Understand Your Home Loan Process Stage 1:
Getting Prepared
While buying a home can be exciting, it can also be overwhelming and confusing for some people. It is important to understand how the mortgage process works and the steps you need to take to make this journey a successful experience.
We have designed a step-by-step breakdown that will help you navigate the home loan process quickly and easily.
Our goal is to educate you by explaining the details of every step, including the people involved in the mortgage process, the documents and forms you need to submit, and all costs and fees associated with your loan.
Examine Closely Your Financial Situation
Before your start the loan application, you must determine how much you can afford. Knowing your financial standings before you talk to your lender will make this process go more smoothly.
It is important to gather all the information you need to start the process. This will help you move quickly and increase your chances of being approved by your lender. But before you start searching for your perfect home, review the following three steps first.
Review Your Credit Score
Lenders require a credit report before you can take out a new mortgage loan; therefore, it is time to get your credit score in shape. Your credit history is one of the most important factors in getting a loan with a good interest rate. Make sure you check all three credit score agencies (Equifax, TransUnion, and Experian) before you contact a lender.
By checking your credit score ahead of time, you can have the opportunity to analyze it and find ways to improve it. You may be able to correct mistakes and errors, pay off debts, close credit cards you no longer use, and most importantly use your credit wisely. It will also give you a chance to rectify outdated information that should no longer be included in your credit report.
A good credit score will help you secure a lower interest rate or be eligible for a larger loan. Also, make sure you avoid common credit score mistakes during the loan application process.
Start Savings for the Down Payment and Other Fees
Buying a home is a big commitment, responsibility, and one of the largest purchases you will ever make; consequently, you should start saving now. The average down payment is 20 percent of the price of the home, with the exception of VA mortgage loans. A 20 percent down will help get a better interest rate and avoid paying Private Mortgage Insurance (PMI). A $200,000 home would require $40,000 down to avoid paying PMI.
Also, keep in mind that there are other costs associated with your mortgage loan, such as fees for appraisals, credit reports, title services, and settlement costs. Those expenses can easily exceed $10,000.
Work on Your New Monthly Budget
It is important to create a spending plan that will help determine how much you can pay every month. We suggest you build a plan based on your normal monthly spending practices.
You may want to contact a homeownership education counselor for assistance in evaluating your income and expenses. This will help decide on a monthly mortgage payment that allows you to live comfortably.
Keep in mind that your mortgage payment may be more or less depending on different factors, such as loan types and rates. It is important to prepare yourself for how much you can spend each month before you consider taking a mortgage loan.
Become Familiar with the Real Estate World
Before you start with the loan process, make sure you become familiar with some common terms associated with real estate interest rates, loan types, and other terminology. Start by understanding:
- Length of your loan: 15-year vs. 30-year loans
- Interest rates: Fixed vs. Adjustable Rate Mortgage (ARM)
- The difference between interest rate and Annual Percentage Rate (APR)
- Fees and costs that are part of your mortgage loan
You can also obtain information from other sources that can help you learn about the home buying process, such as:
Additional Information You Should Know
Knowing the process will assist you find your way through the different stages in your loan application. Review the sections described in Your Home Loan Process series to understand how it works.
Completing the Loan Application explains the different sections in the Uniform Residential Loan Application, to make sure you understand how to complete the application accurately.
Loan Processing details how your loan application flows throughout the loan process, including gathering documentation about your finances, your employment, and ordering appraisals.
Mortgage Underwriting discusses the responsibilities of the mortgage underwriter, such as evaluating your credit history, assets, debts, employment, and other considerations.
Mortgage Closing explains the final steps in buying your home – your role, your rights, and all details to ensure success when transferring the property to you.
Loan Mortgage Transfer describes what to expect if your lender transfers the servicing of your mortgage loan to a different company after you close on your home.
Understand the Loan Process
If you want detailed information on how your home loan works for you, be sure to contact a Loan Officer at ACG Funding. They will assist you with your loan application and guide you during each stage of the loan process.