Applying for a mortgage is a very unique process as you will be asked to submit plenty of paperwork. You will need to verify your income, your assets and show your credit-worthiness.
This process can be daunting, to say the least. Getting a mortgage loan isn't always easy and it can take up quite a bit of time. Here are some of the things to expect when you apply for a mortgage.
Many Different Types of Mortgage
There isn't just one type of mortgage and it's certainly not a one-size-fits-all type of thing. Some of the common types of mortgages include:
- Conventional Loans
- Fixed Rate Loans
- FHA Loans
- VA Loans
- Adjustable Rate Loans
- USDA Rural Loans
Within each of these categories, there will be even more possible loan types. Of course, to get a VA loan, you must be a veteran and there will be specific requirements for many of the programs listed above.
First-Time Homebuyer Assistance
If you're a first-time homebuyer, you may have the ability to qualify for special assistance. The Tennessee Housing and Development Agency or THDA offers grants to help first-time buyers and those that have not owned or lived in an owned home for the past 3 years.
The programs offered by THDA include:
- The Great Rate - Offers a 4.6% rate (currently) with no grant assistance
- The Great Advantage - Offers a 4.9% rate (currently) with 2% grant money assistance
- The Great Start - Offers a 5.2% rate (currently) with 4% grant money assistance
These programs are actually FHA loan, which requires 3.5% down, but the THDA has been approved by the FHA to assist with both closing costs and down payments. You can find out more about this program on their website here.
Prequalified vs. Preapproved
Before you start shopping for a home in Nashville, you should always get pre-approved for a mortgage. This shouldn't be mistaken with prequalified, as they are certainly different.
When you get prequalified, it means you have been approved by a creditor to obtain a loan. However, the creditor hasn't confirmed the credit report and is simply going by the information you have told them. It usually only requires a few questions to get prequalified for a mortgage.
A preapproval letter, on the other hand, means the creditor has checked your credit report and you have submitted a loan application. They may not have verified your income and assets yet, but as long as those match up, you'll be approved for the loan, in most cases.
The preapproval letter will usually state you are approved pending the property conditions, title reports, an appraisal, and final underwriting. It may also state the amount of financing you have been preapproved for.
Make sure you have a preapproval letter before you start shopping for a home in Nashville. If you're just prequalified, go through the steps to get preapproved.
What Determines Your Mortgage Amount & Rate?
There are a few key factors that will determine how much you can get approved for and the interest rate of your mortgage. The main two factors are your credit score and your debt-to-income ratio.
Typically, you will submit proof of income, which may include:
- W-2 forms
- 1099 forms if you're self-employed and a profit and loss statement
- Paycheck Stubs
- Bank statements
- Tax returns
- Proof of all debts
- Proof of rent or mortgage payments
Once the proper documents are gathered, the lender will determine your debt-to-income ratio, which plays a major factor in determining how much you qualify for and the interest rate for your loan.
What will the Down Payment Be?
The amount you will need to put down varies quite a bit from one mortgage program to another. Some loans don't require much down, such as the FHA loans, which only require 3.5% down. However, if you put less than 20% down, you will need to pay for private mortgage insurance, which protects the lenders, not you.
When Will You Close?
Closing isn't instant and it takes time. Once you've submitted an offer and everything is set up for closing to happen, you have to wait 7 days after making the application in person or 10 days after making the application by phone or internet, by law. It's best to allow three to four weeks or even longer to close.
If you're ready to start shopping for a new home in Nashville, you want to hire your real estate agent first. They will likely know the best lenders to contact and they will be able to guide you through the process. Once you have a preapproval letter, you can start shopping and you can find the place you will call home in Nashville.