What to Expect During the Mortgage Process

Ok, so you have decided to buy a home. The mortgage process may scare you some because you're a first time home buyer and have never gone through this process before. Let me put your mind at ease. It's not as complicated as you may think. In this article we will focus on the loan application part of the process. Then we'll discuss the difference between being pre-qualified and pre-approved.

Loan Application Process

Before I get the cart before the horse, allow me to bring up a point regarding the loan application. Without having gone through this part of the mortgage process, you cannot get pre-approved for a mortgage. This is important for you to understand. Why? Many have been somewhat mislead. Let me explain.

Let's suppose you saw a house you really liked. You call the real estate agent from the sign out front. The first thing most agents ask is if you have been pre-approved for a mortgage. In most cases, the agent will not really do a whole lot with you until this happens.

So maybe the agent puts you in touch with a loan officer. The loan officer asks you a few questions, pulls your credit report and then tells you right on the spot you are pre-qualified for a mortgage. Well by now you are thinking wow, this is great! You start to get excited thinking you are already under way in the mortgage process.

Not until you have filled out and signed a loan application will you be actually pre-approved for a mortgage. We'll talk and little more about that later.

When the loan officer ask you to bring in proof of income, bank statements, check stubs and any retirement account statements, then you are under way in the mortgage process. The HUD form 1003 is the actual loan application that you will complete with the help of your loan officer, You will sign this document and submit copies of the items listed just above.

Once you have done that, you get a Good Faith Estimate, Truth in Lending and perhaps a brochure about buying your first home. Now the mortgage process begins. The loan officer submits your application to the underwriting department for review and entry into the a computer program called "Desktop Underwriter" that will tell you if you qualify for a mortgage or not.

Pre-Qualified vs Pre-Approved

When a loan officer pre-qualifies you for a mortgage, they are just doing a preliminary step to see if they want to go to the next step with you. In realty when a credit report is pulled and the loan officer discusses terms and payments with you, that is considered a loan application according to RESPA guidelines. At that stage they are to provide you within 3 days a GFE (Good Faith Estimate) and a TIL (Truth in Lending) forms.

That is why they will normally make an appointment with you to do the actual loan application. They will give you a list of documents to bring to this meeting to start the process. So the fact you are pre-qualified does not really mean much. All it does is tells the loan officer you may be credit worthy.

Until you have done the loan application, submitted the documents to underwriting and received a letter of approval for a mortgage, you really do not have much to go on yet. If approved, the underwriting department will issue you a pre-approval letter that will state how much of a mortgage you are approved for and the type.

So in short, you want to be pre-approved for a mortgage. Having this letter is much like having cash. This will get the attention of a real estate agent because they know you are serious and have been underwritten by the lender. Now you can get real serious about buying a home.

Benefits of Being Pre-Approved

The biggest benefit to this is the fact you are now equal to a cash buyer. That letter is like cash in the sense it says that the loan will be funded providing the conditions of the loan are met. Most of them are standard like current pay stubs at the time of closing, contract to purchase, verification of employment, rent and few other things.

Hopefully this helps you see the importance of going through the mortgage process and applying for the loan. It does take time and you will feel kind of invaded. I always told my clients that they might as well accept the fact the lender will want to see inside your underwear drawer. It will feels so personal. There is nothing you can do about if you want to buy a house.

Lenders have to make sure you can re-pay the loan before they will underwrite your mortgage. Once you get through this part of the process, it goes along much smoother.

Jeffrey Ragan has several years of experience helping people reach their goals and wants to help you learn more about the mortgage process and other helpful information on their website, First-Time-Home-Buyer-Solutions.com.