It’s time to apply for a home loan once you find a house that meets your budget, needs, and preferences. Applying for a mortgage means selecting a lender and completing an application.
The good news is that the home loan application process has become easier these days, thanks to many lenders now offering online options to interested applicants, however not knowing how to complete the application process correctly may still result in you forgetting to list important details, such as a co-borrower (when required) or your bank account details. Forgetting to include critical information could lead to snafus later.
Follow the following steps if you’re not sure what to expect when applying for a mortgage.
1. Prepare The Required Home Loan Documents
Mortgage lenders will be interested in your overall financial situation, creditworthiness, and employment history. You and your co-borrower will be required to prepare and provide documentation to your lender, to help them verify that information. Documents you’ll want to ensure are ready before completing your application include:
- Recent pay stubs that cover at least two most recent months
- Self-employed documentation, including a copy of the most recent year-to-date or quarterly profit/loss statement if you’re self-employed
- W-2s (Internal Revenue Service tax forms) for the last two years including all pages and relevant schedules of signed business and personal returns.
- Complete bank statements for the last two months for all your financial accounts, including investments
- A copy of the signed agreement between you and the seller (Purchase and Sales Agreement)
Depending on the type of home loan you’re applying for, and your own personal circumstances, the lender may require additional documents. As part of the process, the lender will also run a credit report with your permission.
2. Choose The Right Mortgage Type For You
There are different types of home loans. They differ based on the terms of the loan and whether or not the mortgage is government-backed or not. Below are the most common mortgage types and their benefits.
- 30-year fixed home loan – The interest in this type of mortgage doesn’t change over the loan’s full term. It also gives borrowers the lowest fixed-rate payment.
- 15-year fixed mortgage – This home loan works the same as a 30-year fixed one. The only differences include a lower interest rate and the opportunity for the borrowers to pay the loan off faster.
- USDA mortgage loans – the Department of Agriculture of the USA backs this type of home loan. It’s offered in USDA-eligible rural areas and it requires zero down payment from borrowers.
- VA home loan – This type of mortgage is for eligible veterans, active-duty service members, and service members’ spouses. The US Department of Veterans Affairs guarantees VA home loans. It doesn’t require a down payment or minimum credit score.
- FHA loan – The Federal Housing Administration is the organization backing FHA loans. These loans require a 3.5% down payment for borrowers with credit scores down to 580. Those with credit scores of 500 have to pay 10% down.
3. Choose The Right Type Of Lender
The best way to select the perfect lender for your mortgage needs is to get estimates from at least three companies offering home loans. To do this, you can make a list of your preferred lenders and talk with a representative from each company. Comparison rate websites can also help if you want lenders to contact you before even submitting your application.
Some options to help you explore home loans are:
- Banks – Most institutional banks now offer mortgages. If you have a significant amount of savings for a deposit, you may be eligible for a home loan with a lower rate. Keep in mind that banks generally have higher interest rates, not to mention they maintain stricter lending standards.
- Credit Union – As a credit union customer, there’s a good chance you’ll see lower closing costs and fees reductions as your mortgage commences. If you’re a member, you’ll likely also get a lower interest rate for your home loan. Locating a neighborhood credit union is as simple as searching ‘find a credit union near me‘, and these institutions generally offer lower rates because they operate as non-profit institutions.
- Mortgage brokers – Choose a mortgage broker if you want more options for your home loan. Mortgage brokers work with multiple loan companies, although it’s important to note that brokers don’t have a say in whether your mortgage is approved or not. The decision when it comes to your loan’s approval and terms will still be in the hands of the lender.
4. Fill Out The Application
The actual application process becomes quick and easy once you’re done completing the steps above. The next step is to decide which method you’ll take when applying. You can apply for a home loan in the following ways:
- In-person – The in-person mortgage application is the traditional way of applying for a home loan. You’ll visit the lender’s office and talk with their loan officer.
- Over the phone – You can also apply by phone. You’ll speak with a loan officer who will walk you through each of the application’s sections.
- Online application – Many lenders also now offer online application options to potential borrowers. You can use your desktop, laptop, or smartphone to fill out the application form.
Final Thoughts
The lender or broker (if you chose to work with a mortgage broker) will keep in contact with you regarding your application’s progress once you’ve completed all the steps listed in this post. If you’re approved, you’ll receive an official document containing your home loan’s conditions. So, keep your lines open and be sure to check your email inbox regularly.