1. Financial Self-Assessment/ Preparation

The first stage of the mortgage process begins at home and can be summed up with four words ~ budget, credit, savings, and documents.

This step should happen before you ever start looking at homes. Establish a monthly housing budget based on your current income and debt situation. Check your credit score since the lender will use it during the approval process. Save as much money as possible to cover your down payment, closing costs, and (possibly) cash reserve requirements.

And lastly, start rounding up the financial documents you'll need during the mortgage application process.

2. Applying for the Loan / Pre-Approval

Once you have done your preparation work, it's time to get a Pre-Approval Letter from your lender.

It's a step up from a pre-qualification letter, where the lender simply asks you a few questions about your finances, and they take your word for it.

For a pre-approval letter, the lender actually verifies your information. Although it takes more time, it helps you figure out what you can safely afford, and it tells the builder you are a serious buyer.

We encourage you to talk with one of our Preferred Lenders. Your goal is to find out how much the lender is willing to give you before you start the house hunting process.

During pre-approval, the lender will look at your income, credit, and debt situation. Based on this initial assessment, they will tell you how much of a loan they're willing to give you. Now you can see why it makes sense to do this before you start shopping for a house.

The application itself is one of the more straightforward parts of the mortgage process. You will probably have to complete the Uniform Residential Loan Application (Fannie Mae form 1003 / Freddie Mac form 65). You can view or download a blank form with a quick Google search. You shouldn't actually fill out this form unless your lender asks you to, since they might have a different version. But it's still a good idea to download a blank application so you can see the kind of information it requires.

If you do not have a Pre-Approval Letter before you sign your purchase agreement, it will be a financing contingency so why not get it done ahead of time?

3. Mortgage Origination & Processing

In most cases, the loan processing starts after you have found a home and made an offer to buy it. You would then go back to your lender with the signed purchase agreement. This document shows them how much you're offering for the home. Later, they will have the home appraised to make sure it's worth the amount you are trying to pay.

At this point, the Mortgage Origination starts. This is just a big word for creation. It's lender jargon. The lender "originates" the loan by combining your application with the other documents we talked about earlier. They might even ask you for additional documents at this stage of the mortgage process.

There's really not much for you to do during this step of the process. Just stay in touch with your point of contact at the mortgage company. Provide any documents they request. Keep the lines of communication open.

4. The Underwriting Process

Underwriting is the next stage of the mortgage process. This is when the lender passes your application file along to an underwriter. It's this person's job to determine if you, as a borrower, represent an acceptable level of risk for the lender.

Mortgage companies are willing to take on a certain amount of risk when making loans. It's the nature of the business. But they have parameters that limit the amount of risk they are willing to accept.

The underwriter will "measure" you against the lender's parameters of risk. He or she does this primarily by looking at your credit score, your income level, your debts, and the amount of money you are putting down. Mortgage approval lies within these four factors, more than anything else.

During the underwriting stage, you will probably be asked to provide additional documents. For instance, if you have moved money out of your savings account recently, the underwriter might ask for a written explanation of this. He or she may also establish other conditions for loan approval. So that's the next part of the mortgage process we need to discuss.

5. Conditions to Approval

Your loan application will be put through an Automated Underwriting System (AUS). The computer will then create a list of items that are needed to satisfy the lender's requirements. This might also be done by a human underwriter, as we discussed earlier. But whether it's done by man or machine, the end result is the same.

This step of the mortgage process is basically a task list for the borrower. You will be presented with a list of "conditions to approval." These are things you must do or documents you must provide in order for the loan to be approved.

Here are some common conditions for approval:

--Additional documents to prove your income
--Proof of your homeowners insurance
--Property appraisal to determine the value of the house
--Cash reserves in the bank to cover your first few payments.

Different borrowers will have different "hoops" to jump through. It varies from lender to lender because they all have their own underwriting standards and requirements. These conditions will be presented to you in writing, after the initial underwriting process is complete.

6. The Closing

Closing is the final step in the mortgage process. It's also referred to as settlement, particularly in the eastern part of the U.S. This is when all of the funds are distributed to the receiving parties, and all of the paperwork is finalized and signed. Most of this will be managed by an escrow company or the closing attorney.

The seller (the builder) will receive whatever proceeds are earned from the sale. The buyers (you) will present a cashier's check to cover your part of the closing costs. The monies you had to put up for deposit when you signed the contract will usually be credited back to you at closing, so you may not owe much, if anything, on actual closing day. At this point, the deed (and the house keys) will be transferred from the seller to the buyer.

You are a new homeowner!