A Step-by-Step Guide to the Mortgage Approval Process

Do you dream of your own cozy corner, where every detail will reflect your style and comfort? Buying a home is a big step that opens a new chapter in your life. But before you can move into your dream home, you must go through the mortgage approval process.

The process can seem confusing and intimidating for first-time buyers: financial terms, mountains of paperwork, and unclear steps. Don't worry! At CarrollCo, we have prepared an easy-to-follow guide that will take you through every step—from preparation to receiving the keys—in simple, understandable language.

Definition of Mortgage

A mortgage is a loan for the purchase of housing, which is issued by a bank using the purchased property as collateral. When you take out a mortgage, you borrow money from the bank, as with a regular loan, and then return it with interest within the agreed period. In this case, the guarantee for the return of money is the property you purchased, which remains collateral with the bank until you fully repay the mortgage loan.

You can take out a mortgage on almost any residential property - an apartment under construction or already finished in a new building, an apartment on the secondary market, or a private residential building.

Who Can Get a Mortgage?

To get a mortgage, the borrower must meet certain requirements that help the bank determine his reliability. Here are the main parameters that the borrower must meet:

Age. To get a mortgage, the borrower must be 18 years old. However, some lenders may have different rules, and the age limit may be higher.
Experience and stable place of work. The borrower must have worked at the current place of work for at least six months, preferably at least a year.
Solvency. A mortgage assumes regular payments for at least several years, so the bank needs to make sure that the borrower has a stable income, which he can confirm with documents. To do this, you must provide a certificate indicating the source of income - a salary, pension, income from renting out premises, etc. The more sources of income, the better.

Also, people with a good credit history and who do not have other large outstanding loans at the time of the mortgage are more likely to be approved for a mortgage. The bank takes into account all your loans to decide whether to give you a mortgage. Getting a mortgage without a co-borrower or guarantor will be difficult if you already pay about half of your income on loans.

Stages of Mortgage Loan Processing

The process of obtaining a mortgage loan consists of several stages, each of which requires preparation.

Step 1. Preparation

The first step to getting a mortgage is to understand your finances and clearly define your goals. A good place to start is by checking your credit history. This shows the bank how reliable you are as a borrower. If your rating is low, don't panic. Try to improve it by paying off small debts or limiting your use of credit cards. It will take time, but your chances of getting better terms will increase significantly.

Then, look at your income and expenses. You need to know how much money comes in each month and what it is spent on. This will help you determine your solvency and show you how much you can allocate for a mortgage without depriving yourself of your usual comforts. To estimate possible payments, use an online mortgage calculator - it will give you an approximate idea of how much you can afford to borrow.

Then think about what kind of home you want. This is not only a question of aesthetics, but also practicality. How many rooms should your future home have? How important is a children's room or a comfortable office? Or maybe the key factor will be proximity to work or schools? Answering these questions will help you set your budget and reduce the time it takes to find the right option. Don't forget to factor in the down payment. Most mortgage programs require a down payment of 10% to 20% of the home's value, but there are options with a smaller down payment. If you don't have enough savings, start saving early.

Step 2. Find Your Perfect Mortgage

The next step is choosing a mortgage. First, decide what type of mortgage you want. A fixed-rate mortgage is a good choice if you want stability and certainty in your payments. It allows you to know exactly how much you will pay each month, and that amount will not change for the entire term. However, if you are willing to have some flexibility and hope for lower rates in the future, you may want to consider an adjustable-rate mortgage.

It is also worth remembering that banks and lenders offer different terms. This may be a great option if you live in an area with local banks, such as Carroll Community Bank. For example, their construction mortgage program offers many benefits. Unlike the traditional two-loan scheme - construction and permanent - CarrollCo offers a one-closing process. This makes the entire process much simpler and faster: you only need to submit one application and get one appraisal and approval. This approach saves you time and effort, and the flexibility to choose a rate (fixed or adjustable) allows you to choose the most favorable terms for your budget.

Additionally, Carroll Community Bank offers home equity loans to help you expand your financial options to improve your home or start your own business. These loans offer competitive rates and can be a great solution to help you reach your financial goals.

There are also various mortgage programs, such as FHA (for first-time homebuyers), VA (for military personnel), or USDA (for those planning to live in a rural area). These programs offer lower rates and lower down payment requirements, but they're not right for everyone.

Be sure to compare terms. Online resources can help you quickly evaluate rates and terms from different lenders. Speaking directly to a bank representative can also be helpful, especially if you have additional questions or need advice on complex issues.

Step 3: Find a Home and Schedule an Appraisal

Once you have found a home you like, the next step is to make an offer. For this, most people use a real estate agent, who can help you decide on a price and terms and advise you on how to structure your offer best. The agent can also help you anticipate potential problems, such as if the home appraises less than expected or if there are defects during the inspection.

