How Does Getting a Mortgage Really Work?

Deciding to purchase a house is an exciting life event worth celebrating. If the complexities or intimidations of the mortgage process are keeping you from enjoying your progress, it’s important to break down the major pieces and remember that you’re not alone. In 2020, TD Bank released a survey of would-be first-time buyers and found that 75% are overwhelmed by the homebuying process.

There’s a chance you’ve heard of some mortgage terms before, such as a down payment, interest rates, or a credit score. But how does getting a mortgage really work?

What is a Mortgage?

The modern mortgage was created to make homeownership more accessible and affordable for working- or lower-class Americans. Simply put, a mortgage is a loan you get to buy a home. A potential homebuyer borrows money from a lender to cover the cost of the home purchase. You then pay off your loan with interest over a set period, typically fifteen to thirty years.

The loan is secured by the property, meaning if you stop making mortgage payments or otherwise violate your mortgage contract, the lender can repossess your home through foreclosure.

How Do Down Payments Work?

Your down payment is the money paid upfront to purchase your new home. The amount that you pay for your down payment also turns into equity before you begin paying your mortgage. Generally, the more you put down, the lower your mortgage payment may be, but be careful as to not put down more money than you can afford. Lenders typically ask for a history of bank statements to show where your funds are coming from.

To check your potential mortgage payment based on your percentage down, check out our Mortgage Calculator. Not all loan programs require a down payment, so it’s important to speak with a Loan Originator to assess your options.

What are Mortgage Rates?

A mortgage rate is the rate of interest you’ll pay on your loan. Your rate comes from several factors, including your credit score, the down payment amount, your loan type and features, interest rate type, the property location and type, and the market as a whole.

Why Do You Need an Appraisal to Get a Mortgage?

An appraisal protects the buyer, the lender, and the seller to ensure the home is being sold for its worth. An appraisal is an unbiased, third party, professional opinion regarding a property’s true value. They are used to establish whether the property’s listing price is suitable based on its condition, location, and features in comparison to recent sales of similar properties.

Why Do you Need Home Insurance and Mortgage Insurance?

Much like car insurance, home insurance protects the home itself, your belongings, and your liability. While each policy has exceptions, typical home insurance coverage includes damage resulting from fire, smoke, theft, or weather conditions like lightning, wind, or hail.

Mortgage insurance is paid in your monthly mortgage payments. This form of insurance protects lenders against losses from borrowers defaulting on their loan. By providing this protection to lenders, it lowers the risk they take on, and allows you to qualify for a loan you may not have been able to qualify for without it.

What’s Included in a Mortgage Payment?

Your monthly payment is split into at least four different aspects: principal, interest, property taxes, and insurance. The principal payment is the portion of your loan balance that’s paid down with each monthly mortgage payment and the interest is charged monthly by the mortgage lender.

What Does the Timeline for a Mortgage Look Like?

While each homebuying journey is unique, each contains the same important milestones.

1. Pre-Qualification or Pre-Approval

The first step is to get pre-qualified or pre-approved with a lender. This will give you an understanding of your price range before house hunting and can make your offer more appealing to the seller.

2. Application

Depending on your timeline, formal application may take place during the pre-approval process or once your offer on a home has been accepted. A lender will want to see financial documents, such as paystubs and bank statements, before your application is approved.

3. Processing

During processing, your appraisal and title work are ordered. The processor will begin examining all the documentation to ensure it is correct and complete.

4. Underwriting

Your underwriter will review all of your documents, employment information, assets, appraisal, credit, disclosures, and anything else required to establish whether your loan meets approval guidelines.

5. Approval

Once your underwriting is complete and your loan is eligible for approval, you’ll be ready for closing!

6. Closing

Welcome to closing, also known as the home stretch! At least three days before closing, expect to receive your closing disclosure. This disclosure outlines your closing costs, loan terms, and the amount of money you’ll need to bring that day. On your chosen closing date, you’ll sign all the necessary documents and become a homeowner.

Are There Tools to Make My Mortgage Process Easier?

McGlone Mortgage makes the mortgage process straight forward with our Go McGlone mobile app. There, you can easily upload all the documents you need for your application, check your progress in real time, and speak with your Loan Originator. Ready to get started? Contact us today.