How to Apply for a Mortgage
- Steps for applying for a mortgage
- 1. Gather documents
- 2. Find a mortgage for your budget
- 3. Shop for lenders
- 4. Fill out a mortgage application
- 5. Talk to a loan officer
- 6. Begin underwriting process
- 7. Close and get your keys
- Pros and cons
- The bottom line
Steps for applying for a mortgage
1. Gather documents
- Identifying information, such as bills in your name and two years of address history. Lenders will need your full legal name to pull your credit information.
- Assets. These can include two months of bank and retirement statements.
- Employment and income. Pay stubs and W-2 forms for the past two years may be needed, along with the address and phone number of your employer.
- Tax returns for the last two years may be needed to verify the information.
- Any documents showing income or money owed. These may include a divorce decree, child support, bankruptcy, tax payment plans, and loans.
Know the mortgage requirements
2. Find a mortgage for your budget
|Loan type||Best for|
|Conventional loan||Buyers with good credit|
|30-year fixed-rate||Seeking lowest fixed-rate payment|
|15-year fixed-rate||Pay off a loan faster at lower interest|
|FHA||Low- to moderate-income buyers seeking first home|
|VA||Veterans with 0% down|
|USDA||Buyers in rural areas with 0% down|
|Freddie Mac Home Possible||No credit score or low credit score|
|Fannie Mae HomeReady||3% down payment|
3. Shop for lenders
4. Fill out a mortgage application
- Cost in 5 years. This includes the principal paid off at that time, and the total paid in interest, mortgage insurance, and loan costs.
- Annual percentage rate. The APR isn’t your interest rate but is the costs over the loan term as expressed as a rate.
- Total interest percentage. The TIP is the total amount of interest you’ll pay over the loan term as a percentage of your loan amount. The higher the number, the more interest you’ll be paying.
5. Talk to a loan officer
6. Begin underwriting process
7. Close and get your keys
- Loan amount
- Interest rate
- Monthly principal and interest
- Loan type
- Estimated taxes, insurance, and assessments
- Closing costs, including cash needed to close
- Total payments
- Lender contact information
Insurance and ownership costs
- Annual assessment if you belong to a homeowners association.
- Private mortgage insurance if the down payment is less than 20%. This can cost from 0.55% to 2.25% of the purchase price.
- Government loan fees, such as 1.75% of the loan amount for an FHA loan fee.
- Owner’s title insurance, about 0.5-1% of the purchase price. This protects you from title problems or claims made on the home after closing and lasts as long as you own the property.
Pros and cons
- The biggest benefit is that after all of this work, you’ll own a home. You’ll probably have to make monthly payments for years, but homeownership and with a fixed-rate loan you won’t have to bend to the whims of a landlord who wants to raise your rent every few years.
- Shopping for a mortgage is also a good way to understand your finances. It will help you review your credit score, know where your money is going, how much debt you have, and how much you have in assets.
- It will also allow you to compare interest rates and other terms from lenders so that you’re getting the best deal on something that you’ll use daily for years to come.
- At 2-5% of the loan amount, the closing costs of a home loan can be one of the biggest downsides to buying a home.
- It’s also a fair amount of work to complete the application process, though lenders and other professionals should be able to do much of the work for you after you provide the details of your financial life.
- Getting approved for a home loan can take a month or so, though it can only take a few weeks if necessary. Start the process as soon as you can so that you can get through it without the rush of last-minute questions and extra costs that can come with a fast approval process.
The bottom line
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