Step 1: Shop
for a Mortgage
Pre-Qualify for a Mortgage
Step 3: Get Pre-Approved for a
Obtain Your Final Loan Approval
Step 5: Close the Loan
Step 1: Shop for a Mortgage
"Where can I find the lender with the best
rates and service?"
Shopping for a mortgage is the most critical
part of the home financing process. By choosing
a qualified lender, the remaining four steps of
the process will be easier as a result of the
To find a qualified lender, you have many
avenues to explore. You can seek advice and
referrals from those who have been through the
mortgage process recently. You can look through
the many ads in your local newspaper. And with
the arrival of the Internet, thousands of
mortgage lenders are available to you with the
click of a mouse.
As you begin your search, you may notice that
some lenders are referred to as "brokers" while
others are named "banks." Depending on your
situation, it may be prudent to shop among a
variety of types of lenders. The average
mortgage consumer usually contacts between 4 and
6 lending institutions. The following is a brief
explanation of the different types. Mortgage
brokers tend to be low cost, local sources of
home financing. Most mortgage brokers work with
a variety of lending sources so they can offer
competitive rates along with a myriad of
programs. This is useful if you have a situation
that does not fit within the usual guidelines.
Banks may be local, regional or national. A bank
will usually offer a limited array of mortgage
programs and if you do not qualify for these,
you may not have additional options.
Your main goals in the shopping process
should be to find a mortgage lender with a
friendly, knowledgeable staff, competitive
interest rates and fees, and verifiable
references. To help in your final selection, you
should have a list of questions prepared prior
to making calls. Be sure to include questions
similar to these:
- What programs best suit my needs?
- What interest rate can you offer me
including all points and origination fees?
- Will you provide me with a written estimate
of closing costs?
- Will you provide me with a written rate
- When can I lock the rate and for how long?
- Does this loan have a prepayment penalty?
- Does this loan have negative amortization?
- Will my loan require mortgage insurance?
- Do you have options that do not require
- How fast can I get a pre-approval?
- Do you charge a fee for obtaining a
- Do you charge an application fee?
- Do you charge a lock fee?
- How do I apply for a loan with your
- What documents do you require for my
- Do you have access to automated
- What happens if I am declined?
- Where and with whom does the loan close?
- How long have you been in business?
If you follow these basic guidelines when
shopping for a mortgage lender, the remaining
steps to financing your home should proceed
Step 2: Pre-Qualify for a
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"What Can I Afford?"
Most likely, as you've shopped for a mortgage
lender, you've also been shopping for a Realtor.
If you have already chosen your Realtor, he or
she has probably asked if you have been
"pre-qualified" by a lender. If you haven't
spoken with a Realtor yet, you can be one step
ahead if you have been pre-qualified by a
mortgage lender. A Realtor likes for a potential
homebuyer to be pre-qualified so as to avoid
looking at homes you may not be able to
A pre-qualification is based on a
conversation you have with a lender's loan
officer, or a form you complete on a lender's
website. By answering a few questions, you can
find out quickly what size home and loan amount
you can afford. You can expect the following
questions to be asked:
- What is your gross income per month (before
taxes and deductions)?
- What are your current monthly liabilities
(excluding current rent/mortgage payments)?
- How much money do you have available for
Based on your answers to these questions, a
loan officer will tell you what loan amount a
lender would lend to you as long as the
information provided can be satisfactorily
verified. Please keep in mind, that many times a
credit check is not done at this stage, but that
you should mention any issues you know of
regarding your credit history.
At this point, you can safely shop for a
new home with a Realtor knowing that you won't
fall in love with a home you may not be able to
Step 3: Get
Pre-Approved for a Mortgage
"Why do I need to get
You might be wondering what the
difference is between a pre-qualification and a
pre-approval. As discussed in step 2 of the
financing process, a pre-qualification is a
determination of what loan amount you can
afford. A pre-approval is one step closer to
becoming a homeowner because it is a full
verification of the information you provided in
the pre-qualification process.
To obtain a pre-approval, an underwriter
must review and approve your credit report, your
income documentation, and your asset
verification. If the information you provide is
satisfactory, you will receive a loan commitment
letter. A loan commitment letter provides
evidence to all interested parties that a
mortgage lender has committed to giving you a
loan based on the details contained in the
To take the next step and obtain a
pre-approval, a mortgage lender requires
specific documentation. Items you will need to
provide to get pre-approved are listed below.
(Documents vary depending on your specific
situation. Your loan officer will be able to
provide a list relating to your scenario.)
- Completed loan application
- Paystubs for the past 30 days
- W2 forms for the past 2 years
- Federal tax returns for the past 2 years
if borrower is self-employed, owns rental
properties, or receives a substantial amount of
income from an unconventional source
- YTD Profit and Loss Statement if borrower
- Divorce Decree and Separation Agreement
if borrower receives or pays child support or
- Asset statements from all asset accounts
for the past three months evidencing sufficient
funds to close, and any reserve mortgage
payments that may be required
- Purchase contract executed by all
- Verification of rental history if current
- List of current liabilities including
account balance, monthly payment, and account
- Gift letter if applicable (lender will
provide official form to use)
- Letter of explanation for any credit
issues or any gaps in employment
- Certificate of Eligibility if you are
applying for a VA loan
A pre-approved mortgage is a great
bargaining tool for any prospective homebuyer.
In many markets, a realtor will even require you
to be pre-approved prior to submission of an
offer to purchase. This commitment can mean the
difference between a winning bid and not being
considered. And once you find a home and have an
offer accepted, the final steps in the financing
process can move along smoothly.
Step 4: Obtain Your
Final Loan Approval
"Do I need to do anything
As you take the steps to financing your
home, important details need to be taken care of
along the way. For example, your lender will
require an appraisal on the property that you
are purchasing. Completion of these stipulations
may occur during the shopping phase, or they
might take place right before closing. Each
person's situation is unique and it is your loan
officer's job to identify these requirements so
that you can obtain your final loan
The following list of conditions is for
your reference only. Your loan officer will be
able to tell you specifically what is needed for
your final loan approval. He or she will also be
able to assist you in the satisfaction of any
- Appraisal of property to be purchased
- Interest rate lock-in completed
- Satisfactory evidence of insurance on
property to be purchased
- Approval of condominium or Planned Unit
- Approval of outstanding loan conditions you
may not have provided at the pre-approval step
- Satisfactory title commitment
- Satisfactory closing agent
The time frame for the completion of some of
the items listed above is dependent on the sales
contract's requirements, or your lender's
requirements. It is always recommended, however,
to complete any items required as soon as
possible so as to avoid any potential last
Step 5: Close the
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"When can I close?"
If your lender has informed you that you have
obtained your final loan approval, then
technically, you are ready to close. However,
when you are purchasing a home, other parties
are involved, and a specific closing date has
probably already been scheduled.
Your Realtor will have coordinated the exact
closing place and time with the seller, the
closing agent, and you, the buyer. Your mortgage
lender will be aware of the closing place and
time, and will prepare the loan documents for
the closing. Keep in mind that these mortgage
loan documents may be the most important papers
that you sign during your lifetime, so make sure
you understand them and they are correct before
you sign them.
When you get to the closing, you can expect
the following to occur:
- You will sign your loan documents, and any
other papers that your closing agent has
- You will provide a cashier's check for your
down payment and any closing costs or prepaid
items that may be required.
- You will celebrate when all goes smoothly
and you are the proud owner of your new home.
Congratulations! You have successfully
completed the five easy steps to financing your
home. If you have additional questions, be sure
to ask your qualified loan officer. He or she is
prepared to assist you throughout the process to
ensure your experience is a pleasant