Mortgage Approval Process Explained

Buying a home is a significant financial commitment, and understanding the mortgage approval process is essential to securing the financing you need. At Harrisonburg Mortgages, we're dedicated to helping you navigate this complex process with ease. This guide will walk you through each step of the mortgage approval process, so you know what to expect and how to prepare.

Step 1: Pre-Approval

The mortgage approval process typically begins with pre-approval. Pre-approval involves a thorough assessment of your financial situation by a lender, resulting in a conditional commitment to lend you a specific amount. This step is crucial because it gives you a clear understanding of your budget and strengthens your position as a serious buyer when making offers on homes.

What You’ll Need for Pre-Approval

Income Verification: Pay stubs, tax returns, and W-2s or 1099s from the past two years.
Credit Report: Your credit score will be checked to assess your creditworthiness.
Debt Information: Details of any existing debts, such as credit card balances, student loans, or car payments.
Assets: Documentation of your savings, investments, and other assets.

Step 2: House Hunting and Making an Offer

With your pre-approval in hand, you’re ready to start house hunting. Once you find the right property, you’ll make an offer. If the seller accepts, you’ll enter into a purchase agreement, which is a legally binding contract outlining the terms of the sale.

Step 3: Mortgage Application

After your offer is accepted, the next step is to formally apply for a mortgage. This involves submitting a detailed mortgage application to your lender, along with supporting documentation. Even if you’ve been pre-approved, the lender will re-evaluate your financial situation during this stage to ensure nothing has changed.

What to Expect During the Application Process

Detailed Financial Review: The lender will review your income, assets, debts, and credit history in greater detail.
Choosing a Loan Program: You’ll work with your lender to select the mortgage program that best fits your needs, whether it’s a fixed-rate mortgage, an adjustable-rate mortgage (ARM), or a government-backed loan like an FHA or VA loan.
Loan Estimate: Within three business days of submitting your application, your lender will provide a Loan Estimate, which outlines the estimated costs associated with your loan, including interest rate, monthly payment, and closing costs.

Step 4: Loan Processing

Once your application is submitted, it moves into the loan processing stage. During this phase, the lender’s processing team will compile and verify all the information provided in your application.

Key Activities During Loan Processing

Order a Home Appraisal: The lender will order an appraisal to determine the market value of the property. The appraisal ensures that the home is worth the amount you’re borrowing.
Verification of Employment and Assets: The lender will contact your employer to verify your income and may request updated bank statements to confirm your assets.
Title Search: A title company will perform a title search to ensure the property is free of any liens or legal claims.

Step 5: Underwriting

Underwriting is the most critical part of the mortgage approval process. During underwriting, the lender’s underwriter will carefully evaluate all the information in your loan file to assess the risk of lending to you.

What Underwriters Consider

Creditworthiness: Your credit score, credit history, and payment patterns are closely examined.
Capacity: The underwriter will assess your ability to repay the loan based on your income, employment history, and DTI ratio.
Collateral: The property itself serves as collateral for the loan. The underwriter will review the appraisal report to ensure the property’s value supports the loan amount.
Conditions: The underwriter may impose certain conditions that must be met before final approval, such as paying off certain debts or providing additional documentation.

Step 6: Conditional Approval and Final Loan Approval

If the underwriter is satisfied with your file, you’ll receive a conditional approval, meaning your loan is approved pending the satisfaction of certain conditions. Once these conditions are met, your loan will move to final approval.

Meeting Conditions

Submit Additional Documentation: You may need to provide updated financial documents, such as recent pay stubs or bank statements.
Clear Outstanding Debts: If the underwriter requires you to pay off certain debts, this must be done before final approval.

Once all conditions are satisfied, your loan will be fully approved, and you’ll receive a Closing Disclosure, which outlines the final terms of your loan.

Step 7: Closing

The final step in the mortgage approval process is closing. During closing, you’ll sign the necessary documents, pay closing costs, and take possession of your new home.

What to Expect at Closing

Review the Closing Disclosure: Before closing, review the Closing Disclosure carefully to ensure all details are correct.
Bring Required Documentation: You’ll need to bring a government-issued ID, a cashier’s check or proof of wire transfer for the closing costs, and any other required documents.
Sign the Documents: You’ll sign the mortgage note, deed of trust, and other legal documents.
Receive the Keys: Once everything is signed and the funds are transferred, you’ll receive the keys to your new home.

Are you ready to start your journey toward homeownership in Harrisonburg? Contact Harrisonburg Mortgages today to begin the mortgage approval process with a team of experts who are here to guide you every step of the way.