for Every Homebuyer
The Life of a Loan:
An Overview of the Mortgage Process
The mortgage process is far from intuitive. It is a combination of many different moving parts controlled by several different individuals or entities. Familiarizing yourself with the inner workings of the process can make the mortgage process less confusing and stressful. Arm yourself with a fundamental understanding of a mortgage loan's life cycle.
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1. Find Your Comfort Zone
You want to get serious about pursuing homeownership? It's time to perform a thorough self-assessment of your financial capabilities. The importance of understanding how much you qualify for versus how much you can realistically afford cannot be overstated.
This is a step that you should never perform half-heartedly. A mortgage obligation cannot be taken lightly, and you should have a complete understanding of your take home pay after taxes and any withholdings such as 401k contributions and other payments. Weigh the addition of a mortgage payment in combination with any other obligations you hold, the expenses of your preferred lifestyle, and any future plans for significant expenses that may come into play such as higher education, child care, and more. You can use our mortgage calculator to obtain an estimate of what your total monthly payment may resemble.
Once you have truly understood the total monthly payment you are comfortable with making, being sure to take into account the property taxes and homeowner's insurance payments that will be included in your total mortgage payment, you can use this figure to understand the price range of the homes you can safely and comfortably own.
2. Mortgage Application
Mortgage application is exactly as it sounds; in this step, you will select a lender to approach and apply for a mortgage with. Lenders can make or break your homebuying experience, and your lender's competency, efficiency, and honesty will be a matter of being fortunate with the loan officer assigned to your transaction, rather than the overall reputation of the lender you select. The loan officer is your primary point of contact throughout the entire mortgage process, and much hinges on their ability, knowledge, integrity, and willingness to meet your needs in a timely manner.
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When applying with HP Mortgage, an experienced loan officer will review your income, liabilities, assets, credit history, and other financial aspects of your background to perform a thorough analysis of your position to repay a mortgage obligation, and how large that obligation can be. You should be prepared to supply financial statements and documentation requested by your loan officer such as bank statements, tax returns, and other similar paperwork, though these requirements vary drastically across loan programs and may be absent altogether for certain loans. See our documentation checklist for a brief rundown of what you can expect for different types of programs.
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Credit history is also an important part of a mortgage application. Though HP Mortgage is able to utilize soft pulls to form a preliminary picture of your credit history, a full credit report will be needed before a comprehensive and actionable mortgage plan can be delivered to you. Bear in mind that mortgage lenders do not use the same score models as consumer-facing entities such as web-based credit estimator services or banking applications.
3. Mortgage Preapproval
After your application and all necessary supporting documents are reviewed, your loan officer will carefully formulate your buying power and advise you on the options that would best suit your needs. After matching you to an effective loan program, you will be provided a preapproval letter issued by HP Mortgage that will specify the maximum purchase price you qualify for based on your income, assets, liabilities, and more.
This letter is to signify that a well-qualified professional has examined your financial profile and found your creditworthiness, liquidity, and income all satisfactory and adequate for the requirements of your loan program; this evidence of a thorough evaluation will serve as our endorsement of your qualifications as a buyer.
Any home seller or listing agent you come into contact with in the duration of your home search will want to see a mortgage preapproval letter. This is to ensure that any time and resources spent negotiating with a home buyer are not wasted on unqualified borrowers that do not present an extremely high chance of being approved for a mortgage. With the backing of an HP Mortgage preapproval letter, your chances of approval are above reproach, and you will be able to submit offers on homes within your designated purchase budget.
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For borrowers who would like to take an extra step to remove nearly all doubt from their mortgage preapproval for peace of mind, HP Mortgage offers the ability for homebuyers to secure fully-underwritten preapprovals. These preapprovals signify that your financial capabilities have been vetted to a standard significantly higher than a regular preapproval. The only variable left to determine the approval of your mortgage is the property rather than any aspects of your personal creditworthiness or ability to repay.
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As a final word on this step, keep in mind that once we reach this leg of the journey, there are definitely some things you should never do. We will cover those pitfalls in another section, but these namely revolve around making any major purchases or taking out new debt that will significantly affect your financials. Doing so can void your approval. Ask your loan officer before any major financial choices to ensure that they will not affect your eligibility.
4. Home Shopping and Offers
You and your real estate agent will work together to narrow down the expansive sea of choices that the housing market in your area of interest presents for buyers. If you do not already have a trusted agent, we can connect you with our network of experienced agents operating in your area. Your realtor's efforts, in combination with your own research and preferences, will yield a list of potential dream homes that you can begin to tour and submit offers on. Your agent will carefully review the property's attributes, write an offer that affords you necessary protections, and submit the offer to the listing agent.
