Back to basics: what is a mortgage?
For most everyday purchases, you pay the sales price in full, and you then own the good outright. Because real estate purchases are so much larger, most people need a mortgage loan to pay for them.
With a mortgage loan, you pay for part of the purchase up front in the form of a down payment, and the lender pays the rest of the purchase price at the time of the sale. You then pay the mortgage lender back in monthly installments, typically over the course of 30 years, although the length of mortgage loans can vary.
A mortgage loan is considered a secured loan because you use the house itself as collateral, meaning the lender can take ownership of the property if mortgage payments aren’t made. This is called foreclosure. Thankfully, the loan process is designed to prevent foreclosures, so it’s important to have a lender you trust by your side on your journey to homeownership.
A step-by-step guide to the loan process.
- Loan Application: It all starts here. When you receive the loan application, you’ll need to fill it out as thoroughly and accurately as possible. To give the lender the best picture of your finances, you’ll disclose all assets, income, and debt and provide as much documentation as possible to support the application. Based on the information you provide, your loan officer will be able to figure out exactly how much you can afford to spend on a home, the amount of your mortgage loan, and the best type of loan for your particular needs.
- Pre-Approval with Offer Ready: Now the fun part begins – looking for a home! While you may have window-shopped for houses prior to working with a lender, now you’ll be equipped with a fully underwritten pre-approval certificate. This gives your offer a huge advantage in a competitive market because you’ll have a firm commitment to lend from a respected and reputable lender.
- The Offer: You’ve found it – the house you want to buy. With your pre-approval letter already in hand, you’ll work with your real estate agent to structure your offer in a way to maximize its appeal to the sellers. Hopefully, the sellers will accept your offer, and you’ll be on to the next steps in the loan process. If not, your pre-approval letter remains valid for 60 to 90 days and will be an asset as you make your next offer.
- Inspection and Appraisal: These next steps may fall during your option period or after it, depending on the period defined in your offer. While many loans don’t require a formal inspection for termite and water damage, some do, especially government loans. Just like you’d trust a mechanic to check out the engine of your car, a home inspector can look “under the hood” of a house and uncover any issues that may not be easily visible, so you’ll probably want to have one, regardless of whether your loan requires it. Appraisals, on the other hand, are required by all lenders on home sales. During the appraisal process, any other loans or liens on the property will be discovered and will then need to be cleared before the transaction can be completed.
- Processor’s Review: Depending on the specifics of your particular loan, this part of the process may feel like a lot of hurry-up-and-wait, a push to obtain as much supporting documentation as possible, or a bit of both. At the end of it, all of your information will be packaged by your mortgage professional and sent to processing, at which time a loan processor will verify everything for accuracy and request more documentation or information if necessary. Then, the complete loan application will be submitted to the underwriter for final review.
- Final Underwriter Review: Thankfully, this final hurdle is typically short and sweet. The final underwriting process to approve or deny the loan typically gets completed within 24 hours of the loan being submitted for final processing, so you’ll find out the decision quickly.
- Signing: You made it! Once your loan has received final approval, closing documents are prepared and provided to the closing agent for your signature. The signing usually takes place within three days of final approval, and once you’ve signed all of the documents, your part in the loan process ends with a big milestone—getting the keys to your new home.
- Funding and Recording: Once all the documents are signed and executed, the loan is recorded, and funds are generally dispersed within three to five business days. Congratulations, you’re officially a homeowner!
Ready to get started?
Are you ready to take the first steps toward owning your own home? Connect with a dedicated mortgage specialist at Keller Mortgage today to get started.
Your loan officer will be able to figure out exactly how much you can afford to spend on a home.