If you're like most home buyers, you probably have questions about the mortgage approval process that awaits you. This is only natural, given the size of the investment. The good news is that the approval process is usually straightforward and easy to understand. Here are the basic steps.


Mortgage Approval by the Numbers


In most cases, the approval process includes the following steps: Pre-approval, application, underwriting, property appraisal, and mortgage approval (if all goes well).


1. Pre-approval Process


This is a preliminary review of your financial situation. The lender will pre-approve you for a certain size of loan. Basically, this is a way for the lender to decide whether or not to move forward with the process. If this preliminary review goes well, you move one step closer to mortgage approval.


Among other things, the lender will want to know the approximate cost of the home you plan to buy (even if its hypothetical at this stage), how much money you need to borrow, the type of loan you want, how much money you earn each month, and your total recurring debts.


2. Mortgage Application


Based on the pre-approval process, the lender will have a general idea whether or not you're a good candidate for a mortgage loan. If they feel you are a candidate, you will likely move on to the mortgage application itself. (Some lenders combine the application and pre-approval process, while others separate the steps. It varies.)


This is where you will have to make a final decision on the type of mortgage loan you want, and also lock in an interest rate for the loan. In nearly all cases, you'll have to pay an application fee as well.


3. Underwriting and Documentation Review


Underwriting it the most critical part of the process, but also the most "mysterious" to home buyers. The lender's underwriting department will closely review your documentation, credit score, employment documents, etc. If they find anything wrong, it could slow down the process or, at the worst, derail it altogether. If they find minor issues, they will give you a conditional approval, along with a list of conditions that must be addressed prior to final approval. If you're lucky, you'll sail through the underwriting process with no issues whatsoever.


4. Property Appraisal


One of the next major steps in the mortgage approval process is the property appraisal. This is where the lender sends a professional home appraiser out to evaluate the property. The lender wants to make sure the home is worth the amount you have agreed to pay for it. In the event that you default on the loan and can no longer make payments, the lender will have to take on the property and sell it. So they want to know what it's worth, before approving the loan.


5. Mortgage Approval


If everything goes well up to this point, there is very little between you and your new home. You will attend the closing or settlement process, where you will have to pay all remaining fees and costs. This is also where you get the keys to your new home!