comb.
The information and documentation you’ve provided is reviewed to determine if it meets the requirements of your chosen loan program and to identify any additional documentation needed. They evaluate things like your credit, existing debts, payment history, income, and look to see how much money you have for a down payment.
Tip: Once again, during this stage it is important to remain vigilant and promptly respond to any requests you receive for additional information.
The Underwriter’s findings are summarized as “Three C’s”: Capacity, Credit and Collateral.
- Capacity – can your finances handle taking on the new mortgage?
- Credit – do you have a credit history that shows you paid previous loans or debts on time?
- Collateral – does an appraisal of the home confirm its value is high enough to be worth funding the loan you’re applying for? This is also known as Loan-To-Value Ratio (LTV). Read this article to see how LTV is affected by down payments
If everything looks good after this detailed analysis, your loan will be approved and your application is cleared to go to the last stage: closing.
Once your loan has been approved, the final documents for your loan are prepared and a date, time, and location to close your loan are determined. All parties involved in the transaction will sign these documents, and the loan will officially be closed.
Once this happens, you and anyone else listed on the mortgage will become responsible for repayment of the loan. Depending on your loan program you may also be responsible for making a down payment at the closing.
It’s vital that you clearly understand the repayment terms of your mortgage before signing your closing documents. Your loan officer will be happy to answer any final questions you may have before you close. They’re also looking forward to celebrating when you become the official new homeowner!
Ready to get started?
Contact your credit union mortgage loan officer to learn more about getting a mortgage