Before you can even buy a home, you need to take steps to secure a mortgage ahead of time. The mortgage loan process starts with getting pre-approved for a certain amount, which lets you know the maximum of the loan that you could potentially take out. Once this is secured, then the house hunt can start.
Here is everything you need to know about the mortgage loan process.
Getting Pre-Approved for a Mortgage
Before you start house hunting, you should look to get pre-approved for a mortgage. You can get this pre-approval through a multitude of different options.
The most common place to get a loan is through a financial institution like a bank. Almost everyone already does business with a bank in some way, shape, or form. Making it appealing to just go to the bank and see what they offer, as your finances will be kept all in one place.
The other commonplace to get a mortgage is through a mortgage brokerage. These are firms that specialize only in approving or refinancing mortgages to get the best rate possible. These institutions tend to only make money through interest rates, so while they may give you a better maximum loan, the interest rate may end up being worse than a bank.
Check out https://www.farmersbankidaho.com/home-mortgage-loan-options for their mortgage loan options by clicking the link.
The House Hunting Process
Once you’re pre-approved, the second part of the mortgage loan process timeline is finding a house that meets your criteria, as well as your lenders. You’ll need to stay in your payscale and look into the other fees that go into living in that area.
For instance, you have two houses that are both $250,000. One is located in a high-end area and the other in a more rural area. Because of HOAs and high property taxes, your monthly costs may end up being more for the house in the high-end area, making it a riskier option for you when it comes to monthly expenses. In that case, your lender may not approve the purchase of the house.
But the rural house has no HOA and low property taxes, but the area is up and coming. Your lender will more than likely approve this purchase as you’re more likely to not struggle to pay this mortgage monthly and has the potential to see more equity in the house down the line.
Closing and Underwriting
Once the house has been decided on, it is time to start the closing and underwriting portion of the mortgage loan approval process (and slightly different for reverse mortgages. This is the part that everyone dreads, as it is going to require constant communication between you and your bank about everything in your financial history.
You’re going to need bank statements, credit card history, any cash you’ve received, your work history. The whole nine yards essentially. This is your lender getting every detail to make sure that you’re not blowing money widely, not receiving money illegally, and what your bills consist of to ensure that you have the money to pay off this loan in 15 or 30 years.
From here, you’ll get the final approval for how much you can borrow. Now your house might have been $225,000, but it needed some work on it to get it where you want it. You can take the $25,000 leftover if you were approved for $250,000, and use that money for renovations.
Banks tend to favor this method rather than you going to get a personal loan, as it means you’re putting time and equity into the house to make it worth more. This is a win-win for them, as you borrow more to pay off, you make the house nicer which increases the equity, and shows you have the dedication to the home and plan to upkeep it.
Making Payments
Once you’re closed, you won’t make your first payment until you move into the home. That means if you want to wait to move into the house and have renovations done ahead of time, you don’t have to worry about paying rent and the mortgage.
Once you’ve notified your lender that you’ve moved in, you’ll start the process of paying your mortgage on a set date. Pick a date when not all your bills come in at the same time. For instance, if your car loan, internet bill, and utility bill all come out during the 15th of the month, aim to pay your mortgage on the 1st.
This break-up can ensure that you have enough money to pay off all your bills.
Paying Off the Mortgage Faster
Now that you have the mortgage set in stone, the goal is to start paying it off. Once you’ve secured the loan, you’re going to start paying interest on the loan itself. The rate of interest comes down to the individual loan, as it can be as low as 2.75% or as high as 15% in certain cases.
The longer you pay on the house, the more you pay on the interest itself rather than the principal of the loan. Say you take out a loan for $300,000 over 30 years with a rate of 3%. After those 30 years, you’ve paid a total of $455,332.83, meaning that you’ve paid $155,332.83 just in interest alone.
At this rate, you have to hope that your house is worth that much to be worth how much interest you just paid off. But that doesn’t mean you can’t pay off your house faster.
You can take $50 every month that you get to receive, whether that be mowing your neighbor’s yard or a side hustle, and throw it at the mortgage. Rather than paying around $455,000, you’ll only end up paying $445,000. Then you end up paying the house off faster and you get money back in your pocket.
The Mortgage Loan Process Is Pretty Straightforward
Getting through the mortgage loan process can seem scary, but it gets to the point pretty fast. Just have your documents ready and be open to a lot of communication. If you’re prepared for that then you’re prepared to buy a house.
If you want to learn more about improving your home or getting through the house buying process, be sure to check out the rest of our home blog. If you know someone interested in buying a home, be sure to share this article with them.