Step-by-Step Guide to the Home Loan Process
Buying a home is a big process, especially for first-time homebuyers. It creates a lot of stress and at times, can be extremely overwhelming. The search to find your dream home with all the added features you want is hard enough, so focusing on the home loan process shouldn’t cause you extra strain. To help make sure that you’re focusing on what really matters in a home search, we’ve put together a step-by-step guide on everything you need to know about the home loan process. As a reminder, each borrower often faces differences throughout the home loan process, so if you have any questions don’t hesitate to reach out to your realtor company.
The first step in the entire process of getting a home loan is the pre-approval process. This will help you determine your budget, so it should be done first to avoid overspending or getting your hopes up about a house you can’t afford. The pre-approval process generally takes less than two weeks, but can take longer if you’re not efficient. We recommend talking to a few different lenders to get a feel for the varying interest rates that you’d be approved of. This makes a huge difference over the course of owning a home, so it’s important not to rush through the pre-approval process.
During the pre-approval process, you will need to show proof of income, verification of employment, employment history, any documentation of personal assets, and a comprehensive list of any outstanding or current debt that you owe.
Once you get pre-approved, you’ll get the approved interest locked in for 60-90 days, giving you time to search for your new home and put down an offer. Without the pre-approval process, making an offer on a home is a huge gamble and oftentimes considered illegitimate—unless you already have funding for the home yourself.
One important thing to clarify is the difference between pre-approval and pre-qualification. Pre-approval is the process we just described, getting an official notice of approval of a loan from your lender to be used on your mortgage. Pre-qualification is something that people do to get a general idea about their eligibility for a mortgage. It isn’t a guaranteed rate and you won’t have to provide documents to support your information. Pre-qualification is considered an unofficial estimate of what your loan would be. Pre-approval is the official amount of what your loan is.
Finding a Home
Now that you’ve been pre-approved and you know what you can and can’t afford, the search for your new home begins. A lot of people find this the fun part, but it can be stressful. Many buyers are looking for their dream home, in a specific location, under a specific budget. It’s important to be realistic though, which might mean making a few sacrifices.
To avoid being completely disappointed, take the time to go through your absolute must-haves. Make a list. What is non-negotiable? What can you live without, but would be nice to have? Understand that while your house might not come with all of the add-ons you want, you will always be able to make changes later on, when your financial situation is stronger and you’ve paid off some of your mortgage. Don’t put yourself on a short leash from the beginning and go over your budget. It will create a lot of stress and if not handled properly, will ruin your credit. No body finds their perfect dream house as is. Just be realistic and open to options.
Once you’ve determined everything that you absolutely need in a home, find a real estate agent to work with. This helps you find what you’re looking for, fast. Real estate agents have access to houses that many homebuyers wouldn’t see on their own. Plus, they can enter your requirements and narrow down the search, which will save you tons of time and energy. Let your agent know what you were pre-approved for before house hunting begins. If you take longer than the 60-90 days given for pre-approval by your lender, you will likely have to repeat the pre-approval process. If you find yourself here, go back to the same lender to avoid elongated processes. Most people spend about one to two months searching for their home, longer depending on specifications.
Making the Offer
Once you’ve found a home that you love, it’s time to make an offer. Don’t let outside distractions push your budget to the back of your mind. If there’s another person making an offer, don’t opt for a higher offer just to out-bid them if it means going over your budget. Remember that you still need to give a down payment and pay for any closing costs so don’t get carried away with your negotiations.
Submitting a Mortgage Application
If the owner accepts your offer, congratulations! The next step is submitting a mortgage application. This is different from the pre-approval process, but still deals with your loan. During a meeting with your approved lender, you’ll get a chance to look at different loan programs. Once you choose your specified program, you can begin filling out your mortgage application. You’ll need to gather certain documents to submit alongside your application so talk to your lender about what you will need for your specific loan program.
Purchasing Your Home
The next few steps are done after your mortgage application is submitted. This continues the process of actually purchasing your home.
After submitting your mortgage application, you will receive a loan estimate. This is complete with closing costs, down payment, APR, lay payment fees, title insurance, title loan amount, monthly payment amount and number of monthly payments for the mortgage, and the overall term of your loan. This is a comprehensive breakdown of what you’ll need to pay.
Order a Home Inspection and Appraisal
Before closing, to make sure that nothing is wrong with your home, you will need to schedule a home inspection and a home appraisal. This is when a third-party comes out to make an inspection and note the condition of the home you’re looking to buy in terms of safety, value, and code violations.
For home inspections, while it seems like an added cost, it’s a way of giving yourself reassurance that you won’t start finding problems with your new home after you’ve already closed. Home inspections bring both large and small problems to light, which you can use to negotiate further. For example, if you have major repairs that will be needed, you can let the current owner know that they can either lower the list price or get the repairs fixed prior to new buyers moving in. Every home will be different, but you don’t want to move in only to find that there are termites, black mold, or structural problems.
For home appraisals, if your home comes out to be valued at less than the offer price, you have a chance to either renegotiate or back out of the sale. If your home is valued at either the offer price or higher, you can continue on with the sale.
The final step before closing on your new home is the mortgage underwriting. This is essentially a process to double-check your mortgage application, done by the underwriting department. They go over all of your financial information and if they have any questions, they will reach out to clarify. In this step, you can expect to provide clarification for one thing or another. Cooperation is the key in making this go as smoothly as possible.
Finally, you’ll be on your way towards closing. Before you can officially close on a home, you will need to purchase homeowner’s insurance. You’re using a third-party lender and they want to make sure that your home will be covered in case of any damages. It’s a safeguard for lending companies, but it’s also a smart move for any homeowner regardless. Once homeowner’s insurance is verified, the funds will be released and you will need to give your lender a certified check to cover any and all down payment costs and closing costs.
The only thing that’s left to do is read all of the documents thoroughly, clarify any questions or areas of confusion, and sign everything with a notary present. Now it’s time to celebrate!
First Star Reality is committed to providing five star realtor services to Northwest Arkansas. We’ll work with you throughout the entire buying or selling process to give you the piece of mind you need during such a life-changing experience. In fact, our philosophy is that our clients always come first, which is why we only measure achievements through client satisfaction. If you’re ready to buy or sell a home, contact us today. Our team of highly seasoned real estate professionals is dedicated to providing exceptional, personalized service to all of our clients. Call us today at 479-267-1600 or fill out a contact form on our website.