Financing a Home. Beyond the basics.
The financing of a home is a complex transaction. It involves many different steps and you will speak with people performing specific functions and roles. Here is an example of the steps your lender will go through to process, approve, and fund your home loan. Depending on your preparedness, this process can take anywhere from 30 to 45 days, so it’s best to engage with a lending professional as soon as you are seriously looking for a home.
Step 1 - Prepare Your Documentation
There is a lot of documentation your lender will need from you to verify the information you’ve supplied to them on a mortgage application. Our Mortgage Application Document Checklist can help you get prepared, so you won’t feel so overwhelmed.
Step 2 - Get Pre-Qualified for a Mortgage
Contact your local bank, credit union, or mortgage lender to be pre-qualified for a mortgage. During the pre-qualification process your lender will:
- Review your income, credit, and savings of downpayment.
- Determine the value of the home for which you can qualify (which is not necessarily the same as what you can afford!).
- Determine the approximate minimum downpayment and closing costs needed for the purchase.
- Provide you with a conditional, written pre-qualification letter, which most real estate agents and sellers will require to indicate you are serious about purchasing a home.
Step 3 – Find a Real Estate Agent and Find a Home
Now that you have your pre-qualification, you can contact a real estate agent and start searching for a home.
- Search for a home.
- Make an offer and sign the contract to purchase, which will include a copy of your pre-qualification letter.
- You may be required to include a check for an earnest deposit, with your offer, so the seller knows you are serious with your intention to buy.
- A seller generally has 48 hours to reject, accept, or counter your offer.
Step 4 – Apply for a Mortgage
Complete your lender’s Mortgage Loan Application Form and provide all the documentation required.
Step 5 – Choose to Lock or Float your Interest Rate
One major step in obtaining a loan is to lock or guaranty the interest rate, term, and costs associated with your loan. Many buyers choose to “lock in” if interest rates are expected to change in the near future.
Another option is to float the rate up to the point when the lender must finalize the loan documentation. Buyers generally choose this option if they believe interest rates are going to go down before they close their loan.
You should consult with your loan officer to determine the best approach depending on what’s best for your personal situation, the mortgage loan program for which you qualify, and general market conditions.
Step 6 – Final Underwriting
Once your loan application has been processed, a loan underwriter will review your mortgage loan application file to confirm that it meets all of the lender’s credit requirements and all the conditions to close have been met (ensuring every piece of information has been documented and verified, for example).
Step 7 – Loan Documents are Delivered to the Closing Agent
Upon approval of your mortgage, the closing will be scheduled and the lender will deliver all the necessary closing documentation to a local closing agent. A closing is a meeting with you, the closing agent, and an agent of the seller when you sign the loan documentation, the closing agent distributes funds and you officially own your home.
Each state handles the closing process differently - some close and fund on the same day, others close and fund AFTER the paperwork has been sent to and reviewed by the lender. Your loan officer can tell you how your state handles real estate closings.
Step 8 – The Home is Yours
Once you’ve signed all of the documentation needed for your mortgage loan and the title is transferred to your name, the keys to the home are given to you and you have successfully purchased your new home!