If you want to become a homeowner but don’t have piles of cash, you will need to learn how to get a mortgage. A mortgage is the home loan that you will use to purchase a property which you will then pay back for years or even decades.
Even though just about everyone needs a mortgage to become a homeowner that doesn’t mean that lenders just hand them out. So before you get started on the path to owning a home, make sure you know the steps to secure financing.
Shop Around
Before you start shopping for homes, you should shop for a mortgage. Unfortunately, many first- time buyers wait until they find the perfect home and the home of their dreams is swooped out from underneath them.
All lenders are a little different so it pays to compare what they’re offering, like interest rates, closing costs, and more. This will also help you identify any concerns a lender might have with your application. Then you can take the time to fix these flaws so you are in pristine condition to make an offer on your dream home.
Get Pre-Approved
The goal of meeting with a mortgage lender is to get pre-approved for a mortgage. The lender will go through your financial past and check your income, debts, and other factors that help determine whether or not to give you a home loan.
Getting pre-approved if you want to be taken seriously when you make an offer on a house. The pre-approval letter from the lender shows home sellers that you’ve got the financial backup necessary to buy their home. Without it, sellers have no guarantee you can afford their home.
Also don’t get “pre-approved” and “pre-qualified” mixed up. A pre-qualification can be drafted on a loose leaf piece of paper and often holds no value.
To apply for pre-approval, you will need to provide the lender with:
- Pay stubs from the last 30 days showing your year-to-date income
- Two years of federal tax returns
- Two years of W-2 forms from your employer
- 60 days or quarterly statement of all your asset accounts, which include your checking and savings, as well as any investment accounts such as Cds, IRAs, and other stocks or bonds
- Any other current real estate
- Residential history for the past two years, including landlord contact info, if you are renting
- Proof of funds for the down payments, such as a bank account statement.
Get a Home Appraisal
After you have made an offer on a home and signed a sales contract, most lenders will want to check out what you are buying with their money. This means a home appraiser will assess the market value of the house using comparable homes, or comps, much like you and your real estate agent did when coming up with how much to offer on the home.
Clear the Property Title & Close the Deal
When you buy a home, you “take title” of the property. Which basically mean you become the rightful owner. Your lender will ask for a title search, which involves paying a title company to search public records for any heirs insisting the property is theirs, liens (from contractors who worked on the home but were never paid), or other problems. Hopefully, all goes well, but in case not, this extra step could save you from a seriously scary situation where you’re fighting for ownership, or responsible for paying back old liens yourself.
Once the title is cleared, you can close the deal. That’s where buyer, seller, a lender representative, and any others involved in this process meet to sign all the paperwork, transfer all money owed, and pass along the keys.
