You’ll learn your maximum loan amount, which helps you shop within your budget

You’ll learn your maximum loan amount, which helps you shop within your budget

I’ve written a comprehensive article that explains the pre-approval process in detail. So I’m not going to repeat it all here. Here’s the nutshell version.

You can apply for a mortgage by getting pre-approved first. I strongly recommend this strategy. This is when the lender reviews your financial situation to determine how much of a loan they’re willing to lend you. In most cases, this is the first time you actually fill out the mortgage application.

You’ll get two useful items from this process. The first is a number, and the second is a document. You’ll also get a pre-approval letter, which helps you when making an offer on a house. The sellers will take your offer seriously if you’ve been pre-approved already.

Let’s recap some of step we’ve covered thus far. You’ve decided which type of mortgage loan you want to use. You’ve been pre-approved by a lender. Now you know how much of a loan you can get. So you’re ready to start house hunting!

Remember, you can’t get your final loan approval until you’ve found a home and made an offer. So the house-hunting process technically falls within the scope of our How to Apply for a Mortgage tutorial.

Once you find a home that (A) meets your basic needs and (B) falls within your budget, you’re ready to make an offer. This might involve some negotiating on your part. When the seller finally accepts your offer, you can proceed with step #8 below.

In order to approve the loan, the lender will need a copy of the purchase agreement. They want to know how much you’ve agreed to pay for the house. Why is this so important to the lender? Because they need to ensure the house is worth the amount you’ve agreed to pay for it.

Just because you apply for a mortgage and get a pre-approval doesn’t mean you’ll get a final approval. The lender needs to evaluate the house as well as the borrower. And this is where the home appraisal comes into the picture.

Does your credit history show a pattern of responsible credit usage?

The lender will pay a professional appraiser to determine the current market value of the property. (They will pay for the appraisal fee up front, but it might show up in your closing costs later on.)

At this point, your loan application will be handed off to the underwriter for a closer review. Mortgage lenders use the underwriting process to further verify your credentials as a borrower. Basically, they’re trying to determine if the risk associated with giving you a loan falls within their guidelines and parameters.

If the home is valued at an amount equal to or higher than the amount you’ve offered, the loan will move forward

The underwriter uses the three C’s to measure this risk — credit payday loans Arkansas, capacity and collateral. Do you have the financial capacity to repay the loan, based on your current income and debts? Does your down payment meet the lender’s collateral requirements?

If the underwriter gives you a green light in all of these areas, there is a high likelihood you will be approved for the loan. It’s a good thing too. At this point, the last thing you want to do is apply for another mortgage loan with another lender. That can be exhausting. That’s why home buyers tend to hold their breath during the underwriting process.

The lender might request additional documents from you at this point, too. You might have to jump through more hoops, as well. The last time I applied for a loan, the underwriter came back and said our debt-to-income ratios were too high. They weren’t a problem during the pre-approval process, but they raised a red flag with the underwriter. So we had to pay off one of our credit cards to get the final approval. Be prepared for surprises during the underwriting process.

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