Mortgage Loan Application Process

To kick things off and get organized, let's enumerate and simplify the steps of the process for applying for a loan to buy a house.

Step 1: Preliminary Research

Conduct preliminary research on bank websites. All banks offering mortgage loans in the country provide information on their websites. By checking interest rates and loan amounts, you’ll get a clear idea of whether you can actually access a mortgage loan or not. In other words, evaluate the loan offerings before you start moving forward.

Estimated Time: 1 hour, with your phone.

Step 2: Personal Financial Assessment

Upon completing this assessment, analyze your financial situation: how much you earn, how much you spend, and, finally, the key number: the amount of money available at the end of the month. This number will determine the loan amount you can take, and thus, the size of the property you will purchase. Remember that if you live in a rented property, the monthly mortgage payment will replace your rent payment.

Additionally, you should consider the exact amount of savings you have. This is important because mortgage loans do not cover 100% of the costs related to transferring the property to your name.

Estimated Time: 1 hour, with an Excel spreadsheet.

Step 3: Initial Bank Visit

Visit the bank for the first time. Don't go running to 100 banks; just visit one, and request information about mortgage loans. The bank officer will let you know the requirements, ask some personal questions, and calculate a fairly accurate amount you can access.

Estimated Time: 1 hour, at the bank.

Step 4: Preliminary Property Assessment Based on Accessibility

With the amount the bank can lend you, combined with your savings, make the initial assessment of available properties. Why is this important? Because we all want to live in a mansion, but very few can do so. So, with this total amount, evaluate the areas of your city, and the type and size of property you can access. If you can imagine yourself living in any of the residences you checked online, then go ahead.

Estimated Time: 30 minutes, with your phone.

Step 5: Evaluation of All Available Mortgages

At this point, you will probably want to start seeing properties. It's inevitable because you're curious and want to start thinking about the practical part right away. However, this is still unnecessary, as there are several steps left before you can access your own home.

The next step is to conduct a complete evaluation of the mortgage offerings available to you. Generally speaking, there aren't 150 banks offering mortgages in your country (no matter which it is). You will quickly see the overview and main differences by visiting just a few websites of major banks.

You should evaluate 3 basic aspects: the interest rate they charge, the maximum term they will lend to you, and what is the maximum percentage of the property's value they will lend.

Once you have completed the evaluation, choose the 2 best mortgage offers. It's time to go to both banks to request the conditions (if one of them is not the bank from Step 3). Once you return home, process the information you were given, sleep on it, discuss it with close ones, and hear their opinions. Then, decide which mortgage you will proceed with, and make the choice yourself.

Estimated Time: 2-3 hours, with your phone and something to jot down notes, and then, go to the banks.

Step 6: Gathering and Presenting Information to the Bank

Here, the formal mortgage loan application process begins. You must collect all the information requested: invoices, receipts, payrolls. Try to be as thorough as possible because the bank will not allow you to proceed if you do not present all the requested information. In other words, if you show up at the bank with all the documents except one, upon presentation, they will ask you to return when you have ALL the documents. With all the paperwork, you show up at the bank.

Estimated Time: 1 hour, looking for papers at home.

Step 7: The Bank Evaluates Your Information

Although this step varies depending on the country you are in, there isn't much you can do. You have submitted your personal information, and the bank's loan evaluation team will collect and perform the necessary calculations.

Once your application is approved, your bank officer will contact you to inform you of the maximum amount you can access. Keep in mind that your mortgage hasn't been fully approved or the money deposited yet. What the bank has done is pre-approve the loan, providing the assurance that up to that amount, depending on the property you choose, the bank will finance you.

Estimated Time: Depends on the Bank.

Step 8: Property Search

Once you have the mortgage loan amount, now is the time to search for the property. When choosing which home, some things to keep in mind include:

• Apartment location (transport connections, services, nearby shopping areas).

• How close it is to your usual places (homes of family and friends, clubs, parks, universities, etc.).

• Parking space (if needed).

• One of the most common mistakes when buying an apartment is purchasing it at an overpriced cost. Keep in mind that the listed price of a property is probably negotiable. That means the property owner is willing to lower the price a bit. Therefore, your offer should be lower than the listed price. Don’t worry about offering less money: The worst response you can get is a No, to which if you wish, you can offer a bit more.

Sooner or later, you'll find a property that suits your desires. That's when you make an offer.

Estimated Time: Depending on how long it takes to search and decide on a property.

Step 9: Offer and Mortgage Approval

Make an offer lower than the listed price. You will probably receive a counteroffer (it's common to average the two offers unless you've gone too low). If they accept this offer, you must put down a deposit or guarantee to show you're a serious buyer.

The seller will have you sign papers regarding the offer you just made, making it clear (in writing) that your offer is valid as long as the bank accepts the mortgage (unless your situation has substantially changed, there should be no problem with this, but it's best to have it documented).

With this documentation, the Bank will evaluate the property (to ensure its value is in line with market prices, it's in good condition, etc.). If everything is in place, the Bank approves the Mortgage Loan and sets a date for the transfer of the property to your name.

At this step, congratulations, you have a home in your name!

This is evidently the last step in your journey to becoming a homeowner. It's long, arduous, and sometimes seems impossible. It probably takes months. However, this step-by-step guide is quite descriptive of how it happens 99% of the time.

Let's now delve into some important aspects you need to consider.

Important Aspects to Consider When Applying for a Mortgage Loan

Taking out a mortgage is a decision that requires deep reflection and prior work. Firstly, not everyone qualifies for this type of loan because the amount tends to be very high. Mortgages are often paid over at least twenty years, so when applying for a loan, you need to, on the one hand, minimize the errors you might make, and on the other, plan for a rather long term.

