You've found it! Now what?
It's time to get started understanding each step in the home buying process. Select each to help guide you through the process.
Financing : Preapproval
Most Buyers have a rough idea of how much they feel comfortable paying every month on their mortgage. A good lender doesn't want you to take out a loan that will make you "house poor." They will factor your available down payment, mortgage insurance, property taxes, and current interest rate as well as your credit score, income, and debts to determine how much you qualify to borrow. It's very important to submit documentation to the lender and become pre-approved (not just pre-qualified) before you start house hunting. The pre-approval letter is also an excellent negotiating tool if it is presented with the purchase offer because the Seller knows that they are dealing with someone who is financially qualified to obtain the financing they need to close the transaction.
Typically, your monthly housing expense, including monthly payment for taxes and insurance, should not exceed about 28% of your gross monthly income. If you don't know what your tax and insurance expense will be, you can estimate that about 15% of your payment will go toward this expense. The remainder can be used for principal and interest. In addition, your proposed monthly housing expense and your total monthly debt service combined cannot exceed about 36% of your gross monthly income. If it does, your application may exceed the lender's underwriting guidelines and your loan may not be approved. There may be flexibility in the 28% and 36% guidelines, but this is a good rule of thumb. There are hundreds of loan programs available in today's market, you can talk to as many lenders as you want to find a loan program that meets your needs.
Financing : The Loan Process
The first thing you need to do after you have an accepted contract is to choose a loan officer and to make a formal loan application. In most cases, the lender will have collected all of the documents they need from you during the pre-approval process, but you will need to provide recent pay stubs, your W-2, all pages of your most recent asset statement from your checking, savings, investment, and retirement accounts, and/or copies of your tax returns before your file will be complete. After all the documentation is gathered, the next step is the appraisal. The mortgage company will hire an appraiser to inspect the property and to determine the value of the home. He generally contacts the listing agent to arrange a time when he can go to the house and measure the square footage, check the finishes, and take some pictures. Then, he takes the information back to the office where he studies recent neighborhood sales and makes his determination of value. This whole step takes about a week.
After the credit check, appraisal, and verification have come in, your loan will be "packaged" and sent to an underwriter. You should expect it to take about 2 weeks to get all of the documentation compiled. The underwriting process usually takes 3 working days. Then we hear whether the loan has final approval or not. It is not unusual for the underwriter to request further documentation or to approve the loan contingent upon certain conditions being fulfilled. You may also need to get private mortgage insurance (PMI) which is a separate underwriting process coordinated by your lender. This will either happen simultaneously with the first approval or shortly thereafter.
