What to Expect During the Home Financing Process
Purchasing a new home is an exciting time, but it can also be a challenging one and a long process. But if you know the steps and what to expect, the mortgage process doesn’t have to be complicated, and you can feel confident as you go through each phase.
For most home buyers, this will be one of the biggest financial decisions you’ll make, so it’s important to choose the right home financing partner to guide you through the home buying process, from pre-approval to making your first payment.
You may have lots of questions about when to get pre-approved, which documents you need, and when can you begin house hunting.
In this blog, we’ll break down the mortgage approval process, from pre-approval to closing, highlighting key considerations and tips to help you find the solution that’s right for you. Whether you’re looking to purchase your dream home or refinance an existing mortgage, gaining insight into this complex process will empower you to take control of your financial future.
Your 10-Step Guide to the Mortgage Approval Process
Going through the mortgage approval process may seem overwhelming, so we’ve put together this list for you to simply the 10 steps to getting your mortgage application approved. Here are the steps from choosing a home financing partner to closing.
1. Choose a Home Financing Partner
Your home financing journey begins with choosing the right home financing partner.
As you talk to a potential mortgage lender or Islamic home financier, take into consideration how responsive the representative is. Your first few interactions will shed light on what their future response rate will be like throughout the mortgage application process.
In addition to responsiveness, is this person organized, knowledgeable and honest?
You will ultimately want to make this important decision based partly on practical considerations such as rate and whether their approach aligns with your values. But this also needs to be someone you feel comfortable talking to, working with, and sharing your financial information with.
2. Get Pre-Approved for a Mortgage
To help guide you as you search for your new home, you’ll need a mortgage preapproval. This will keep your search within your budget and inform you about the monthly mortgage payment you can afford.
When applying for a mortgage, you’ll need to provide documents, including identification, gross monthly income, and employment documentation so your home financing partner can determine how much you can afford. Check out our full list of documents needed.
Pre-Qualification vs. Pre-Approval
If you’re wondering what the difference between pre-qualification and pre-approval is, they are not to be used interchangeably.
Getting pre-qualified is a starting point and gives you an estimate of how much you can borrow based on the information you provide. Meanwhile, a pre-approval will require your home financing partner to verify your information by pulling your credit report and digging deeper, including into your employment history and assets.
The Pre-Approval Advantage
A pre-approval involves a thorough review of your mortgage application including your credit, income, assets, and debt to income ratio, and it results in a conditional commitment from a lender on a loan estimate or the amount of financing they are willing to offer you and the interest rate or profit rate you qualify for as well.
Once you receive final approval, this gives you a clear budget to work with and makes your offer more attractive to sellers, as it shows you are a serious buyer with financing already lined up. In a competitive market, having a preapproval letter can give you a significant advantage, helping you move quickly and confidently when you find the right home.
3. Set a Budget for House Hunting
You may already be setting aside money for your new home. It is, after all, likely the biggest purchase you’ll make in your lifetime.
Start by assessing your income and current financial obligations to determine a comfortable price range. It’s advisable to use the general rule that your home price should be no more than three to five times your annual income, but this can vary based on your personal financial situation. Get your budget in line to house hunt by figuring out how much income you’re bringing in and your monthly expenses.
In addition to the down payment, don’t forget to factor in closing costs, homeowners insurance, and maybe new furniture and decorations for your new home.
Having these numbers on hand will help you see where you can cut back and put that money towards the house. By setting a well-defined budget, you’ll be better prepared to find a home that meets your needs without stretching your finances too thin.
4. Find the Right House
After you’ve seen multiple houses, how do you know which one is the right one? Sometimes you’ll just know, but other times, use these tips to help you make a decision.
The Critical Lists
Start by making a list of your must-haves and deal-breakers, such as the number of bedrooms, location, proximity to schools, or access to public transportation. This will help you focus on properties that align with your lifestyle and needs.
Additionally, it’s important to explore different neighborhoods and assess factors like safety, community amenities, and potential for future growth. Visiting multiple homes during open houses can also provide valuable insight into what’s available within your budget, allowing you to compare features and layouts.
Consider the Future Too
Remember to envision your long-term plans—are you planning to expand your family, or are you looking for a place that could serve as a rental property in the future? Taking the time to thoughtfully evaluate your options can lead you to a home that not only meets your current requirements but also adapts to your future aspirations.