Below are several aspects to consider.

Correctly Assess Your Financial Situation

We mentioned this before, but let's delve deeper into this topic to avoid unrealistic expectations. You must determine your financial situation because it's a crucial part of the loan application process. In other words, if you don’t have a constant and demonstrable payment capacity, you won’t be able to access a long-term loan.

Determining income and expenses is the first step in the mortgage process.

Evaluating how much money you earn and spend per month will give you the first indication of how much money is available to purchase a house. The bank or the entity issuing the mortgage will review your financial information, so it's important that you know it in advance. You don't need to do too many calculations as the bank will tell you exactly how much money they will grant. It is important for you to have an idea of the amount of money you intend to get so that this amount is realistic and in line with the amount the bank is willing to lend.

Regarding your personal situation, the amount you need to have clear is how much is the maximum you can pay. The reason is obvious: you won’t be able to cover payments that are higher than this amount.

You might be saying, "I'm young, my income will increase in the coming years." If you're an average person, this is generally true; as you climb the career ladder, the compensation tends to rise. However, you shouldn't count on this potential increase because it might happen years later, and you don't want to be financially constrained in the initial years of securing the mortgage.

Save as Long as Possible Before Applying for a Mortgage

In the case of mortgages, the amounts involved are so significant that without savings, dreaming of owning a home is usually unrealistic with borrowing. A mortgage works like this:

In many major cities, 70-90% of an apartment's purchase price is used as collateral for the loan. Moreover, you must consider the costs associated with taking out a mortgage, such as the real estate agent's commissions, taxes, and legal fees. That means you need to have some prior savings.

Choose the Property Well, Even If You Fall in Love with a Home

Falling head over heels during a real estate agent's presentation of a property is a common feeling for many. However, you must not only look at many properties before choosing (even at the risk of it being unavailable), but also investigate your chosen property thoroughly.

When visiting a property that fascinates you, it's fine to be enthusiastic. It's a place where you think you can be happy; it looks nice, and you think about where to place certain furniture. If this property is the first, second, or third you visit, it's not right. You’re about to commit to one of the most important decisions of your life, 

Are you going to do it without understanding the real estate market in your area? Let's use an analogy for clarity: when you enter a clothing store to buy pants, do you choose the first pair you find right after opening the door? Or, instead, do you go through a good portion of the store's offerings?

So, the importance of the matter is evident. Take time to choose the property (without risking the deadline given by the bank to choose the property, clearly); it’s a long-term commitment. It doesn’t matter if the property you saw first gets sold, many other properties are available that are just as good or better than that one.

Once you have made an informed decision and chosen the floor you liked, it’s time to inspect it. Schedule another visit and ask a knowledgeable family member (or ideally a professional) to accompany you to inspect the property. Look for signs of dampness, stains, damages, animal droppings, peeling floors, potential electrical failures, check the ceilings for leaks, among other things. In this visit, your goal is to find the defects of the house, because, on the one hand, it will "untease" you, which helps when negotiating the price, and on the other, if you find aspects that are unsalvageable or cannot be fixed (like a neighbor playing drums), you are on time to look for another property.

Ensure to Scale Your Mortgage Figures Appropriately

In line with the first point, a mortgage is a major financial decision that isn’t worth making in a moment of excitement. The loan must fit your financial situation almost perfectly to ensure your future comfort is not at risk.

A mortgage aligned with your capabilities also allows you to fulfill other dreams and purchases (that TV you wanted, a particular appliance, etc.). The purpose of a mortgage isn't just to live in your dream house but also to afford to continue with the rest of your life’s expenses without experiencing a peak of stress every month-end.

Don't Forget All-Risk Insurance

Insurance is an important part of both homeownership and owning a home. The insurance coverage should be chosen according to the property, and it's worth taking the time and effort to choose. I know, in our cultures, we're not very accustomed to getting insurance. We see it as an extra cost that isn't useful. However, I can't stress enough how important it is to have insurance when things don't go as planned. A robbery, fire, or flood are events that can be unlikely, but when they occur, I assure you that without the peace of mind provided by insurance, you'll regret it.

Taking out excessive or insufficient insurance are common mistakes you should try to avoid. The purpose of insurance is to maintain the financial situation if something unexpected in life negatively affects your payment capacity.

Types of Mortgages

Mortgages vary based on how the loan capital and interest are repaid. Here are the 3 types:

• Fixed-Rate Mortgage: The interest rate on the loan does not change throughout the life of the loan. This means the monthly payment amount remains constant. The interest rate of a fixed-rate mortgage is often higher than that of a variable-rate mortgage.

• Variable-Rate Mortgage: Variable-rate mortgage loans (generally) feature an initial term (the first year or the first six months) where the interest is fixed, and then it varies according to a reference interest rate (In Europe it's the LIBOR, in Latin America it's set by the central banks of each country).

• Mixed-Rate Mortgage: This loan uses a hybrid interest rate combining fixed and variable. That is, either the interest rate remains fixed during an initial period and then becomes variable, or the interest you pay each month includes a certain fixed percentage and the rest is variable.

Monitor Your Economic Situation

Once you've found the house and are in the process of paying off your loan, it's worthwhile to keep an eye on your financial situation. This is important to stay within budget.

Consider your life's situation and equilibrium. Evaluate the state of your relationships and the income and expenses of your family. Here are some important questions to consider every now and then:

• Are your job and income on solid ground?

• Are there plans to look for work elsewhere in the coming years?

• How is life in this house?

• Has the property price increased? Related to this... If I switch properties, can I make a profit?