Home isn’t just where the heart is, there’s money there too!
Homeowners in America are starting to become house rich. Research shows the average rate of a 30-year traditional mortgage is only about 4%. As a result, homeowners are in a perfect position to start cashing in on close to $14.4 trillion in home equity!
Of course, before you can even consider getting a home equity loan, you’ll first have to become a homeowner. To help you get the best deal possible, we’ve created this short and complete guide all about the mortgage approval process.
Read on to learn the ins and outs of getting mortgages and what to expect during the mortgage approval process.
What Does It Mean to Prequalify?
To begin with, you’ll need to get a mortgage prequalification. The bank approval process for a mortgage will come later. During the prequalification stage, you’ll be getting an idea of what loan amounts you qualify for.
You can think of prequalification as an opportunity to get a quick estimate. All you need to do to prequalify is call a mortgage lender, tell them your monthly income, and wait for they’ll give you an instant prequalification.
What Does It Mean to Be Pre-Approved?
What is the pre-approval process for a mortgage? During the mortgage pre-approval process, you’ll be taking things 1 step further, by getting hard numbers.
Lenders will be verifying your income, as well as other pertinent information. However, keep in mind that the preapproval process is different than the official approval process.
Approval Process
To fully complete the mortgage insurance approval process, lenders will need to know the appraisal value of the home.
Next, lenders will reach out to a title company to double-check that there aren’t any liens against the property. Before your approval becomes official, lenders may require specific renovations to happen. For example, the mortgage insurance approval process won’t be complete if the home’s missing handrails or the roof’s in poor condition.
Mortgage Approval Process Application
The first section of the mortgage approval process application lists the type of mortgage you’re applying for. For instance, things like the loan amount and terms, as well as the interest rates are in the first section. When you shop for a mortgage, pay close attention to what the interest rates are for the loan.
Next, the application will list all of the property information, like the home’s address. The second portion of the application will also layout how you plan on using the home.
Are you getting a home as an investment, or secondary residence? Or will this house be your primary residence? You'll address all of these questions in the 2nd portion of the mortgage application.
Moving on, you’ll need to include all of your personal information as the borrower. The third section includes things like your date of birth, your SSN, and more.
As you continue in the 4th section, you’ll have to fill out employment information. Be prepared to dictate exactly how long you’ve been with your current employer, as well as your monthly income.
In addition to listing your monthly income as the borrower, the 5th section also requests the monthly income for your entire home. Alongside the income, you’ll also need to state your monthly expenses, including insurance fees.
The 6th section of the application is all about liabilities and assets. For instance, if you have retirement savings, bonds, or life insurance, you’ll include all of these assets in the mortgage application.
Next, the 7th section of the application asks about the details of the home buying transaction, such as the cost of the home. Finally, the 8th section requests you declare judgments in your financial history, such as a bankruptcy.
Examining Your Finances
What are mortgage lenders looking at when they examine your finances?
Here’s a shortlist of the things mortgage lenders scrutinize:
• Credit history
• Down payment
• Collateral
• Liquid assets
• Bank statements
There are a few red flags mortgage lenders will be looking out for. Non-sufficient funds or NSF charges on your bank statements are 1 of them. If a mortgage lender sees more than one NSF charge on your bank statements, they’re likely to hire your interest rates.
Next, lenders also get suspicious about large cash deposits. Mortgage lenders feel that if you’re depositing large amounts of cash, you may be getting your funds from questionable sources.
For instance, did you have to get a cash advance on a credit card to help cover the down payment on your mortgage loan instead of earning the money? That could be problematic. Mortgage lenders want to know your monthly income is high enough to cover your expenses, without you having to get cash from other sources.
Finally, mortgage lenders don't want to see regular payments to friends or family members. The problem with regular payments is that mortgage lenders will assume you have an unofficial loan with your family or friends. To play it safe, make sure you report all loans you currently have open, even if they’re not official.
Top Preapproval Mistakes to Avoid
Now that you know a little bit more about how the preapproval process works, let’s look at a few mistakes you’ll want to avoid making. First, avoid making any major purchases while you’re waiting for the approval of your loan. For instance, buying furniture for your new home makes your monthly expenses appear too high.
Next, don’t co-sign any loans because the bank will view any loans you co-sign as debt. Finally, avoid changing jobs at all costs. Even after your mortgage preapproval goes through, changing jobs could delay your entire settlement.
Live in Your Dream Home
There you have it mortgage masterminds! An inside look at what goes on during the mortgage approval process. Remember to take your time as you accurately fill out the mortgage application. The more accurate your application is, the easier it'll be for your approval to go through.
We hope you’ll use this guide to help you get the best mortgage loan possible, in a timely fashion. Before you know it, you’ll finally be moving into the home of your dreams thanks to this mortgage approval process guide! For more ways to make your dreams come true as a home owner, check out the Real Estate section of our site.
