If you're thinking of buying your first home, you may be feeling a little apprehensive about going through the process of getting a mortgage. Contrary to what you may have heard, you won't need to donate a vital organ, or sacrifice a loved one, to get approval. However, an upfront understanding of the process can make things go more smoothly -- and you may even be allowed to keep your pancreas.
Arrange Your Financial House
A messy house is not a good thing, and the same is true with your finances. Before you even think of applying for a home mortgage, get your financial house in order. Check your credit report and clear up any incorrect information, and pay down as much debt as you can. As a rule of thumb, plan on coming up with a downpayment of 20 percent of the purchase price. Lenders typically go by the "28/36" rule, meaning that your monthly housing costs shouldn't exceed 28 percent of your gross monthly income, and the total of other monthly debt payments should not exceed 36 percent.
Applying
You apply for a loan by sitting down with a loan officer at your lender of choice and filling out a variety of forms. Be prepared to answer questions about your current and past financial situation, such as income and debt, as well as your employment and housing history. Be sure to bring documentation such as W-2 forms, tax returns, pay stubs and the names and contact information of previous landlords.
Underwriting
Once your application is completed and processed, it moves on to the mortgage underwriter. This individual reviews all the documentation and verifies employment history, income and credit standing. If everything is in order, she will approve your loan. Keep in mind that any missing or incomplete information will slow down the underwriting process, so be sure to furnish as much requested information upfront as possible.
Closing the Deal
Finally, the time comes to get the keys to your new home. But first, you'll have to meet with the seller to complete the settlement process, which involves signing a myriad of forms that transfer ownership to you. Settlement typically takes place in the office of an escrow agent or title company, and you'll have to officially pay any closing costs that are due at this time. When you're finished, the house belongs to you -- and the bank.
