Whether you’re looking at different types of properties or just trying to figure out where to start, here’s the steps in the process of getting a mortgage.
Step One: Check your credit score
First off, check your credit score. Most lender’s credit minimum ranges between 580 and 620, depending on the loan type. Certain types of loans such as FHA loans, have lower credit requirements, allowing for scores at and above 580. Conventional loans require a higher minimum credit score of around 620. You can get a free credit report from Annual Credit Report (the only website permitted by the federal government to give you a free annual credit report). Or your bank or credit card might offer a free option on their app. It doesn’t have to be exact at this stage, but it’ll really help you to know what you have when you first start shopping.
If you have credit below 580, you might want to look for any old payments that you can resolve.
You can also consider a co-signer on your mortgage, who might have better credit.
Step Two: See how much you can afford
It’s all about budgeting. Look at your income, debts, and how much you’ve saved for a down payment. After you establish your credit is in a purchasing range, we recommend that you check out this affordability calculator. It will factor in your credit score, and the other main factors that will influence what size loan you will qualify for.
The additional factors considered in your pre approval amount are your location, annual household income, down payment, any debt payments you have (could look like a car payment or student loans) and of course, your credit score. You will then receive a sliding scale of how much home you could afford, and well as likely qualify for. (It also breaks down what your monthly payment as well as closing costs would look like for differing home purchase prices.)
Step Three: Get pre approved
Is getting pre approved really necessary? Yes: 100%. Getting pre approved for a loan is critical when shopping for a new home. It will show sellers that you are a serious and capable buyer. And you’ll want to have a strong pre approval in hand when it comes time to make an offer on a home.
At Tomo Mortgage, unlike other lenders, we also spend time to help fine-tune your offer letter with the best possible financial story. This can be the difference between winning and losing an offer on a home.
To get pre approved – simply complete these forms online. It only takes about 15 minutes. You can get a pre approval letter the same day (if you submit late in the evening, we will have it to you first thing in the morning)! A pre approval is a lender’s way of “vetting” a buyer, to show they have the capability to buy a home, both to reduce their own risk, and demonstrate buying power to the property’s seller.
Our pre approval uses a soft credit check, compared to other lenders who may do a hard credit check. A hard credit check will cause your overall credit score to temporarily drop a couple points, so it’s best to try to reduce the number of hard credit checks you do until you are ready to purchase. There are different types of home loans out there that you might get pre approved for, like conventional loans, FHA loans, and VA loans, to name a few. Each one has its own eligibility criteria and perks, so it’s worth looking into which one aligns best with your financial situation.
Step Four: Submit your mortgage application
Your mortgage application is a little more involved than your pre approval – and will require additional information from you. It will also run a hard credit check, so you’ll want to make sure you’ve selected the right lender. You might want to ask your lender about things like “time to close” or “lending fees.” At Tomo Mortgage, because we have an online experience that saves a lot of time and expense, we’re able to not charge any lending fees (the vast majority of lenders charge $2,000 or more for things like processing), and we have a 98% on-time closing rate (the industry average is 40% on-time closing).
You will need to have your financial documents in order at this stage. Be ready with stuff like pay stubs, tax returns, proof of assets, and details on your debts. Having everything ready to go can make the process smoother. If you don’t know where to find this information, your lender should be able to help you get the documents in order. Once you submit your documents, the lender will dig into your financials, verify everything, and start the underwriting process to figure out if you’re good to go.
Step Five: Get your “conditional approval”
After you submit your loan application, the underwriting process begins. Underwriting is the process where your lender closely examines your financial situation to determine whether you qualify for a loan and that you meet all the requirements set by the government. They’ll look at your credit score, employment history, assets, and debts to assess how risky it would be to lend you money. This step is crucial because it’s what ultimately decides if your loan gets approved and what the terms will be, like your interest rate and loan amount.
Prior to having a final, approved mortgage, you’ll likely be conditionally approved. This means that the lender will send you a commitment letter. This letter tells you the loan amount, interest rate, and any conditions you need to meet before closing.
During this time, your lender will do things like get your home appraised, work with your real estate agent or title company to ensure there are no conditions or contingencies on the home or the deed that need to be factored into the loan. There’s about 300 different conditions that they’ll be looking for during this time, which can range in complexity based on the purchase that you’re looking to make. If you’re buying a condo or a home that’s part of an HOA (homeowners association), there might be additional steps required. Your Application Advisor will talk you through all these details and get you to “Final Approval” or “clear to close.”
Step Six: Get final approval and “clear to close”
During the closing, you’ll sign the final paperwork, pay any remaining closing costs, and receive the keys to your new home. After closing, your lender will distribute the loan funds to the seller, and you’ll officially own the property. This is when your monthly mortgage payments on your home will start.
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.
