The home loan process can be overwhelming for many home buyers, but particularly for first time buyers. Buying a new home is exciting, but the home loan process can be confusing. Doing the research ahead of time to understand all the steps of the mortgage process and how long this process can take will help you navigate this exciting time.

Figuring Out What You Can Afford

A mortgage will likely become a big piece of your budget, so before you can determine how much of a mortgage to get, you’ll need to determine how much you can afford. Generally speaking, you should budget no more than 25-30% of your total monthly income for your mortgage, and that will include insurance, taxes, and any homeowners association fees. Once you know what monthly mortgage payment you will be comfortable with, you can use online mortgage calculators to determine approximately how much of a mortgage you will be applying for. You’ll also want to take this time to check your credit. To get the best rates for a mortgage you’ll need a score in the mid-700s, so it’s important to know if your credit isn’t quite up to par. If it’s not, you can take some time to work on improving that score before applying for a mortgage.

Pre-Qualification and Pre-Approval

Pre-qualification is different from pre-approval. Pre-qualification has no impact on your credit rating and will give you an idea of how much home you can afford, but it is not a thorough mortgage application and does not guarantee you a mortgage. It may help to think of it as the bank giving you a first look and a starting point and will allow you to compare lenders without taking a hit on your credit report.

Pre-approval involves a credit check and more financial information. The lender you’ve chosen to work with will look at your income, debt, and assets and give you a letter stating how much you can borrow and an estimated interest rate. Having this pre-approval letter before you begin house hunting can give you an advantage since sellers will know from the start that you will be able to secure financing.

Making an Offer on a Home

By the time you begin looking at homes, you should have an idea of your price range and what your mortgage will be based on the work you’ve done prior to this step. This is when you’ll find an agent and look for the right home. Once you’ve found a home, you’ll develop an offer with your agent and begin the negotiation process. Sometimes your agent may suggest that you secure an additional pre-approval letter that qualifies you specifically for the home you want. After you and the seller agree on the price and terms, you’ll sign an agreement and begin the escrow process which typically lasts anywhere from 1-3 months.

Finalizing Your Mortgage

Once you’ve signed a purchase agreement, you will begin finalizing the mortgage. This includes all the contingencies that could derail the purchase. You’ll have the home inspected and appraised to validate the home’s condition and value. Finalizing the mortgage also means submitting an official application for loan estimates. You’ll finalize your loan type, rate, term, down payment, total loan amount, points, and credits. Once you’ve found the right fit, you’ll move forward with the right mortgage with “intent to proceed”.

Closing is the Final Step in the Home Loan Process

At this point, it may feel like you’ve been moving through the process for a long time, but the closing is the final step! You will finalize the loan with your lender and have your income, assets, debt, and home value details confirmed and verified. You will gather all the legal documents and the money you are required to have for the closing. At the closing, you will sign all the paperwork and finalize the contract.

The mortgage process can certainly be overwhelming, but having the right guide to walk you through the process can make it much easier to navigate. Finding a mortgage expert is a great way to get started on the road to home ownership. We’d love to help. Contact Equibox Mortgage today to start your path to owning your first home.