The average home buyer spends about two years searching for the perfect house and then another six months to a year looking for financing. The process can be frustrating, but there are some reasons why it takes so long to get approved for a mortgage.  One reason is that lenders want to make sure you have the financial stability and credit history necessary to repay your loan. Another reason is that many people don't save enough money before they buy their first home, which makes them more likely to default on their loans. Getting an affordable mortgage doesn't always come easy, but if you're willing to put in the work now, it will pay off down the road!

What is a Mortgage?

Mortgages are typically 30-year loans that allow you to purchase a home. The bank or lending institution provides the money in the form of an agreed-upon loan that is paid off over time according to a specific monthly payment schedule. You usually have to put down 20% of the home's price when you purchase it. Then, you pay the bank the remaining amount over time until the full price of the home is paid off.

Why Do People Get Mortgages?

Aside from making dreams of homeownership come true, mortgages allow people to purchase homes and make monthly payments that are lower than if they were renting. Most banks will only offer you a mortgage if they believe you will make your payments on time. If you don't, they can start foreclosure proceedings and sell the house to get their money back. However, if you make your payments on time every month, the interest rate on your loan will be lower than it would be with other types of loans!

How Long Does it Take to Get a Mortgage Approved?

Getting pre-approved for a mortgage can take anywhere from one or two weeks to two months. It also depends on how much money you put down, your credit score and the amount of documentation you provide about yourself and your finances. Be aware that if you have any derogatory financial events in your past (like bankruptcy or foreclosure) it can take longer for you to qualify for a mortgage.

What is the Difference Between Pre-Approval and Approval?

Getting pre-approved usually takes less time than getting approved because you aren't required to provide as much information. During this process, your lender will look at your credit score and financial statements to determine how much the bank is willing to lend you. To get approved, you will be asked to provide documentation that proves that you have enough money saved up for a down payment and can show some proof of income. Lenders also look at your credit score again during this process.

How Long Does it Take to Get Pre-Approved for a Mortgage?

Getting pre-approved can take anywhere from a day to two weeks. However, this is just the beginning of the process! Approval usually takes about two months, but if you have a low credit score or don't have a high enough income, it could take longer. The best way to speed up the process is to complete an online application and bring in documentation that proves you have enough money for the down payment.

What is the Difference Between a Conventional, FHA and VA Mortgage?

There are many different types of mortgages available, but they all fall into one of three categories: conventional, Federal Housing Authority (FHA) or Veteran Affairs (VA). Conventional loans are the most common type of mortgage. They're backed by banks, credit unions and other lending institutions. FHA loans are insured by the government, which means they require lower down payments than conventional mortgages. VA loans are guaranteed by the federal government for servicemen and women, meaning that there is no down payment required for these mortgages.

What is the Difference Between a Fixed and Variable Rate Mortgage?

Fixed-rate mortgages stay the same for the life of your loan- you can't increase or decrease your payments. A variable interest rate will change over time, but most lenders will give you an introductory period where they're locked in at a certain rate.

What are Closing Costs?

Closing costs are all of the fees associated with getting a mortgage. The fees can be paid in cash or rolled into your loan. These costs include things like title insurance, the appraisal fee and even the funding fee that you might pay to get your down payment!

What is an Escrow Account?

An escrow account is a savings account that you set up to hold your mortgage insurance and property taxes. In most cases, the lender will automatically take these funds from your monthly payment and put them into an escrow account. You can also choose to pay those fees yourself if you want full control over your finances!

Why Do People Prefer Conventional Mortgages?

A conventional mortgage is the most common type of home loan available. This means that they have the best rates and are easy to qualify for! These mortgages also don't require PMI or private mortgage insurance, so you can save money on your monthly payment.

Conventional mortgages come with a fixed interest rate, meaning that your payment won't change over time. You can also choose to skip a lot of the paperwork and apply online for a conventional mortgage!

What is PMI?

PMI stands for private mortgage insurance. It's money that lenders will require you to pay if you make a smaller down payment on your home- typically, PMI payments are required on conventional mortgages for down payments below 20% of the home's value. If you put more than 20% down, you won't need to pay PMI!

What Is Private Mortgage Insurance?

Private mortgage insurance (PMI) is an extra monthly fee that borrowers must pay if they make a down payment that's less than 20 percent of the purchase price. This extra fee protects lenders in case a borrower defaults on their mortgage payments.

Why Is Mortgage Insurance Required?

If you make a down payment of less than 20% when purchasing a home, your lender will usually require some type of mortgage insurance to protect them from defaulting borrowers. Mortgage insurance is like any other type of insurance: the premiums you pay help protect your lender in case you can't afford your monthly payments. You will also need mortgage insurance if you have a conventional loan and make less than 20% down on your home, because these programs usually require PMI (private mortgage insurance).

What Is an Appraisal?

An appraisal is an examination of a home's value, conducted by a licensed appraiser. Appraisers inspect the property and look into things like its size, location and construction quality to determine what it might be worth on the open market.

What Is Homeowners Insurance?

If you're financing your home purchase, your lender will require you to have homeowner's insurance. If you already own a home and are refinancing, you may want to consider the benefits of bumping up your coverage after reviewing your policy limits.

What Is a Home Equity Loan?

A home equity loan is money that you borrow against the equity in your home. You can use that cash for just about anything, including debt repayment, home improvement, college tuition and more!

