The loan approval process generally begins with an initial interview where the prospective home buyer and the mortgage professional discuss the potential loan. You will need to have information on your income, assets, and debts.
Often people prefer to discuss the loan with the mortgage company before house hunting to determine in advance what price range they can realistically afford and the mortgage amount for which they can qualify. This step is called pre-qualification and can save you much time and trouble by making certain you are looking in the correct price range.
For your first meeting with the mortgage company, you have available:
- A purchase contract for the house (if you have one)
- Your monthly statements for checking, investment, retirement, and savings accounts (all pages) for the previous 2 months
- Pay stubs, W2 withholding forms, tax returns for two years, or other proof of employment and income verification
- Divorce settlement papers, if applicable
- Credit card bills for the past few billing periods, or canceled checks for rent or utility bill payments, to show payment history and amount of revolving debt
- Information on other consumer debt such as car loans, furniture loans, student loans and retail credit cards
- Balance sheets and business tax returns, if you are self-employed
- Any gift letters, if you are using a gift from a parent or relative or other organization to help pay the down payment and/or closing costs. This letter simply states that the money is in fact a gift and will not have to be repaid.
Having these items on hand when you discuss your loan with a loan consultant will help speed up the application process. Usually after approval, an application fee and the appraisal fee will have to be paid when you submit the mortgage application. This is only done after you have successfully negotiated on a home and have had your offer accepted by the seller. Generally, there is no fee for pre-qualification. A small fee may be charged for a pre-approval.
After the initial conversation with a loan specialist, you should have a general idea if you qualify for the size and type of loan you want. The mortgage company should let you know if you qualify for the loan in a day, perhaps a week if it is a subprime loan. If you are denied a home loan, the mortgage company must explain the reasons. If this happens, the mortgage company will usually discuss any options with you.
You should also be presented with a Good Faith Estimate, which details the costs associated with the mortgage - such as origination fee, underwriting, processing, title search, filing fees, etc.. This will give you an estimate of the rate and associated costs of the loan.