What to Know About Applying For a Mortgage Loan

You’ve heard there’s no place like home, but the truth is, there’s no place like your first home. This is the special place that is completely your own, where you will experience so many of your life’s “firsts” — from hosting your family for holiday dinners, to enjoying a new level of independence, to personalizing the rooms where your happiest moments will take place.

If you are ready to make this exciting step, you may have done some research about getting started, which means you have probably read a little bit about mortgage loans. We understand that all of the mortgage loan advice you come across may sound a bit overwhelming. And that is totally okay. After all, this is a completely new experience for you — and above all else, you should be proud of your decision to take the leap.

When it comes to applying for a mortgage loan, it is most helpful to have clear-cut information laid out for you. With an easy reference to look back on, you will feel more confident and informed about what’s to come.

You do not have to pay the full cost of your home up front, out of pocket. Instead, you can obtain a home mortgage loan. A mortgage loan is a financial transaction, where a borrower (buyer) borrows money from a lender, and agrees to pay it back over time. 

A mortgage interest rate is a percentage of your mortgage loan that you pay off on a monthly basis, along with your principal payment, until your mortgage loan is paid off completely. You can think of a mortgage interest rate as the “cost” of borrowing money to purchase a home.

Step 1: Check your credit score.

You are entitled to one free copy of your credit score report per year, so you can visit websites like annualcreditreport.com to check yours. Scores range from approximately 300 to 850. Generally, the higher your score, the better the loan you can qualify for. If your score is low, don’t worry — you have options to improve it such as paying your bills on time, paying off debts, keeping your credit card balance low, and many more options to improve your credit before you apply for your mortgage loan.

Step 2: Figure out how much you can afford.

This may seem like a scary step, but it doesn’t have to be! An online mortgage calculator makes it super easy to calculate an affordable monthly mortgage payment. This will help you determine the right price range for your budget. Once you get a good idea of what your monthly mortgage payment could look like, make sure to factor in the money you will need for a down payment and your closing costs.

Down Payment: A percentage (i.e. 10%) of the full price of your home that you pay up front

Closing Costs: The fees, such as title and appraisal fees, that you pay when you close on your home 

Step 3: Find the right lender.

A lender will provide you with your mortgage loan. They range from direct lenders, like banks and credit unions, to other kinds of lenders like mortgage brokers. As a first-time buyer, we understand that it may feel overwhelming to have so many choices, but the good news is that there are lenders who specialize in working with first-time buyers. 

There are many lenders out there to choose from but our preferred lender has all the resources you need and is available to answer any questions you may have !

Step 4: Prepare your documentation.

You may already know that the process involves a bit of paperwork. (But trust us, this isn’t as confusing or difficult as it sounds!) Once you have found the right lender, the documentation you will typically be asked to provide include:

• 30 days of your most recent pay stubs
• Two months of your most recent bank statements for all accounts
• Two years of W-2s and 1099s
• Two years of tax returns (including all schedules)
• Recent copies of any stock brokerage or IRA/401k accounts
• Driver’s license and social security card
• If you are self-employed: Your year-to-date profit and loss statement
• If applicable: Copy of divorce decree and/or child support court orders

Step 5: Determine the kind of home you want.

This is the fun part! Make a list of all the features you are looking for in a new home and community, from the number of bedrooms and bathrooms to the type of neighborhood. Our team will then help you determine the best options for you depending on your price range!

Step 6: Choose the best mortgage for your situation.

Adjustable rate mortgages (ARMs) are short-term mortgages that offer an initial fixed interest rate for a short period of time, usually between 1 to 7 years. After that, the interest rate can adjust every year (either up or down), depending on the market. These mortgages are good if you do not plan on living in your home for very long, or if you are looking for a lower interest rate and payment.

 Fixed-rate mortgages are more traditional and offer a fixed interest rate and a fixed monthly payment for a longer period of time, usually 15 or 30 years (although they're also available in 20 or 25 year terms). These mortgages are good if you want a predictable monthly payment and plan on living in your home for a long time.

Step 7: Get approved for a mortgage. 

After you sign a purchase agreement for your new home, your lender will pull together all of the information needed to process your mortgage loan. This will include a completed application with loan disclosures, as well as the documentation you have already provided. Your completed application will be passed to an underwriter, who will check your eligibility for your mortgage loan, based on factors like your income, employment history, and credit history.

Step 8: Close on your home.

The closing process is also known as “settlement” or “escrow,” and will bring together everyone involved in your home’s transaction. You can talk to your lender about the costs that will be involved, so there are no surprises! At closing, you will sign all the paperwork required to complete the purchase, including your loan documents. Once the paperwork is returned to the lender… you are ready to move into your new home!

No matter where you are in your decision process, we want you to know that you never have to feel intimidated. Most importantly, you are always entitled to ask as many questions as you want. (There are no wrong questions!) And of course, feel free to use these mortgage loan tips whenever you need it. We can’t wait for you to experience the joy that comes with owning your very first home!