Your 10-Step Guide to Taking Out a Mortgage Loan

You might know that a mortgage is a popular loan, and that one is typically needed to buy a home. But do you know what taking out a mortgage actually involves?

Like any loan process, the mortgage process can take time, effort, and patience. It also takes some research and some financial knowledge. And when many homebuyers begin applying for a mortgage, they can be surprised by some of the different aspects. Taking out a mortgage loan isn’t a quick process – but it doesn’t have to be a complicated one.

Here’s a 10-step guide to navigating the process of taking out a mortgage loan for your new home. If you know the steps before you begin, you can keep your mortgage application on track and anticipate what’s ahead.

1. Choose a Lender and Submit an Application

When you’re ready to buy a home, you’ll need to secure a mortgage – but it isn’t as simple as just deciding you’re ready to get one. You actually have to find a lender, get qualified, and then apply.

Once you’ve researched different lenders and financing options, compared them, and made a decision, you’ll be ready to start the mortgage process. Your lender will check your financial information and pre-qualify you for a loan of a certain amount.

Then, it’s up to you to find the home of your dreams. After you’ve done that, you’ll fill out an official application for a mortgage loan with your lender. You’ll need to include personal information and financial information, like income documentation, debts and assets, and more.

2. Schedule a Home Inspection

In order to make sure your home is suitable for sale, you’ll need to undergo a home inspection. So, once you’ve officially filed your application with the mortgage lender, schedule a home inspection as soon as possible.

It’s best to schedule a home inspection well before you close on the sale. That way, you can use the results of the inspection in the negotiation process. During the inspection, a professional will walk you through the home and note any issues. You can ask questions and get more information about different areas, systems, and problems in the home.

After the inspection is finished, you’ll get a report that highlights any concerning issues and any positive aspects of the home. You’ll need this report to take the next step.

3. Get Conditional Approval

You’ll want to share your home inspection report with your lender. While they review your mortgage application, they may need more information about you, your financial situation, and the home you’ll be purchasing. The more information you can provide, the better.

At this time, you’ll find out if you officially qualify for a mortgage. If your application is accepted, you’ll get conditional approval. That means the lender has approved you to buy the home you’re interested in – barring any problems.

4. Buy a Homeowner’s Insurance Policy

Many people don’t think about homeowner’s insurance until they’ve gone through the mortgage process. But here’s something you might not realize: mortgage companies require proof of insurance before they can finalize your loan.

In order to make your mortgage final and get the last approval, you’ll need to provide proof of a homeowner’s insurance policy. That’s why it’s a good idea to start looking at different policies early on in the process.

Search for different insurance companies and compare their policies and prices. Determine your deductible and how much coverage you’d like. Then, you can go through the process of finalizing your policy. This ensures you’ll have homeowner’s insurance in place well before closing on your new home.

5. Wait for a Home Appraisal

The next step in the mortgage process takes some time – and it involves simply waiting.

After you’ve secured conditional approval, done a home inspection, and shopped for a homeowner’s insurance policy, you’ll need to wait before you move ahead. A lot of activity will be happening behind the scenes.

During this time, the mortgage lender will work to set up a home appraisal, which ensures the home’s value and sale price are suitable. Your lender will work with an appraiser, the current homeowners, and potentially real estate agents to get this accomplished. All you have to do is stay in touch with your mortgage lender.

6. Avoid Taking on Any New Debt

While you’re waiting for the next steps from your mortgage lender or your real estate agent, there’s one important thing you should avoid. Don’t take on any new debt.

Until your home sale is finalized, your mortgage is still considered in process. And that means any big financial changes that happen can affect your future loan. For example, opening new credit cards or taking on new debt like an auto loan could negatively affect your mortgage approval.

It’s better to stay safe and avoid any big financial moves during this time, especially when it comes to debt.

7. Secure Your Mortgage Interest Rate

Once your lender is ready to move ahead to the final stages of the loan approval process, it’s time to lock in your mortgage interest rate.

Interest rates can fluctuate, and they can change up until the very end of the mortgage process. While that’s good news if interest rates are dropping, it’s bad news if interest rates are rising. So, make sure to lock in your interest when the time is right.

You must lock in an interest rate at least 10 days before your mortgage closing date. So, make sure to finalize any remaining details about your interest rate in the weeks before you’re set to close on your new home.

8. Review All Completed Documents

Once your interest rate is locked in and finalized, it’s time to give your mortgage a final review. Before you’re ready to start signing documents, you’ll want to give them a close look to make sure you know what you’re signing.

A typical mortgage lasts anywhere from 15 to 30 years. That’s why it’s so important to make sure everything is correct. Review all of the documents from your lender. Examine the inspection and appraisal reports. Carefully review the title search.

Once that’s finished, you’ll be ready for the final steps.

9. Get Your Down Payment and Closing Costs in Order

When your documents are ready, your lender will set a date and time for closing. They’ll also let you know how much money you’ll need to bring with you to make your down payment – and to settle any fees or additional costs.

Once you have this information, make arrangements to get the money you need. You may need to move funds from different bank accounts. Your lender may also want the money in a specific manner. Read the details of your closing carefully so you’re prepared with the right amount.

10. Close On Your Home

With your money in hand and your closing documents from your lender, you’re ready to finalize your home purchase and your mortgage.

At the closing appointment, you’ll read all of the necessary documents, sign each one, and ask any final questions you have. Then, once the papers are signed and down payment is made, you’re a homeowner with a mortgage.