Each time you see a home that you’re considering, compare it against all your non-negotiables and then the nice-to-haves. This will help prevent you from being swayed by something appealing that will not make you happy in the long run because it’s missing something essential.
It’s important take the right amount of time you need to decide on your priorities, but do this ahead of time. Otherwise, once you find a house you love, there may be others in a similar position who may move faster and get an accepted offer before you do.
5. Make an Offer on the House
At this point, you’ve been pre-approved, set a budget, went house hunting, and chose your ideal home. Now, it’s time to make an offer.
Before making the offer and approaching the seller, strategize with your real estate agent. Lean on the expertise of your real estate agent to decide how much to offer based on comparable homes in the neighborhood, the time it has been on the market and if other buyers are also having their eye on the same house.
If the seller comes back with a counteroffer, work with your real estate agent to negotiate.
6. Schedule a Home Inspection
Even while you’re negotiating with the seller on a price for the home you found, start looking for a home inspector. Ask your real estate agent for their recommendations, or shop around and call a few based on their availability and price.
Don’t skip the property inspection. Some problems may not have been disclosed by the seller and should be flagged by the home inspector. This is a chance for you to check the condition of the house on both the interior and exterior of the house, for example, the plumbing, roofing, heating, and cooling systems.
If the property turns out to have significant flaws or concerns, speak with your agent about potentially renegotiating the price you offered, or you can ask for a credit from the seller to cover the cost of repairs.
7. Begin Mortgage Processing
Congrats, your offer has been accepted and you have a signed purchase agreement in hand! Now it’s time to submit your application with your chosen home financer.
During the mortgage processing phase, your financial information is collected and organized by the processer before sending it to the underwriter. They may ask for additional information from you. They will also order a home appraisal to determine the value of the home you are going to purchase.
8. Receive Home Appraisal
Are you interested in knowing the market value of the home you’re going to purchase? You’ll have this chance — and it’s required by your home financing company — to perform an appraisal, which is done by a third party.
An appraiser will visit the home and determine if the purchase price is a fair price. The appraiser will look at the condition and other homes in the area to determine this.
Note that this differs from the home inspection. It is not as in-depth and the appraiser won’t be looking for specific problems.
9. Undergo Mortgage Underwriting
This is the process taken to approve your financing.
During the underwriting process, home financiers will look at your submitted application and supporting documents to determine if they will approve your application. They’ll take into account your financial history and credit and verify to see how risky it would be to partner with you.
Be honest about all income, debt, and credit history to avoid any delays. Underwriters may sometimes need additional information from you, so if you don’t receive updates, it’s a good idea to check in and follow up.
10. Close on the Home
Congratulations! This is the final step before the house is officially yours and the keys are in your hand.
When the closing date is set, your real estate agent will schedule a final walk through the house, typically one day before to make sure the seller’s belongings are taken and ready for you to move in based on the condition that was agreed upon when signing the contract.
On closing day, make sure to have your photo ID, all the documents received during the financing process, and checks for closing costs ready. A representative from your home financing partner may be there too as you sign final documents and receive your keys.
How Long Does the Mortgage Approval Process Take?
The entire process to purchase a home can take several months.
Getting pre-approved can be as quick as 24 hours, up until around a week. House hunting can take around three months and can be faster depending on if you already know what you’re looking for. Making an offer and negotiating with the seller can take up to a month. And getting your mortgage approval done may take anywhere from 30 to 45 days to complete.
Start Your Home Buying Journey
Buying a home is one of the most important decisions you will make. The team at Guidance Residential is here for you every step of the way from pre-qualification and pre-approval on through to finding the right real estate agent for you and your family. We invite you to explore the home buying process with Guidance Residential today. You can also instantly calculate an estimate specific to your personal situation with our finance calculators online.
Guidance Residential’s co-ownership model of Islamic home financing remains the #1 U.S. Islamic home financing provider, with more than 40,000 families assisted over more than 20 years. Learn more and get started on your home finance journey today.
Your Guidance Residential Account Executive is here to help with any questions. Looking to refinance or purchase? Have a friend or family member who is looking for a home? Call 1.866.Guidance, or start an application today.
Originally published August 2021, updated September 2024.
