Applying for a Home Loan

Family in front of home

Since most people finance their home purchases, buying a home usually involves applying for a home loan. Being a homeowner gives you the opportunity to put down roots, become part of a community, and build your wealth for the future. But the path to becoming a homeowner is no small feat.  

Here is some basic home loan information to help guide you through the process.

Mortgage Pre-qualification vs. Pre-approval

Before applying for a home loan, you may want to shop around and compare the mortgage rates and terms that various lenders offer. When you find the right lender, find out how you can prequalify or get preapproval for a loan. Each lender may be slightly different on their process for prequalifying or preapproving an applicant, so it’s important to check with your lender. Both options are good steps to take when becoming a homeowner.

Prequalifying gives you the lender’s estimate of how much you can borrow and in many cases can be done over the phone, usually at no cost. Prequalification does not guarantee that the lender will grant you a loan, but it can give you a rough idea of where you stand.

Preapproval* is when the lender, after verifying your income and performing a credit check, lets you know exactly how much you can borrow. This involves completing an application, revealing your financial information, and paying a fee.

Generally, if you’re applying for a conventional mortgage, your monthly housing expenses (mortgage principal and interest, real estate taxes, and homeowners insurance) should not exceed 28 percent of your gross monthly income. In addition, most mortgages require borrowers to have a debt-to-income ratio that is less than or equal to 43 percent. That means that you should be spending no more than 43 percent of your gross monthly income on longer-term debt payments.

It’s important to note that the mortgage you qualify for or are prequalified for is not always what you can actually afford. Before signing any loan paperwork, take an honest look at your lifestyle, standard of living, and spending habits to make sure that your mortgage payment won’t be beyond your means.

*Dakota Community Bank & Trust does not conduct preapprovals. Please contact one a mortgage expert for details.

Before applying for a home loan

Do some homework before applying for a home loan. Think about the type of home you want, your budget, and the type of mortgage you might want to apply for. Obtain a copy of your credit report, and make sure it’s accurate; you’ll want to dispute any erroneous information and quickly correct it. Be prepared to answer any questions that a lender might have of you, and be open and straightforward about your circumstances.

What you’ll need when you apply

When you apply for a mortgage, the lender will want a lot of information about you (and, at some point, about the house you’ll buy) to determine your loan eligibility.

Some of the information you may need to provide:

  • Social Security number
  • Current pay stubs
  • Tax returns and W2’s for the past two years
  • Bank statements for the past two months
  • And others (see printable mortgage checklist)

You’ll sign authorizations that allow the lender to verify your income and bank accounts, and to obtain a copy of your credit report.

Types of mortgages

Like homes themselves, home loans come in many sizes and types. The type of mortgage that’s right for you depends on many factors, such as your tolerance for risk and how long you expect to stay in your home. Here are some of the more popular types of mortgages available:

  • Conventional fixed rate mortgages
  • Adjustable rate mortgages
  • Government mortgages
    • FHA or VA home loans
  • Rural Housing mortgages
  • Jumbo loans

Finalizing the application

As your mortgage application is processed and finalized, your lender must provide you with a loan estimate (LE), which is a form that outlines the details of the loan that you’ve applied for, such as the estimated interest rate, monthly payments, and total closing costs for the loan.

If you decide to move forward, the application will then get turned over to the processor, who reviews the loan file to make sure all the necessary paperwork is present. Once you’ve received your loan commitment, the next step in the process is closing on your home. Closing is the final part of the homebuying process where you commit to your mortgage and become the legal owner of your new home!

Whether you are a first-time homebuyer, refinancing, or looking to upgrade or invest, our mortgage loan officer team is ready to assist you throughout your homeownership journey.

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