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A Step By Step Guide to the Mortgage Process

If you’re ready to start your home-buying journey, you’re probably very excited and more than a little nervous — what’s the best way to get started, and where do you go from there?

It’s typical to feel overwhelmed when you first decide to proceed with getting a mortgage, so it’s important to do your research and work with an experienced team to develop a winning strategy. My team and I are here to help you navigate through this complex process, find the perfect property for you and your family, and enjoy all the benefits of homeownership. 

Let’s get started!

Get Pre-approval

This is the first and most crucial step. In order to apply for a mortgage, you need to make sure that all of your financial paperwork is in order. You also have to have an excellent idea of how much of a mortgage payment you can afford to make each month. Check your credit score, and take steps to raise it if needed. Of course, I’m always available to consult with my clients on affordability and credit repair. 

You’ll also want to know exactly what your total income and expenses are each month. This will help you budget wisely, as owning a home always involves more costs than just your mortgage payment — you’ll still have utilities, appliance repair, lawn maintenance, and all the other fun costs associated with owning property. 

→ There are different types of mortgages. It (literally) pays to familiarize yourself with them and see which ones you may qualify for:

Conventional – This is the broad category of loan that is simply not government-backed or government-insured (like FHA, VA, or USDA loans are) and can fall into any number of sub-categories.

FHA – Insured by the Federal Housing Administration, these mortgages can be for buyers with smaller cash reserves (they only require a 3.5% down payment) or with imperfect credit scores. They help level the playing field so more prospective homeowners can have an opportunity to buy a home. While often overlooked, FHA loans are a great opportunity for prospective homebuyers who may want to purchase a multi-unit home, to live in one unit and rent the others.  

VA – If you or your spouse is a service member or veteran, the US Department of Veterans Affairs has a program that offers mortgages that require no downpayment and competitive interest rates. Many veterans think they should start this process at a credit union, but the reality is that a well-equipped mortgage lender may offer a better customer experience (without sacrificing any benefits.)

USDA – Looking to buy a property in a rural or underpopulated area? The US Dept. of Agriculture has loan programs that may be ideal for your specific needs. USDA loans are not specifically for farms, they can be utilized for private homes and primary residences. 

Fixed-rate – This type of mortgage keeps the interest rate consistent throughout the life of the loan, which is most typically 15 or 30 years, but can be found in an increasing variety of flavors. Both conventional and government-insured loans are commonly fixed-rate.

Adjustable-rate – Also known as ARMs, these types of mortgages typically have a lower initial interest rate, and adjust to a variable rate, based on a benchmark or an index (often SOFR), at some point later in the loan.  They can be a great way to lock in a lower initial interest rate and payment, particularly if a home buyer is confident they intend to move or refinance before the end of that fixed period. Conventional and government-insured mortgages may both offer ARM options

First-time homebuyer programsMany states and local housing authorities have programs that offer assistance specifically for people purchasing their first home. Here’s a handy state-by-state list.

Once you know what kind of mortgage you’ll need, your lender will review your financial situation with the intention of providing you with a pre-approval letter. This document shows sellers that you’re a serious buyer with the financing to back up your offer. 

Find a House

This is the fun part! Now is the time to drive around the neighborhoods you love and see what might be available, look at listings online, and go to an open house or six. 

Most importantly, you should find a real estate agent that has plenty of experience as well as deep local knowledge of the communities in your desired area.

Commercials make it seem like you don’t need an agent when there are a million real estate apps right on your phone. The reality is that a qualified and savvy realtor can give you some distinct advantages in a competitive market. They get access to listings before the general public, can negotiate with the seller’s agent more easily, and play a vital role in navigating the purchase contract process. 

Your real estate agent can also assist you in making a list of your must-haves and dealbreakers, such as:

  • Number of bedrooms and bathrooms
  • Location
  • Amenities like a garage or a pool
  • Floor plan
  • Age and condition of the home

A top agent can also ensure you avoid common homebuying mistakes like making the wrong offer, ignoring major flaws, or buying something you can’t really afford. 

Make an Offer

Now that you’ve found a house that you love, you need to submit your offer. This is another area where your realtor’s expertise will give you a leg up over other prospective buyers. Making the wrong offer can have disastrous consequences, from losing the home to costing you far too much money.

