When you begin the home buying journey, there are so many new terms being used, it can almost feel like another language.  I’m here to breakdown the basics and help you understand all things related to mortgages.


What is a mortgage?

Unless you’re purchasing a home in cash, you’ll need a mortgage to buy a home. A mortgage is a loan from a bank or other type of financial institution that helps the borrower buy a home. The borrower agrees to pay back the loan (with interest) over a period of several years. The borrower fully owns the home once the mortgage is paid off.

This type of secure loan is backed by the home, meaning if the borrower can’t keep up with the monthly loan payments and repeatedly defaults on payments, the lending institution can repossess  the home. When this happens, it's called a foreclosure.


How do I apply for a mortgage loan?

When it comes to securing a mortgage loan, there are several factors a lending institution takes into consideration. In order to apply for a loan, the borrower must share their full financial profile with the lender. 

It is typically a lengthy process. Here are 4 potential items a loan underwriter will review in order to feel confident in you as a borrower:

1. Average yearly income
What is your annual household income? This will factor into how much you can borrow, and ultimately, what your monthly payments will look like. A good rule of thumb is to keep your mortgage payment around 25-30% of your monthly net income.

2. Account balances
How much do you have in all of your accounts? Sharing this information with the lender helps the institution determine if you’re in good standing to make the mortgage loan payments.

3. Credit score
Your credit score is a number between 300–850 that represents your credit history. The higher the score, the more consistent you are in paying back your debts in a timely manner. This score comes from your credit report — so when you apply for a loan, your financial institution uses the information from your credit report and score to determine whether or not to lend you money.

4. Down payment
This is the amount of money you will put towards the home, prior to the mortgage. Typically, the more you can put down towards the purchase, the better terms you can receive on a mortgage loan.

Let's recap and talk about the journey a little more:

1. You're ready to initiate the process
Buckle in for the start of your mortgage journey! Take time to evaluate your credit, discuss options, and layout expectations for yourself. 

2. Get organized and gather your necessary documents
Package up all the required supporting documents to share a clear picture of your financial history. Through organization and knowing exactly where you stand, you'll be able to complete this process easier and will be that much closer to getting the keys to your home.

3. Complete the application
Provide the information asked on the application and submit the package for processing with any additional third-party documentation requested by the underwriter.

4. Underwriting phase
The underwriter will review and request any further details to clarify your mortgage application. If necessary, you may need to submit additional documentation for a final underwrite.

5. Clear to close
You're almost there! A closing date is set with all parties involved.

6. Closing
Pop a bottle of your favorite bubbly. It's time to celebrate the end of your mortgage loan journey! Your new home (and mortgage) are official.

Buying a home is by no means a simple process, but understanding the steps can help prepare you for what’s to come. It’s important to have a financial team in place to guide you through this process, as this is one of the biggest purchases you will make in your lifetime. 

Looking to buy a home? Here's what you need to know.


About Learn

Financial advice for real people, by real people. You shouldn't need a degree to understand your money. Join Head of Education, Brittney Castro and Altruist mentors as they break down financial tips and strategies in a real way to help you finally understand how to achieve your financial goals faster.

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