Understanding the Mortgage Process: A Step-By-Step Guide

This guide is your roadmap to homeownership, directing you through each critical phase—from mortgage pre-approval to closing. This journey ensures you’re financially prepared and builds trust between you and your lender. With the right guidance, you’ll navigate every step with ease, increasing your chances of mortgage approval and turning your homeownership dreams into reality.

Step 1: Determine How Much Home You Can Afford

Understanding how much home you can afford is a crucial first step in the mortgage process. Before you apply for a mortgage, it’s important to evaluate your budget by reviewing your income, expenses, and savings. Tools like Liberty Bank’s mortgage calculator make it easy to estimate the mortgage amount you’re likely to qualify for, providing a clearer picture of your financial readiness.

How Much Home Can I Afford?

Step 2: Mortgage Pre-Approval Process

Selecting the right mortgage lender and securing a mortgage pre-approval are crucial steps in the mortgage process. A mortgage pre-approval not only helps you determine the exact loan amount you qualify for but also demonstrates to sellers that you are ready to make an offer. Keep in mind that there is a difference between a quick pre-qualification and a fully underwritten pre-approval.

Pre-qualification

This is a quick and informal process that provides a rough estimate of the loan amount you may qualify for. It typically involves providing basic financial information, such as income, debt, and down payment.

Pre-approval

This is a more in-depth process that involves a more thorough review of your financial documents, such as credit reports, pay stubs, and bank statements. A pre-approval letter provides a more accurate estimate of the loan amount you can qualify for and can give you a significant advantage in a competitive housing market.

Securing a mortgage pre-approval not only helps you determine the exact loan amount you qualify for but also demonstrates to sellers that you are a serious and qualified buyer, giving your offer a competitive edge in today’s market.

At Liberty Bank, the mortgage pre-approval process involves a thorough review of your financial profile, including your credit history, debt-to-income ratio, and available assets. This ensures you receive a realistic pre-approval amount, empowering you to move forward with confidence.

Documents Required for Mortgage Pre-Approval

When preparing for mortgage pre-approval, it’s essential to provide certain documents that allow lenders to assess your financial situation. These documents verify your income, assets, debts, and ability to repay the loan.

Here’s a list of the most commonly required documents:

Proof of Identity

• Government-issued ID (e.g., driver’s license or passport)

Proof of Income

• Pay stubs (usually for the last 30 days)
• W-2 forms (for the last 2 years)
• Tax returns (1040 forms) for the last 2 years – for the self-employed or if you own one or more investment properties
• Additional income documentation (e.g., bonuses, alimony, child support, rental income, etc.)

Proof of Employment

• Recent pay stubs (if employed) – 1 month – YTD earnings

Assets and Savings

• Bank statements (usually for the last 2 complete months) from checking, savings, and retirement accounts
• Investment account statements (for the last 2 complete months)
• Mortgage statements (for other real estate if applicable)

Credit Report Authorization

• Signed authorization to pull the borrower’s credit report (most lenders will handle this electronically or require a signed form)
• Social Security Number (for credit check and verification)

Other Documents (as needed)

• Divorce decree (if applicable, to show alimony or child support payments)
• Self-employment documentation (if self-employed, additional documents like a profit and loss statement, business tax returns, or a 1099 form may be needed)

If there’s a co-borrower, the same set of documents will likely be required for them as well.

Having these documents ready can speed up the pre-approval process and help ensure that there are no delays when the lender reviews the application. It’s always a good idea to check with the specific lender to see if they require any additional documents unique to their process.

Benefits of Mortgage Pre-Approval

1. Strengthens Your Buying Power
2. Provides a Budget
3. Speeds Up the Mortgage Loan Process
4. Simplifies the Mortgage Approval Process
5. Helps to Identify Potential Financial Issues Early

Get your Mortgage Pre-approval with Liberty Bank

Step 3: Find Your Dream Home & Make an Offer

With your mortgage pre-approval in hand, the fun begins, and you can start house-hunting with confidence. This critical step in the mortgage lending process not only sets a workable budget but also positions you as a serious buyer, helping you stand out in a competitive market.

A real estate agent can guide you in identifying properties that fit your needs and budget. When you’ve found the perfect home, you’ll submit an offer, which typically includes contingencies like appraisal and inspection to protect you as the buyer. These contingencies ensure that the property is fairly valued and free of major issues before closing.

An earnest money deposit accompanies your offer to demonstrate your commitment to the purchase. This deposit is applied to your closing costs or down payment, reducing the amount due at closing while showcasing your intent to complete the transaction.

Step 4: Finalize Your Choice of Mortgage Lender

Choosing the right mortgage lender is a pivotal part of the mortgage approval process. The right lender provides competitive rates, minimal fees, and a transparent process that helps borrowers feel at ease.

1. Compare Interest Rates and Fees

Interest rates and fees significantly impact your total loan cost, making it essential to compare offers from multiple lenders to find the best deal.

2. Evaluate Customer Service and Support

A lender with excellent customer service ensures a smooth process by addressing your questions and providing timely updates throughout the mortgage lending process.

3. Assess Lender Processing Times

Efficient processing times help you stay on track, avoiding delays that could jeopardize your offer or closing timeline.

Why Choose Liberty Bank for Your Mortgage Needs?

Liberty Bank offers tailored mortgage solutions designed to make your journey to homeownership seamless and rewarding. With competitive rates, flexible terms, and expert guidance, Liberty Bank supports you at every step of the mortgage approval process.