Your real estate team will go over what is included in the offer letter. Not only does this document specify the amount you’re willing to pay for the house (which could be above or below the asking price, depending on the condition of the property) it also sets out contingencies that will allow you to back out of the contract if certain conditions are not met.  

Common home sale contingencies for homebuyers include:

  • Home Inspection
  • Attorney Review
  • Financing Contingency
  • Home Appraisal
  • Home Sale (for buyers who have a home to sell first)
  • Home Close (for buyers whose current home is under contract, but not yet “closed”)

Included with your offer letter will be a deposit of earnest money. This is a good faith payment that you make to demonstrate your commitment to completing the transaction. The funds are not given directly to the seller, they are held in escrow until the end of the closing process. Your agent will offer guidance as to how much of an earnest deposit you should make with your offer. 

Complete Your Mortgage

The seller has accepted your offer! Congratulations and that housewarming party are coming, but first, you need to finalize your mortgage. While you’ve already completed some paperwork to get your pre-approval letter, the official mortgage application will be much more in-depth. 

Let your loan officer know right away that your offer was accepted so that they can officially begin the application on your loan. Within three business days, your lender will provide you with a “Loan Estimate”, a document that will provide a comprehensive and mostly accurate picture of your full closing costs, and the amount of cash on hand you’ll need to close. You’ll need to sign this document right away, acknowledging receipt, and of course, let your lender know if you spot any clerical errors. 

Your lender will begin compiling documentation and evidence of all of the things needed for the loan, some of which your real estate team can acquire, such as property history and/or HOA documents, in a condominium or homeowners association. You’ll also need to present documentation proving your income and all assets, including any gifts from your family and other investments. 

Lenders also require proof of all debts, like child support, alimony, car loans, credit cards, or student loans. They will also pull a complete credit report, called a tri-merge, which goes much deeper than the ones you can get for free on the internet, which may be sufficient to provide the liability information they need.

Contingency Period

After your contract is accepted, and while your loan is being reviewed, you’ll likely conduct a home inspection, a vital step in the home buying process. In some highly competitive markets, it can be tempting to skip this step in order to get your hands on your dream home before anyone else, but don’t do it. A professional inspection (and the inspection contingency you’ve so wisely included in your offer letter) can save you from buying a literal money pit or a house full of hazards.

In many states, including Illinois, you’ll also have an Attorney Review period, where your attorney will help navigate the outcome of the inspection report, estimate property tax prorations, and conduct a title search. The search will be performed to document that the seller has a clear right to transfer the property and that there are not any liens or encumbrances on your (hopefully) new home.

Underwriting

This is when many elements come into play, and it can be nerve-wracking for prospective homebuyers during this period. The mortgage lender will order the appraisal to make sure that the house is worth what you’ve offered to pay.

When your appraisal comes back with pleasing results and all the conditions in your loan application have been met, then you’ll be issued a loan commitment. This document will indicate that your loan is conditionally approved, subject to a few remaining conditions (for example, the lender may want to have proof you’re still employed, just before the day of closing.) Three business days before closing you’ll receive your closing disclosure, which outlines what you’ll have to sign and pay before you can get the keys to your new home.

It’s Closing Time

The final step is called the closing. Your real estate team expands here to include a closing agent, such as a title company. In some areas, you may also need to retain the services of a real estate attorney as well.

Purchasing title insurance at this time protects you from losing your hard-earned money in case someone tries to get a judgment against the previous property owner or a valid lien is discovered against your title after closing due to clerical errors (rare, but it does happen).

Your closing agent will also open an escrow account. This is a secure arrangement in which a neutral third party holds and disburses the funds according to your purchase agreement. Your earnest money deposit is held in escrow and a pre-payment of property taxes and your homeowner’s insurance.

Be sure to double-check your closing disclosure for unexpected fees. Some unscrupulous service providers may sneak in extra processing costs or inflated charges. A smart real estate team will help you weed out the chaff and close like a champ.

The Bottom Line

Going through the complex process of getting a mortgage and finding a home can seem like so much of a hassle, many people just give up. Don’t lose hope! I’m here to guide you through each step of the way with compassion, experience, and a deep understanding of the real estate industry.

If you’re ready to become a homeowner, reach out to me today!

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