What is the Mortgage Process?

Dana Hinders

If you're a first time homebuyer, the mortgage process can seem overwhelming. After all, this is probably the single largest purchase you've ever made. However, if you think of the mortgage process as the total of several smaller steps, moving into your dream house will be much less stressful.

A mortgage underwriter prequalifies the total loan amount available to homebuyers.
A mortgage underwriter prequalifies the total loan amount available to homebuyers.

Pre-approval is generally considered the first step in the mortgage process. You can be pre-approved for a mortgage in 10-20 minutes just by answering a few simple questions online or over the phone. This will help you get an idea of which houses are in your price range and give the real estate agent proof that you are serious about buying a home.

First-time homebuyers can find the mortgage process daunting.
First-time homebuyers can find the mortgage process daunting.

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Once you've found a house you want to purchase, you'll need to actually complete the mortgage application. At this point in the mortgage process, you can expect to have the lender request copies of your previous year's tax return, pay stubs, bank statements, and information from any other current creditors. If you are self-employed, you will likely need to produce two or three years of tax returns as well as information regarding how profitable your business has been in recent months.

After you complete the application, the lender will verify the information and determine the risk associated with giving you the loan you requested. If you are approved, you will receive a number of documents to review under the Truth in Lending Act, which entitles you to an explanation of the total amount of your loan, the total number of payments, the annual percentage rate, all associated finance charges, and a good faith estimate of settlement costs. Your approval at this point in the mortgage process usually locks in the interest rate for 30-60 days. If you are denied a mortgage, however, you can request more information about the reasons for the decision under the Equal Credit Opportunity Act of the Fair Credit Reporting Act.

When completing the mortgage process, keep in mind that it's ultimately your responsibility to decide how much you can afford to spend on your housing costs each month. The calculations that the lenders use are standardized formulas that don't take into account factors unique to your situation, such as fluctuating income due to self-employment or higher than average medical expenses for a chronically ill family member. Before you sign the loan documents, be sure the payments will fit within your household budget. In many cases, even one missed payment is sufficient grounds for the lender to begin the mortgage foreclosure process.

If a person is denied a mortgage, he can find out about the reasons for the decision under the Fair Credit Reporting Act.
If a person is denied a mortgage, he can find out about the reasons for the decision under the Fair Credit Reporting Act.

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