Mortgage Lending Steps

mortgage lending steps

Start With Good Credit

Your credit report is used by banks and other lending institutions to determine your creditworthiness. The report can be a factor in a lending institution's decision to approve or decline your mortgage application.

You should review your credit report for any errors before submitting your mortgage application.

check your credit report

mortgage lending steps

Understand True Costs

Additional monthly costs such as real estate taxes, hazardous insurance, and other home ownership related fees can add to your total monthly payment and reduce the amount of home your can afford.

Many times buyers ignore these costs when figuring how much of a home they can afford. These costs are considered in your capacity ratios that lenders use to approve your mortgage application.

see our summary guide on the true cost of a mortgage

mortgage lending steps

How Much Down Payment

Most lenders require at least 20% down payment on your mortgage application. If your home purchase is $300,000, lenders will require you to pay $60,000 of that amount as a down payment and the lender will finance the remaining $240,000 in a mortgage loan. Your down payment can be in the form of cash or the resale equity value of a prior home.

Some lenders will now finance up to 95% of the home purchase price (meaning that you raise the other 5%). But you will be required to carry Private Mortgage Insurance (PMI) in order to qualify.

Private Mortgage Insurance (PMI) can add to your total monthly cost.

mortgage lending steps

Let's Add Up the Numbers

This will help figure out what parameters you need to change to fit within your budget and income ratios.

Calculation Notes:

• The amount of available cash / equity is the cash you have on hand for your down payment and closing costs. Equity refers to the resale equity value of your existing home if any, that will be available to you once you sell your home.
• Closing costs is calculated as percentage of the estimated purchase price of the home — this percentage can range between 3-7% depending on your location and number of points.
• The American Housing Survey shows that the median taxes paid averaged $10 per $1,000 in home value. The property insurance paid averaged $30 per month.
• You can lookup your property tax assessments by community: www.statelocalgov.net
• Any percentage LTV that is greater than 80% may require private mortgage insurance, which can add to the total cost of your loan — if your LTV% (calculated below) is greater than 80%, enter 0.005 in the PMI field and recalculate
  

mortgage lending steps

Get a Loan Pre-Qualification

Ask at least one lender to pre-qualify you for a mortgage. There is no obligation on you to obtain a loan from that lender, nor does it obligate the lender to provide a mortgage loan.

The lender will analyze your credit position, current income, and outstanding debts to give you a reasonable estimate of your borrowing amount.

You may begin your pre-qualification search through our national network of lenders and brokers: click for the mortgage application

mortgage lending steps

Watch Your Rates

Mortgage rates change daily. So watch them carefully. Sample of the average national daily rates:

The quoted rate you see may not be the actual rate you receive. Your actual mortgage rate will be determined by your overall credit score, your credit ratios, your location, and your negotiation skills to shop best rate.

Search rates and view negotiating steps for best rate and term: shop mortgage interest rates