Personalized Service

At Liberty Bank, we’re committed to delivering exceptional customer service, offering personalized solutions that fit your unique needs.

Competitive Rates

Our competitive rates and transparent fees help you secure the best possible mortgage while staying within your budget.

Local Expertise & Efficient Processing

As a local lender, Liberty Bank combines in-depth knowledge of the Chicago housing market with quick processing times to ensure a smooth, timely mortgage experience.

Explore Our Mortgage Rate Calculator

Step 5: Submit Your Mortgage Application

Once you’ve selected your lender, the next step is to submit your mortgage application. A pre-approval not only provides clarity on your budget but also allows you to confidently make an offer on your dream home. Liberty Bank simplifies this process with a comprehensive document checklist, ensuring you have everything needed to prevent delays and achieve a smooth and efficient mortgage procedure.

Step 6: Mortgage Underwriting Process

The mortgage underwriting process is a crucial evaluation stage where the lender thoroughly reviews your financial background and application details to determine your eligibility for the mortgage loan. Here’s how it works:

Application Verification

The lender validates your financial details, including income, employment, debts, and assets, to ensure the information provided in your application is accurate and complete.

Credit Check

Your credit score and history play a key role in assessing borrowing habits and influencing loan terms, such as interest rates and loan amounts.

Debt-to-Income Ratio (DTI)

The lender calculates your DTI to confirm your ability to manage the mortgage payment alongside existing financial obligations.

Property Appraisal

An appraisal ensures the home’s value aligns with the loan amount, protecting both the lender and the borrower from overpaying.

Risk Assessment and Conditions

Underwriters assess overall risk and may issue a “conditional approval,” requiring additional documents or actions before final approval.

Final Decision

The underwriting process concludes with one of three outcomes: approval, denial, or conditional approval. If approved, you’ll move on to closing preparations.
Maintaining financial stability and responding promptly to any requests for additional documentation can help expedite this process and bring you closer to homeownership.

Additionally, when applying for a mortgage, delay making major purchases such as buying a car or other items until after your mortgage application is processed. Large purchases during the mortgage process may negatively affect your chances of loan approval.

Step 7: Home Appraisal & Inspection

The home appraisal and inspection confirm the property’s value and condition, safeguarding both the buyer and the lender. During the appraisal, an independent professional evaluates the home’s features, size, and comparable sales to ensure the purchase price aligns with market value. This step reinforces the mortgage approval process by supporting the loan amount’s validity.

Appraisal timelines can vary, often taking around seven days. In competitive markets, wait times may be longer. Completing both appraisal and inspection builds buyer confidence and ensures a smooth path to closing.

Steps to Take if the Appraised Value is Low

1. Renegotiate the Price – Work with the seller to adjust the price to match the appraisal.
2. Cover the Difference – Opt to pay the difference out of pocket at closing.
3. Exit the Contract – Cancel the purchase if allowed under the terms and explore other options.

Step 8: Final Loan Approval and Closing Preparations

As you near the end of the mortgage process, it’s time to complete the final steps, including securing your down payment, obtaining homeowner’s insurance, and reviewing the closing disclosure. Liberty Bank guides you through these tasks to ensure a smooth and successful closing experience.

Organize Your Down Payment and Closing Costs

Preparing your down payment and additional closing costs in advance ensures a stress-free closing day. Typical closing costs include lender fees, title insurance, and appraisal fees, which are detailed in advance for your convenience.

Secure Homeowner’s Insurance

Homeowner’s insurance is mandatory for loan approval, protecting both the buyer and lender against property damage risks. Securing your policy early helps avoid processing delays and ensures compliance with lender requirements. We offer a variety of insurance offerings*, including homeowners’ insurance.

Review the Closing Disclosure Carefully

The closing disclosure outlines all loan terms, fees, and total costs. Review this document thoroughly at least three days before closing to confirm accuracy and avoid surprises on closing day.

Step 9: Final Closing on Your Mortgage

Closing Day is the finish line! You’re about to start your new chapter as a homeowner. You’ll finalize this transaction by signing several legal documents, settling any remaining closing costs, and receiving your keys to your new house.

Review and Sign All Closing Documents

Signing the final documents, including the loan agreement, deed, and closing disclosure, officially completes your mortgage. Carefully review these to confirm that all terms align with your agreement. A lawyer can review all final mortgage documents, loan agreements, deeds, and other documents to ensure they accurately reflect the terms of the loan and protect your interests.

Settle Any Remaining Closing Costs

On closing day, you’ll pay costs such as lender fees, title insurance, and escrow fees. Liberty Bank provides a detailed breakdown of these fees beforehand to ensure transparency and preparedness.

Receive Your Keys and Take Ownership

After completing all required steps, you’ll receive the keys to your new home—an exciting milestone that marks the successful end of your mortgage journey and the beginning of life as a homeowner.

Ready to Get Started? Schedule Your Mortgage Appointment Today

 

* Liberty Insurance Agency, Inc. is a subsidiary of Liberty Bank for Savings.  Insurance products and services are not bank products or services nor are they FDIC insured or insured by any federal government agency.  They are not a deposit or obligation of or guaranteed by Liberty Bank and may involve investment risk, including possible loss of principal. Applicants are individually underwritten and some individuals may not qualify.

NMLS #787575