Buying a home is an exciting time. There’s so much to consider, so many details to keep in mind. But sometimes – particularly for first-time buyers – the journey from dreaming about a new home to becoming a homeowner can appear just a wee bit daunting.

You are ahead of the game if you’ve already chosen a credentialed Realtor®, mortgage company and attorney on this website. The more you understand about how the process works, the more confident you’ll feel about making home buying decisions. Everything is easier if you know just what to expect.

Step #1: Prepare your paperwork.

Getting ready ahead of time will make the entire process move along more smoothly. Here are the documents you will likely be asked to present to get started.

• A signed and executed Contract of Sale for the home you want to buy.
  
  
• The Social Security number of all applicants or a two-year proof of permanent residency.
  
  
• For employed: pay stubs and tax returns for the last two years.
  
  
• For self-employed: signed business and personal tax returns for past two years and year-to-date profit and loss statement.
  
  
• Previous three months’ bank statements for checking, savings, and investment accounts.
  
  
• All your recent credit card and loan statements with account number, outstanding balance and creditor’s address for each.
  
  
• Your rent checks and utilities receipts for the past 12 months if you have no or little credit history or have not been extended credit in the past two years.

Step #2: Begin the loan processing procedure.

Your mortgage specialist will take your application and paperwork and transfer it to a loan processor. It is his or her job to verify the documentation, make sure it is accurate, and see to it that your appraisal, credit report, and other documents are obtained.

The processor works with you, the Realtor®, the loan officer, the appraiser, and the attorney to make sure everything goes according to schedule. His or her job is to get your loan approved as quickly as possible. During the processing, you should avoid doing the following:

• Do not change jobs. Changing jobs before or during the application process could slow –or stall—the process, particularly if there’s a pay reduction.
  
  
• Forestall major purchases such as a new car. The addition of a large monthly purchase could affect your ability to qualify for a particular mortgage.
  
  
• Do not open new credit lines or move money around. Transferring money from one financial institution to another – or adding a credit line – can be red flags for the processor. Wait until your mortgage loan has closed.
  

Step #3: Your loan is sent to an underwriter.

After your paperwork is received and verified by the loan processor, it is submitted to an underwriter for approval. The underwriter usually has no direct contact with you, but he or she is the one who reviews all the documentation and makes the decision to approve your loan – or not. Although requirements vary by lender, a strong application generally includes:

• A housing expense ratio of no more than 33 percent
  
  
• A debt-to-income ratio that does not exceed 38 percent
  
  
• Proof that the homebuyer maintains steady income and good credit
  
  
• An appraisal reflecting that the home is worth the price the buyer is paying
  
  
• If your loan meets all requirements for the loan program you have chosen, it is very likely that you will be approved.
  

Step #4: Set a closing date.

Once the underwriter approves you for a new loan, the information is transferred back to the loan processor. It is up to the loan processor to contact you, set a closing date, and then put together the “closing package” – the final loan documents.

The loan processor makes certain that fees to be made at closing are accurately documented and in many cases, will establish an escrow account for payment of any necessary insurance and real estate taxes.

Step #5: Congratulations! You’re about to become a homeowner!

At the closing, you’ll receive and review some very important documents. If you have questions, don’t hesitate to ask for clarification. Your attorney will likely be at your side, so if you spot an error, let him or her know and don’t sign until the issue is resolved.

What’s included in a mortgage payment?
Here’s a breakdown of costs.

Principal: The amount of money you borrowed. Each month when you make a mortgage payment, you pay back a small portion of principal. As you continue to make payments, a greater percentage of your payment goes towards reducing the principal.

Interest: The cost of borrowing money expressed as an annual percentage of the loan amount, such as 6.5%.

Property taxes: Taxes paid to local governments, usually charged as a percentage of the value of your property Your lender collets the taxes through your monthly payments and then forwards it to the appropriate tax office when taxes are due.

Hazard insurance: A contract that protects you from financial losses on your property due to fire, wind, or other natural hazards. Your lender forwards your insurance premium to the insurance company on or before the due date.

Mortgage insurance: An insurance policy that pays mortgage lenders for part of their financial losses if a borrower fails to fully repay a loan. Usually, if you put down less than 20% for a down payment, mortgage insurance is required.

You may hear the term PITI bantered around. What does it mean?

The principal, interest, taxes, and insurance is referred to as PITI, which is the amount you are likely to pay each month for your mortgage. The taxes and insurance portion of your payment are placed into an escrow account until the due date.