Investing in yourself, your future, and planting your roots in a new home is special. Buying a home is also a really big step, and you may very naturally experience a little stress throughout the process. But, stay positive — you’ll want to look back on this experience with good memories rather than negativity.
While I’m always an advocate for de-stressing via yoga, naps, and lavender oil — there are much more functional steps you can take that’ll make the mortgage process go smoothly. Here are seven tips to help keep the stress at bay.
1. UNDERSTAND THE PROCESS
One of the most common stress triggers in the mortgage process is feeling uninformed or uneducated in how things are done. By understanding the process, you’ll feel more empowered and “in-the-know” throughout each phase.
If this is your first home, the process may seem complicated. In an effort to simplify it, the mortgage process can be broken down into the following steps:
- Financial self-assessment and preparation: Here you’ll outline your budget, debts, credit, savings, and begin preparing all the necessary documents for the loan application. This step should be completed before you begin your home search.
- Applying for a loan: During this step, you’ll submit your loan application to a lender and potentially get pre-qualified.
- Mortgage origination and processing: This is when your loan file is created by combining all of your provided documents including your completed application, and any other required documents or info that’s requested. This step is also where you might obtain a conditional approval (without a property address in mind)— done through an upfront underwriting process — which can help you ensure you’re looking at homes within your budget.
- The underwriting process: When your loan application is reviewed by an underwriter that’ll measure the risk for repayment, or the risk they’ll take on as your lender. Sometimes the underwriter can review your file upfront and provide you with a conditional approval.
- Satisfying loan conditions: In short, this potential step is somewhat of a task list for you, outlining what conditions you need to still meet before you are fully approved — for example, clearing a debt, proof of insurance, etc.
- The closing process: Also known as the settlement, this is the final step to the mortgage process where all monies are distributed to everyone involved, as well as all paperwork is signed and completed.
Understanding the mortgage process helps educate and lower stress related to confusion — but understanding the process won’t make it actually start, which leads me to my next tip to reduce stress in the mortgage process.
2. START PLANNING EARLY
Being under a time crunch can cause a lot of unnecessary stress. Do yourself a favor and start prepping for your mortgage process early. It’s never fun to feel like you made hasty choices or decisions due to lack of planning.
There are quite a bit of documents you’ll need to prep (I’ll cover those specifically later), information you’ll need to research, and choices you’ll need to make regarding your mortgage. I recommend starting your planning process as soon as you decide you’re interested in buying a home.
3. ASSESS AND WORK ON YOUR CREDIT
What is your current credit situation? Are you in good standing or are there factors that could use some work? Properly assessing your credit — and doing so early — will significantly lower your stress levels during the mortgage process.
Things you’ll want to assess include your credit score, any flags on your credit, and any action you can take prior to applying for your loan that would help better your credit situation. There may be some things that you uncover that can’t be undone or reconciled. Don’t be disheartened; uncovering these things early will still lower your stress levels as you’re already aware of potential obstacles that may surface during the mortgage process.
4. PLAN YOUR BUDGET
A clearly defined budget will save you tons of stress during the mortgage process, and is also something you’ll want to start planning early. Your home budget should define what you can afford, including list price, taxes, fees, and insurance costs associated with your future home.
Start by mapping out your monthly finances. Outline your total monthly household income and all monthly debts. Once you arrive at your home budget, be sure that you can realistically — and comfortably afford it. In fact, you can read all about figuring out what you can truly afford by visiting the Atlantic Bay blog.
Spending more than what is feasible will only add more stress. Consider planning out your general budget by fitting all your debts into the 50/20/30 budget breakdown. Things like utilities, mortgage, car payments, etc. will take up 50% of your recurring payments, 20% should go into your savings, and 30% is for you to use as you wish. If your mortgage fits in within your 50% recurring payments, the that gives you room to save and spend comfortably.
5. UNDERSTAND THE DOCUMENTS
There are quite a few documents involved in the mortgage process. Deciphering these documents can be stressful, but taking the time to understand and prep them will help alleviate any angst.
Below is a list of common documents you will come across during the mortgage process, as well as when they are relevant and what you need to do to prepare them.
To alleviate stress, familiarize yourself with all the required documents prior to starting the mortgage process.
Submitting for a Loan
- Mortgage loan application: The document that you will complete when applying for your loan. I recommend completing this and submitting to your lender to potentially receive a conditional approval, before you even start the home search. This helps you better anticipate what you will be able to receive from your lender. At first glance, this document can seem pretty lengthy. It’s intended to capture detailed information about your finances and the details of your potential mortgage.
- Credit report: Your credit report outlines your entire credit history and will be reviewed by the lender when assessing your loan file.
- Pay stubs for the past 30 days: These documents will complement your loan application as proof of income. Tip: be sure to start setting aside all pay stubs as soon as you determine you’re interested in buying a home, and throughout the entire mortgage process in case your lender requests more recent pay stubs.
- W-2 forms for the past two years: These will also serve as proof of income and will be sent in with your mortgage loan application.
You should avoid switching jobs entirely during the mortgage process, as this may affect your proof of steady income.
- Information about long-term debts, like car loans, student loans, etc.: These documents help your lender better understand your debts, specifically how long you have had these debts and your repayment history.
- Recent bank statements: These documents will help lenders properly assess your spending behavior, income, debts, savings, and proof of cash reserves.
- Tax returns for the past two years if you’re self-employed: Similar to the purpose of W-2 forms, your tax returns will serve as proof of income and will accompany your loan application.
- Proof of any supplemental income: As you prep for the mortgage process, be sure to record and track all supplemental income. These documents will be needed during the loan application process and will serve as additional proof of income.
- Pre-approval letter: This document will be sent to you from the lender once your application is reviewed and approved and will let you know how much of a home you can afford. As mentioned earlier, it is good practice to get this before you start the home search to reduce any stress or unhappiness if you get approved for less than what you’ve already fallen in love with.
- Loan Estimate: After submitting the loan application and upon approval, your lender will provide this document that outlines the full estimated details of terms and costs associated with your prospective loan. The Loan Estimate is also helpful when comparing lenders.
- The commitment letter: Once you’re officially approved, the lender will provide this document that specifies the amount of the mortgage loan, the number of years to repay the mortgage loan (the term), the interest rate, the APR, and the monthly charges. This is similar to the Loan Estimate document, but once this letter is signed you’re assured financing for the specified loan terms.
- Appraisal disclosure: Document that says you have the right to receive the completed appraisal report on your prospective home.
- Closing disclosure: This document will be given to you from your lender before your final closing, it details the actual amounts you will pay for the various fees and services associated with the closing of your mortgage loan.
- The mortgage note: This will be signed at closing and is the official legal document outlining your commitment to repay, and terms for repayment.
- The mortgage: This document is signed by you, confirming that your lender has the right to take your property due to foreclosure (failure to pay).
- The deed: A document that outlines the transfer of property ownership to you, from the previous owners.
6. KNOW ALL YOUR OPTIONS
The mortgage process is full of big decisions. You’ll need to decide on your budget, the actual home you want to buy, who will be your lender, and in some cases you may be able to specify your preference for mortgage terms and conditions. Know that you have options, and give yourself plenty of time and headspace to really compare and contrast your choices to avoid stress.
7. GET FAMILIAR WITH YOUR LENDER
Having a relationship with your lender will help you feel more comfortable, confident, and supported during the mortgage process — thus decreasing stress. Be sure to choose a lender that not only meets your needs, but also keeps your best interest in mind throughout the entire process.