The home buying purchase can be an exciting and intimidating process. Many people find the loan application process to be intimidating. By educating yourself on the process, you will feel more at ease and know what to expect along the way.

Applying for a Loan

Once you have signed a purchase contract, you need to approach your lender with your purchase contract to begin the loan application process. The lender will work with you to complete a loan application during your initial interview. The lender will verify this information and use it (i.e. the purchase price of the house, your intended down payment, along with your income, assets, liabilities) along with your credit score to determine approval of your loan. When you apply for a loan, you are typically required to pay an application fee, a credit report fee and an appraisal fee.

When Should You Apply for a Loan?

In today’s competitive home-buying market, obtaining pre-approval for a loan can assist you in having your offer accepted by the seller. Pre-approval will also assist you in understanding which homes are within your price range.

How Does Your Credit Score Affect Your Loan?

When applying for a loan, the better your credit score, the better your interest rate will be. As a result, it is important to ensure that your credit score is accurate. You can do this by obtaining and reviewing a copy of your credit report. You should do this prior to applying for you loan so if there are any errors, you can address them before your lender pulls your credit scores during the loan application process.

How Can You Prepare for the Loan Application Process?

During the loan application process, your lender will require information about your income, assets/liabilities as well as the property you intend to purchase. By organizing this information and having it readily available during the loan application process, you will be able to assist in making the process much smoother. You can utilize our Loan Application Checklist to ensure you are prepared for the loan application process.

How Your Loan Application is Evaluated

When evaluating your loan application, the lender tries to determine whether or not you're likely to pay back the loan on time and in full. To make this determination, lenders will look at:

• Your Credit. Your lender will look at your credit report and credit score to determine how well you've handled credit in the past.
• Your Capacity to Pay Back Your Loan. Your lender will review your debt-to-income ratio and your liquid reserves.
• Your Collateral. Your lender wants to know what they will get back if you are unable to pay back your loan. To understand this, they will look at how much equity your home will have. This is determined by your down payment and your loan-to-value ratio

The better you score in these areas, the better your interest rate will be. However, if you don’t score well, they may still be able to offer you a loan. It just may have a higher interest rate applied to it. During the loan approval process, your lender will perform a property appraisal and a title inspection to uncover any unexpected problems with the home or property you are buying. Once a lender has verified you’re capable of paying back the loan and that the property and title are in order, you are on your way to obtaining loan approval.