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Should the listing agent and seller review your offer and find it the most appealing among any competing offers, your offer will be accepted, and a sales agreement will be finalized and fully executed (signed by all relevant parties). Be very mindful of the various terms and clauses included in this contract, and do your best to secure protections such as a financing contingency and inspection contingency that will protect you against any unforeseen negative aspects of the property. Foregoing such protections may cause your offer to stand out against competition, but it will also increase your risk of potentially losing your earnest money deposit should you decide that any negative revelations that arise in the course of the purchase leave the property not worth pursuing.
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Once you have a fully-executed purchase contract, your realtor should immediately send this to your loan officer, who will review the contract's terms and adjust your loan program to reflect the final purchase price of the home. At this stage, you will be presented with a bundle of paperwork known as the "initial disclosure package". This bundle will contain the official loan estimate tailored to your unique loan aspects, which will be formatted very closely to this example, outlining the potential monthly payment at the prevailing interest rates available on that day.
5. Submission, Underwriting & Locking
A fully-executed purchase contract will allow you to submit your loan for final approval. This is a process that typically should be started as soon as possible after execution of contract, as most purchase contracts offer the buyer a limited time to close on the home purchase. Your loan officer will provide you with an official loan estimate as aforementioned, and should you find the terms agreeable, you will sign the initial disclosure package and give the lender your intent to proceed. This will allow your loan officer to begin ordering appraisal and satisfying final requirements for your loan approval known as "conditions".
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During the process of mortgage underwriting and final approval, you should remain alert for any communications from your loan officer in the event that additional documents or tasks are required. Otherwise, as this portion of the process puts the ball squarely in the court of the mortgage underwriter and processors, you may find that it feels like a waiting period of sorts.
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You may be wondering when you should "lock" your mortgage interest rate, which will secure an interest rate for the amount of days the lock is eligible for. A typical number is 30 days, though on man loans we see closings occur well before lock expiration. In environments where rates are observed to be consistently rising, it is best to lock the rate immediately after reviewing your initial disclosure package containing your loan estimate, or at least within the days following your acceptance of initial disclosures.
We even offer programs that allow you to lock a rate before shopping the housing market, protecting you against rate increases while you search for that dream home. In environments where rates present a decent likelihood of falling, it may be beneficial for you to postpone locking until necessary. Your loan officer will advise you on when you should lock, and at HP Mortgage, you will have plenty of options if you lock early on and rates fall afterwards.
6. Final Approval, Closing & Keys
Once appraisal has returned, and the underwriter has found that all aspects of the property and loan are satisfactory, you will receive your final approval and a notification of being "clear to close" (CTC). You are essentially right in front of the finish line at this point. Similarly to how an initial disclosure package with an official loan estimate was supplied to you near the beginning of the process, you will be issued a set of closing documents from your lender that will include the official closing disclosure. It will closely resemble this example in formatting. This must be provided by the lender at least 3 business days before the closing day by law.
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Various final steps will need to be taken, such as wiring the necessary down payment and closing costs to your escrow company, who will hold the funds and disburse them upon execution of all required closing contracts. BE EXTREMELY WARY OF WIRE FRAUD ATTEMPTS. Scammers may attempt to use emails or phone numbers closely resembling those of an official title, escrow, or lending company to trick you into sending them your closing funds. Any individual that contacts you and presenting themselves as an escrow or title company representative should be heavily scrutinized, especially if they instruct you to wire down payment or closing cost funds to a certain account. Always confirm any wiring directions by contacting your lender, escrow, and title agents directly. You will also need to present proof of satisfactory homeownership insurance coverage, though you may have had such documentation requested before this point.
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A closing date will be set between all relevant parties. You will attend the closing meeting and potentially conduct a final walkthrough of the home prior to closing, a strongly recommended practice that will ensure that the home is still in acceptable condition and that the seller did not remove any appliances or elements within the home that they are contractually obligated to leave behind. When attending a closing meeting, bring forms of identification with you such as a valid state-issued driver's license or a valid passport. You should also bring proof of wire transfer for closing costs and down payment funds (or a certified cashier's check covering the exact amount), proof of homeowner's insurance, and your closing disclosure to compare to final paperwork. Once paperwork is signed and funds are disbursed, you will receive your keys, and ownership of your own living space and vehicle to build generational wealth and a lifetime's worth of memories.
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