Prequalification will give you a quick estimate of how much you can borrow for your mortgage. You’ll share basic financial information, including your income, savings and outstanding debts. There’s usually no fee to get prequalified, and you can apply quickly by phone or online. However, getting prequalified doesn’t guarantee you’ll qualify for the mortgage.
Preapproval is much more thorough than prequalification. The lender will review your financial situation, similar to when you officially apply for a mortgage. You may be required to pay an application fee.
- W-2s for the previous two years
- Pay stubs
- Proof of bonuses
- Your most recent federal tax return
- Two to three months of bank and investment statements (such as brokerage, 401(k), IRA, Roth IRA, 403(b) and pension statements)
- Profit and loss statements or 1099 forms (if you own a business)
- A list of your debts, including credit cards, car loans and student loans, along with your minimum monthly payment for each
- Canceled checks for your current rent or mortgage
- Social Security or disability statements
- Alimony and child support payments
- Bankruptcy discharge paperwork
After you’ve found your property, you can formally apply for a mortgage. The mortgage application will ask you questions about the property and your financial situation. A typical application could ask for:
- The address of the home you want to purchase
- The type of home
- The size of the property
- The expected sale price
- An estimate of the home's value
- The annual property taxes
- The homeowners association dues
- The loan amount you want to borrow
4. Loan estimate
After you send in your application and documents, the lender must give you a loan estimate within three days of completion as required by federal law, according to the Consumer Financial Protection Bureau. The loan estimate gives you an overview of the mortgage that the lender would give you, based on a preliminary inspection of your application.
If you accept the estimate, the lender will send your application, credit report and financial documents to be reviewed by a mortgage processor. This company will review your financial documents to make sure they’re accurate, as well as the property title to make sure the house can be legally sold.
6. Additional documentation
The mortgage processor could ask you to submit other documents as part of its review, sometimes due to errors such as a missing page from your tax return.
The lender will hire a professional to complete an appraisal of the property. The appraiser inspects the property to come up with an opinion of how much it’s worth. This could be different than the price you agreed to with the seller.
The appraiser will look at the house size, location, amenities and physical condition to determine the value. You’ll receive a copy of the appraised value of the house within three days of the
appraisal. This report will explain how the appraiser determined the value of the house and how it compares with similar properties in the area.
Once the mortgage processor has finished the review, a report goes back to the lender so it can decide whether to approve the loan. The lender might approve your mortgage, deny it or ask you for more information. If the lender is satisfied, it will approve your loan after underwriting.
9. Closing disclosure
After the lender has approved your mortgage, it must send you a closing disclosure document. This document is similar to the loan estimate. The difference is that the numbers on this document are no longer estimates. It lists information about the mortgage including the monthly payment, interest rate and closing costs.
Most lenders will ask you to buy homeowners insurance to protect their investment.You’ll need to apply for insurance after you’re approved for the loan. The insurance company might not have enough time to complete your application before the closing date. In this case, you’ll receive an insurance binder, which is temporary coverage for the property that lasts 30 days. With an insurance binder, you can close the deal and your regular insurance policy will be ready after the sale.
Closing is the last step of the entire process. You’ll have one last closing meeting with the seller, the real estate agents, a title company representative and possibly a representative from the lender. You may need to have an attorney present, depending on the rules in your state.
Once you close, you’ll be given the keys to your new home.