What Is a Home Equity Line of Credit?

A home equity line of credit is similar to a home equity loan in that you're borrowing against the equity in your home. With a HELOC, you have access to a certain amount of credit, and you pay interest only on what you use. You can also make extra payments to reduce or eliminate your balance whenever you like.

What Is a Closing?

A closing is the day when everything related to your home purchase comes together in one place. On this day, buyers and sellers sign documents, inspectors inspect the property again if necessary, and the title is transferred to the buyers. You will also receive keys to your new home!

What Does a Realtor Do?

Realtors help their clients buy and sell homes, and they're paid when their customers finalize a transaction. A realtor's job is to help you find the home that's right for you, given your budget and lifestyle.

What Is CMA?

A CMA or comparative market analysis is a written document that includes details about homes available in your area that are similar to the one you're selling. Your realtor will use this information to determine an asking price for your home.

What Does It Mean to Be Preapproved?

Being preapproved is different than being prequalified. With prequalification, you provide the lender with information about your annual salary and credit score. They'll make an educated estimate about how much they think you'd be approved for in mortgage financing. A preapproval means that you've actually gone through the full preapproval process, which includes documenting your income and assets to prove you can afford a home.

What Are Points?

Each point is equal to 1% of the total loan amount. So if you're buying a $250,000 home, each point will cost you $2,500. You pay points in exchange for a lower interest rate. Points can be broken down into two types: lender and third-party points. Lender points are bought at closing by the lending institution, while third-party points come from a nonbank lender such as a credit union or mortgage company.

What Is Good Faith Estimate?

The GFE is a written estimate of closing costs that are required by the Real Estate Settlement Procedures Act. It includes details about loan fees, title insurance, taxes and other costs that you'll have to pay to get your home. Your lender will provide you with this document before you get preapproved for financing.

What Is LTV?

LTV refers to the loan-to-value ratio, or how much you owe on your property compared with its current market value. For example, if your house is only worth $100,000 but you have a mortgage for $120,000, your LTV is 80%.

What Is PMI?

PMI stands for private mortgage insurance, and it's required if you don't put 20% down to purchase a home. The lender will pay for the premiums upfront but will collect them from you later in your monthly payment. You can cancel this coverage once your LTV reaches 78%.

What Does VA Mean?

VA stands for Veterans Affairs, and it guarantees VA-backed loans. The FHA insures these loans, which are offered to active military personnel, reservists and veterans.

What Does PMI Cost?

PMI costs vary depending on your lender and the type of loan you apply for. You can expect to pay around 0.3% - .45% of your total loan amount as a monthly premium if you put down less than 20%.

What Is Escrow?

Escrow is the process through which the title company takes care of necessary paperwork and fees. You'll have to pay for these costs in addition to any closing fees at the time of your closing.

What Is a Settlement Statement?

A settlement statement is a document that gets mailed to you after your closing date. It details all fees and payments you made when buying your home, including Lender's Title Insurance, Recording Fees, Prepaids and more.

What Is an FHA Loan?

FHA loans are mortgages insured by the Federal Housing Administration (FHA), which is a division of the Department of Housing and Urban Development (HUD). These types of loans make it easier for borrowers with less-than-perfect credit scores to buy homes.

What Is Home Equity?

Home equity is the difference between the current market value of your home and what you owe on it. When you take out a home equity loan or line of credit, you're putting your house up as collateral. That means if you default on your payments, the lender can take ownership of your property.

What Is Private Mortgage Insurance (PMI)?

If you don't put down 20% on your home purchase, you'll be required to pay for private mortgage insurance. PMI premiums are built into your monthly payment and can be canceled once LTV reaches 78%.

What Does Owner-Occupied Mean?

An owner-occupied home is one that's occupied by the owner as his or her primary residence. If you buy a vacation home, it won't be considered your primary residence, and you won't be able to use an FHA loan to finance it.

What Is the VA Home Loan?

The Department of Veterans Affairs (VA) home loan program allows active military personnel, veterans and reservists to become homeowners with no down payment. These loans are backed by the government, which means lenders won't be able to take your house if you default on your payments.

What Is a Co-Borrower?

A co-borrower is someone who pledges his or her income and credit to help qualify you for a loan. Any applicant whose name isn't on the mortgage must meet certain requirements, such as having enough money in savings or earning at least three times what's required for the down payment.

What Is an 80/20 Loan?

80/20 loans are home financing options for borrowers who can't afford to make a 20% down payment. This type of arrangement requires the borrower to pay for private mortgage insurance until LTV reaches 78%.

What Is Seller Concession?

Seller concessions are items that the seller includes in your purchase, like moving or closing costs. Lenders don't consider these costs when determining the amount of money you're eligible to borrow, so don't let them sway your decision.

What Does Cash-to-Close Mean?

Cash-to-close is the sum of all your down payment and closing costs at the time of your closing. This figure determines how much you can borrow.

What Is an ARM?

An adjustable-rate mortgage, or ARM, is a type of loan in which the interest rate varies according to the market. The initial interest rate stays stable for a set number of years (usually one, three, or five), then it adjusts every year.

What Is an Interest-Only Loan?

With interest-only loans, you make monthly payments only for the interest due on your loan. The loan balance doesn't decrease because you're not paying down any of it. You'll have to pay off all of your principal when the term ends.