After selecting a lender, the next step is to complete a complete mortgage loan application. Shorter loan terms cost less over time, but require higher monthly payments along the way. Most mortgages have loan terms of 15 or 30 years, but you can also find loan terms for 10 or 12 years. For most borrowers, the best loan term is the shortest one whose monthly payments you can comfortably afford.
A larger down payment opens up more mortgage opportunities for borrowers, but not all new mortgage loans require a large down payment. USDA and VA loans, for example, offer mortgages with no down payment. Conventional loans typically require a down payment of at least 3 percent, and FHA loans require a 3.5 percent down payment. A loan with a low down payment usually requires mortgage insurance, which increases your monthly payment.
Closing costs include a variety of charges, such as loan origination fees, appraisal fees, title fees, and other legal fees. You can expect closing costs to be around 2 to 5 percent of your loan amount. The credit requirements for homeownership vary depending on lenders and types of loans. Typically, FHA loans require a credit score of at least 580; conventional and VA loans require a score of at least 620; and USDA loans require a credit score of 640 or more.
However, lenders often set their own requirements, which may be higher or lower. Preparation is key, because once your purchase offer is accepted, time is ticking. Closing a mortgage transaction takes about 43 days on average, according to data provider ICE Mortgage Technology, although certain types of loans may take a little longer. You'll also want to know where your credit rating is likely to stand with lenders.
Scores in the most desirable range (720-850) are considered “excellent”. From there, scores in the 690 to 719 range are “good”, scores in the 630 to 689 range are “fair”, and scores in the 300 to 629 range are “bad”. The higher your score, the more likely you are to be approved for a mortgage and that you will receive offers with more favorable rates. Income verification is necessary when applying for a mortgage loan; this includes W-2 forms and pay stubs (or tax returns if you are self-employed).
If you've already gone through the pre-approval process, you'll use similar documentation to fill out an application. As with pre-approval, applying with multiple lenders will give you a variety of rates and terms to choose from. As long as all of your applications are submitted within 45 days, they will be counted as a single solid credit inquiry, which means that your credit rating will not be affected by filing an application with three or four more lenders than would be affected by one request. If you chose to pay all of your closing costs at once, now is when you'll arrange to do so via bank transfer or cashier's check.
Some borrowers include these fees in the total cost of the loan. Closing costs typically range from 2% to 6% of your loan amount; you can estimate this amount using NerdWallet's closing cost calculator. Once you have submitted all the necessary documents to complete your application, you will receive a loan estimate in a couple of days that will indicate the terms, rates, and charges of your mortgage loan. The documents (everyone in the mortgage industry calls them loan documents) are drawn up and sent to the title company (or the attorney's office) where the closing meeting is held.
It's important that you understand these closing documents and be financially prepared to complete the mortgage loan process. How long it takes to get a mortgage depends on many factors such as the type of loan, the time of year, the lender, the mortgage application and so on. Loan officers will also look closely at your income and asset documentation to ensure that you have enough cash flow to make monthly mortgage payments. Before you begin the home buying and mortgaging process it's important to evaluate your finances and make sure you're financially prepared to buy a home.
These are all the charges including interest principal and mortgage insurance that you'll incur during the first five years of the mortgage.
