How to Get a Mortgage in 8 Steps


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With a red-hot housing market and rising mortgage rates complicating the homebuying process, being prepared and knowledgeable about the mortgage process before you start home shopping is more important than ever.


According to a 2021 report by the National Association of Realtors, 87% of recent buyers financed their home purchase, with first-time homebuyers financing 10% more of their home on average than repeat buyers. That means the people who will experience the greatest impact from getting the right mortgage and terms are likely also the ones who have the least experience with the process.



Getting a mortgage is simple in theory: show a lender you are likely to pay back the loan plus the interest. Beneath the surface, though, there are a lot of moving parts. Even small choices in how you prepare for homeownersship, or what type of mortgage you get, can have big consequences for your bank account.


PRO TIP

Two of the best things you can do to get the best mortgage rate are taking the time to build up your credit score and saving for a down payment of at least 20%.


It’s all about working with a lender you feel comfortable with and you trust to understand your situation, says Kevin Parker, vice president of field mortgage originations at Navy Federal Credit Union. No two loans are exactly the same, he says, so getting guidance on what makes sense for your situation in the short term and the long term is key.


Here’s what you need to know about how to get a mortgage and how to choose the right mortgage and lender for you.


Getting a Mortgage, Step by Step

Buying a home, especially if it's your first time, can be a complicated and stressful process. But it can be easier if you give yourself enough time to prepare and put together a team of professionals who are familiar with the area you want to live in. Working with an experienced real estate agent and lender or mortgage broker can help you navigate the process.


Here are the steps to getting a mortgage, from preparation to closing:


Get Your Finances in Order

Know How Much Mortgage You Can Afford

Get Preapproved for a Mortgage

Choose the Right Mortgage and Lender for You

Figure Out If You Need to Get Private Mortgage Insurance (PMI)

Submit Your Application

Navigate the Underwriting Process

Close on the Home

Frequently Asked Questions (FAQ)


1. Get Your Finances in Order

Preparing your finances is increasingly important right now, as higher mortgage rates and housing prices have made homeownersship increasingly expensive, especially for first-time homebuyers. Sean Moss, the executive vice president of product and operations at Down Payment Resource, recommends you start the process by talking with a loan officer. Even if you think homeownership is beyond your reach, there could be a 6-12 month plan you can start working on now before your next renewal, he says.


You should focus on two things: Building your credit and saving your cash. Having more cash on hand and a stronger credit score will help you be able to afford a wider range of homes, making the time it takes to shore up both well worth it.


Your approval odds and mortgage options will be better the higher your credit score. And while it may be possible to get a mortgage with bad credit, it'll come with extra costs you'll want to avoid, if at all possible. The lower your credit score, the higher your mortgage interest rate (and thus financing costs) will be. So, strengthening your credit by paying your bills on time and paying off debt can make a mortgage more affordable.


2. Know How Much Mortgage Can You Afford

To get a good idea of ​​what your monthly mortgage payment will look like, you can use NextAdvisor's mortgage calculator to estimate your monthly payments. But keep in mind that how much you feel you can comfortably fit into your budget may be more or less than what a bank is willing to lend to you.


One of the ways your mortgage lender determines how much you can borrow is by looking at your debt-to-income ratio (DTI). The maximum DTI you can have varied depending on the type of mortgage, but typically it's in the 45% range. So if you make $6,000 a month, you may be able to secure a mortgage with a payment of up to $2,700 a month, if you have no other debt.


But just because you can borrow that much doesn't mean you should. A good rule of thumb is to have a DTI that's no higher than 36%. That includes not just your mortgage payment, but all of your other monthly debt payments. To keep a DTI of 36% or less on that same $6,000 a month income, you could have up to $2,160 combined monthly debt and mortgage payments.


3. Get Preapproved for a Mortgage

Getting preapproved for a mortgage gives you a good idea of ​​how much you can borrow and shows sellers you are a qualified buyer. To get a preapproval, a lender will check your credit score and proof of your income, assets, and employment. Even though a preapproval letter doesn't guarantee you'll qualify for financing, it shows the seller you have your finances in a place to pass an initial cursory examination from a lender.