It is important to remember that a real estate agent can help you negotiate with the seller to cover some of the mortgage costs. This can significantly reduce your costs, as these can amount to 2-6% of the loan amount.

When you make an offer on a home, you will be asked to put down a deposit. This shows that you are serious about the deal and is usually between 1% and 5% of the home's price. The deposit is usually paid at the same time as the offer.

After you sign the contract, you must have the home appraised. This is a process in which an independent expert assesses the property's market value. They compare your home to similar properties recently sold in the area. You can move forward if the appraisal is at or above the agreed-upon price.

If the appraisal is below the purchase price, you have a few options:

Negotiate with the seller to lower the price.
Pay the difference yourself.
Cancel the deal and look for another home.

Step 4: Gather All the Documents You'll Need

Before you apply for a mortgage, it's important to get pre-approved. This process will help you understand how much of a mortgage you can afford. Pre-approval is based on your credit profile, including your credit history, income, and savings. Final approval depends on an inspection of the home you plan to buy.

To apply for a mortgage, you'll need the following documents:

Proof of income: Most recent W-2, tax returns (Form 1040), or multiple payslips.
Credit history: Credit score information.
Debt information: Credit card statements, auto loan statements, and other debts.
Proof of identification: Passport or driver's license.
Proof of citizenship/residence: U.S. citizenship or permanent resident status.
Proof of property (if applicable): Title or purchase agreement.
Proof of down payment: Bank statements.
Two years of addresses: Residence information.
Two years of employer contact information: Addresses and contact information for employers.

First, request rate quotes from at least three lenders and compare them to find the best terms with the lowest closing costs. Then, complete a mortgage application, and each lender will review your income and savings records.

Step 5: Submitting the Application

Now that you have all the documents together, it's time to submit your mortgage application. This step involves a few simple but important steps:

Fill out the application

Go to your chosen lender's website and fill out the mortgage application. Enter all your personal information, including your income, current debts, and the property you've chosen. Make sure that everything is entered correctly — errors can delay the process.

Upload documents

Attach any documents you've prepared earlier (e.g., tax returns, loan statements, ID). This will help speed up the application process. Make sure the files are clear and easy to read.

Pay any Fees

Some lenders may charge a small fee to process the application or appraise the property. These fees are usually small, but they must be paid in advance.

Check the Application Status

After you submit your application, you'll receive a confirmation. Monitor the application status to make sure everything is in order. If there are any additional questions, the lender may request additional documents.

Be Prepared for Requests

The lender may request additional documents or clarifications during the application review process. This is normal, but it is important to respond promptly to avoid delaying the process.

Step 6: Underwriting - Nervous but Important

This is when the lender evaluates your financial solvency and decides whether to approve your mortgage.

What happens? During this period, the bank or lender analyzes your credit history, income, debts, and documents and may conduct a property appraisal. They check how financially stable and capable you are of servicing the mortgage debt.
Additional requests may be made. The underwriter may ask for additional documents or clarifications, such as updated bank statements or proof of income.
Don't worry if the process is delayed. Depending on the complexity of your case and the lender's workload, underwriting can take anywhere from a few days to a few weeks. You must be prepared to provide any additional information or documents that may be needed.
Decision. Ultimately, the underwriter will decide to approve your mortgage, request better terms, or reject the application. If the decision is positive, you will receive loan approval and move on to the next step - closing the deal.

Step 7. Green Light - You Are Approved

Congratulations! Once your mortgage application has been approved, you move on to the next step - closing the deal. In the coming days, you will receive an official offer from the lender with detailed loan terms: amount, interest rate, term and other important details. This is when it is important to carefully check all the data and ensure it meets your expectations.

Sometimes, the lender may request additional documents or conduct a final check of your data. Do not worry; this standard procedure helps avoid mistakes and guarantees the best conditions. After everything is confirmed, you will be asked to sign a loan agreement. It is important to read the contract carefully, and if something is unclear, do not hesitate to ask for clarification.

After signing the contract, you will be informed how and when to pay the mortgage. Many lenders offer convenient payment methods, such as automatic bank account debits. Once all issues are resolved, the lender will transfer the funds, and you can complete the transaction to purchase a home.

Step 8. Closing Stage — The Deal

Once your mortgage is approved, it's time for the most important step—closing. This is where you sign all the necessary paperwork, including the title deed and the lender's paperwork. This confirms that the deal is complete and all the terms and conditions are met.

Once the paperwork is signed, the lender wires the money to the seller. The wire usually takes 1 to 3 business days to transfer. Once the money is in, the deal is complete.

In addition, you will have to pay additional fees, such as registration fees, property taxes, and insurance. These payments are often made through a title company or notary who will assist with the process.

Once all the paperwork is done and signed, you are handed the keys to the house. This happens on the closing day. You are now officially the property owner and can begin preparing to move into your new home.