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Steps to Getting a Mortgage

Why Is a Mortgage Necessary?

Many people have the dream of getting a home of their own. Renting a house or condo can be just like flushing money down the toilet. It goes to enrich others, rather than the person who actually occupies the home.

The problem with getting a new home is the cost. The vast majority of Americans have trouble being able to afford a new home without taking out a mortgage because they cannot save up enough money to pay straight cash for a home. A mortgage allows people to make monthly payments toward a home so that they can build up equity.

Step 1 to Getting a Mortgage: Build up Good Credit

This step to getting a mortgage should start as soon as a person starts to buy large items in high school or college. It is impossible to get a mortgage without a cosigner without good credit scores.

Getting a high credit score requires time and many on-time payments. Paying off a bill late can really put a hamper on a person's credit score, so it is imperative that anyone who hopes to get a home mortgage be very conscientious in paying off their bills.

FHA loans are government insured and require a lower down payment.

FHA loans are government insured and require a lower down payment.

Steps to Getting a Good Credit Score

  • How to Achieve a High Credit Score
    One of the most important assets that people can have is their credit score. A high credit score allows people to have much more financial flexibility than those who have a lower score.

Step 2 to Getting a Mortgage: Save Money

Largely gone are the days in which anyone could go into a bank and get a no-down-payment loan to buy a house. There are still a few options for those who are short on cash to get a mortgage. Some rural counties can offer rural development loans that require no money down, but most people will have to pay at least the 3.5 percent down that an FHA loan requires.

Those who cannot qualify for an FHA loan because of income or some other issue will probably have to put around 10 to 20 percent down on a home. It is pretty obvious that coming up with that kind of money on a house that is likely to cost more that $100,000 will take some serious saving. Therefore, it is imperative that those who want to get their own home live frugally for a few years to save up for this down payment.

An 1855 Victorian House from Connecticut. This might be out of the range of many first-time buyers.

An 1855 Victorian House from Connecticut. This might be out of the range of many first-time buyers.

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Step 3 to Getting a Mortgage: Get Pre-Approved

Most realtors will not talk to a person who wants to buy a house unless they can either 1) pay cash, or 2) have a pre-approval letter from a bank that states how much house the person can buy. Since most people cannot pay cash, and this article is about getting a mortgage, item 2 is more important.

Getting pre-approved for a mortgage allows a bank to look at a person's finances and credit scores. They will then write a letter that states how much that person can spend on a home. Real estate agents will know that they are dealing with a reputable person who can get approved for the loan and they will then start to work with the pre-approved buyer.

Step 4 to Getting a Mortgage: Find a Realtor

Finding a realtor is the next step after getting a pre-approval letter. There are times when a realtor might not be necessary, but most of the time, a realtor will know the market in which he or she works. A realtor can find a home that is in the price range that a person or family can spend, and they can look for certain characteristics that a family wants.

After meeting with a realtor, it is important to tell said realtor what items are necessary in a home. If you want 4 bedrooms, but can deal with three, let the realtor know. If less that 2 baths is a problem, that is an important piece of information. Reators will work to get the right home for a couple.

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Step 5 to Getting a Mortgage: Find a Home

After the consultation with a realtor, it is then time to start looking for a home. Most of the time, a person or couple will have to look at several different homes to find one that clicks for them. Realtors are used to taking people to multiple houses and are more than happy to do so because they will get a commission payment at the end.

Once the right home is found, it is then time to make an offer. Depending upon the market, offering less will work. In other markets, a bidding war that takes the cost higher than the asking price is a possibility. Sellers will frequently make a counter-offer, and at this point, it will be necessary to hash out the differences and come to an agreement. After signing a contract, there is still work to be done, though.

Step 6 to Getting a Mortgage: Close the Loan

After signing a contract and knowing the cost of the home and how much in they way of closing costs (if any) will be handled by the buyer, it is then time to make the formal loan application.

A bank will require an appraisal be done so that it knows that the purchase will not be an undue risk. Also, the particular type of loan might require that certain work be done before the closing. After the appraisal comes back and it is deemed that the house in insurable, the closing can then proceed.

The closing will take quite a bit of money from the buyer and the seller. Included are loan processing fees and prepaid taxes and insurance premiums. Additionally, if the buyer called for an inspection, this would frequently be included in the closing costs. After signing on the dotted line, the title to the house changes hands, and the new homeowners get the keys to a house of their own.

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