Most preapproval letters are valid for 60-90 days, and when it comes time to apply for a mortgage all of your information will need to be reverified. Also, don't confuse preapproval with prequalification. A prequalification is a quick estimate of what you can borrow based on the numbers you share and doesn't require any documentation. So it's less strictness than a preapproval and carries less weight.


4. Choose the Right Mortgage and Lender for You

When looking for a mortgage it’s a good idea to shop around to compare rates and fees for several lenders. When you submit a mortgage application, the lender is required to give you what is known as a loan estimate within three business days. Every loan estimate contains the same information, so it's easy to compare not only interest rates, but also the upfront fees you'll need to pay. Once you have several loan estimates in hand, you can compare and even use the different offers to negotiate with the lenders for better rates or fees.


You should also understand how different types of mortgages affect your situation. Depending on what kind of mortgage you choose, you can have a different down payment requirement. And different mortgages have different repayment terms, which impact the size of your monthly payment and how much interest you'll pay over the life of the loan.


5. Figure Out If You Need to Get Private Mortgage Insurance (PMI)

Private mortgage insurance (PMI) protects a lender in case the borrower defaults on their loan, so it's your lender's call whether they want to require PMI on your loan. Generally, lenders will require private mortgage insurance on loans with a down payment of less than 20%. PMI may be tax-deductible in certain situations.


However, there are a few exceptions. You don't need PMI on VA loans no matter how much you put down, even if it's 0%. USDA guaranteed loans don't require PMI, but borrowers are instead charged an annual guarantee fee that serves the same purpose. FHA loans require a one-time Up Front Mortgage Insurance Premium and annual mortgage insurance premium (MIP) instead of PMI.


PMI can add hundreds of dollars payments to your monthly mortgage, but it doesn't have to last forever. If you have a conventional loan, you can file a request with your lender to cancel your PMI once you've reached a loan-to-value ratio (LTV) of 80%, meaning you have at least 20% equity in your house. If you don't request a cancellation, your lender must automatically cancel PMI on the date your LTV reaches 78% based on the original payment schedule, per the Homeowners Protection Act.


If you have a USDA or FHA loan, the only way to get rid of mortgage insurance is to refinance to a conventional mortgage. If your LTV when you refinance is less than 80%, you won't need PMI on your new loan.


6. Submit Your Application

Once you're ready to submit your application, you'll need to gather all of the necessary documentation. The lender needs to be able to verify every part of your finances. So, depending on your situation, the list of what you need to submit along with your application can get long.


You'll need to submit documentation such as:


Tax returns

Pay stubs, 1099 forms, W-2 forms

Bank or investment account statements

Government ID

Authorization to pull credit reports

Documentation of your debts

Employment history

Housing history

If you are self-employed or are a freelancer whose income is not recorded on a W-2 form, then you're likely to need to provide even more information. You'll usually need extra documentation such as:


Two years of tax returns and business tax returns

Business bank account statements

Copies of your business licenses


7. Navigate the Underwriting Process

The mortgage underwriting process is when the lender will verify that you are a qualified borrower and give you final approval for the home loan.


Your financial health will be scrutinized during the underwriting process and before the mortgage is issued or your application is rejected. You'll need to provide recent documentation to verify your employment, income, assets, and debts. You may also be required to submit letters to explain things like employment gaps or to document gifts you receive to help with the down payment or closing costs.


The underwriting process is meant to answer one question – is the borrower likely to repay this loan? So during this time, lenders are sensitive to any change in your credit profile. Avoid any big purchases, closing or opening new accounts, and making unusually large withdrawals or deposits.


As part of closing, the lender will require an appraisal to be completed on the home to verify its value. You’ll also need to have a title search done on the property and secure lender’s title insurance and homeowner’s insurance. It can take anywhere from a few weeks to a few months before you wrap it up with a final walkthrough of the property and sign the dotted line at the closing appointment.


8. Close on the Home

Before you get the keys to your new home, you need to finish the closing process, which technically starts when your offer is accepted.


As part of closing, the lender will require an appraisal to be completed on the home to verify its value. You’ll also need to have a title search done on the property and secure lender’s title insurance and homeowner’s insurance. Your lender will also verify that you are still employed during the closing process. They may even require employment verification up to the day of closing.


It can take anywhere from a few weeks to a few months (in a worst-case scenario) before you wrap it up with a final walkthrough of the property and sign the dotted line at the closing appointment.


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