Looking for tips on financing a mortgage? We make our information easy to follow and fool-proof. We know that getting a mortgage is hard enough as it is!

Purchase


Buying a home is one of the most important steps to reaching the American Dream. For most, it defines the biggest step in their lives as families will get started and developed. Homeownership is a symbol of hard work, financial achievements as well as personal and economical security. However, the process of acquiring mortgage financing can be exhausting and frustrating at times. It is the least desirable step due to the plethora of confusing loan information, complicated paperwork and extensive qualifications required for lenders to approve the loan. After the 2007-2009 financial recession due to the housing bubble, mortgage qualification has become more difficult.

Through this site, we explain the different parts of acquiring a mortgage. Here you can find information about different loans, programs, guidelines and regulations in today’s market and what they mean for you. Furthermore, our mortgage tips can help you answer questions regarding credit, derogatory information. Unlike many websites, the information we provide is CURRENT.

Below, we present 6 very simple steps to follow when acquiring a mortgage loan:

Step 1. Find a lender


In today’s mortgage marketplace, the options are endless. Financing can be obtained through direct mortgage lenders, banks, credit unions, brokers and investors. Each of them carry positive and negative characteristics that make them unique and can fit your needs best. A good criteria for qualifying a competitive lender or broker is by analyzing:

  •  Loan programs offered.
  •  Knowledge and credibility. 
  • Competitive closing costs and rates. 
  • Fast turnaround times and loan originator diligence. 
  • Areas of expertise and niches. 

Many times your agent will have a preferred lender that they have worked with in the past. Although that should be a good starting point, it is imperative that you do your own research on finding another one to compare fees and costs. Remember that this is one of the biggest financial decisions of your life so do not skimp on being diligent!

Step 2. Get pre-approved


Often, sellers and real estate agents will not take you seriously until you receive a pre-approval letter from the lender. This letter is based on a formal loan application that you have submitted for the consideration of credit extension by a lender. During the pre-approval and loan application process, the lender will ask you questions about your credit, employment and income history. This is done in order to determine how much housing you can afford and what loan program your situation will fit you best. After all, lenders want to cover themselves from any potential risk of default by the borrower. During this time, the lender will analyze your credit history (not just your credit score), calculate debt-to-income ratios and make sure there are sufficient assets to secure the down payment.  
Depending on the loan program that you seek qualification, the guidelines and requirements can change in terms of down payment, credit score requirement and employment history. At a minimum, most lenders will ask for:

  • W2/1099 and a copy of the previous year’s tax returns.
  • 640 credit score (this can defer depending on the loan program).
  • Proof of identification.

For more information about different programs and qualification requirements, please navigate through the links below:


Step 3. Mortgage Shopping


In particular, most homebuyers get this step completely wrong, as it is very easy to get suckered into looking at the wrong details. In particular, borrowers are led to believe that shopping the rate is the correct way to shop for the best mortgage. Unfortunately, that can result in getting an unfavorable deal. Below are four simple steps that can help you compare the better deal.

  • Select three or four lenders of your choice by searching online or perhaps by way of referral from your agent or acquaintances. It is imperative that you submit a formal loan application to receive a copy of the Good Faith Estimate (GFE). Watch this SHORT video to help you understand that the Good Faith Estimate is all about. 
  • On the Good Faith Estimate you can compare and contrast the different estimated closing costs as well as the current rate that each lender can offer you. Most importantly, the GFE helps you address any concerns if you are paying points to obtain the rate offered.
  • Along with the GFE, the lender should automatically send you a copy of the Truth-in-Lending Disclosure (TIL). Enacted in 1968, through the Truth-In-Lending Act, this document discloses the costs associated with the financing of the loan. In other words, this disclosure helps you understand the APR of your loan. Watch this SHORT video to help you understand what the TIL is all about.
  • Ask the mortgage consultant what their areas of expertise are. Some lenders focus on different niche programs and can deliver a better product. Others provide a wide variety of products and can help you put you in different programs that may suit you best.

Step 3b. A word on down payments


You have probably heard that you need at least 20% of the purchase price for the down payment. Although some lenders may actually require this as a minimum, you can sometimes secure down payment with as little as 5% on conventional or even less on government-assisted loans such as those offered by the Federal Housing Administration (FHA), Veteran’s Affair (VA) and the Rural Housing Development (USDA).

There is a caveat on lower down payments. On a conventional loan, if a 20% down payment is not secured, the lender will require you to purchase Private Mortgage Insurance (PMI). This insurance protects the lender from possible borrower default and it will remain in place until a 22% equity position has been achieved on the house. However, on FHA mortgages, the Mortgage Insurance Premium (MIP), the equivalent of the PMI, remains over the lifetime of the loan.

To find more about different down payments and guidelines, click here.


Step 4. The loan process begins


You have chosen the house, came to an agreement with the seller and now it’s time to obtain the financing. This is where the fun begins (ok, maybe not). By now, you found a trusty loan officer working with a reputable lender and the loan is ready to be submitted. For a smooth transaction, have the following information ready:

  • Two years Federal Tax Returns.

  • Two years W2's, 1099s.
  • Two months of pay statements.
  • Asset documentation. Closing and down payment funds must be sourced and seasoned. Depending on your lender, cash deposits of $500 or more must be sourced.
  • Identification information. A copy of your driver's license will most often suffice but don't be surprised if you are asked to provide a copy of your Social Security Card.
  • Copy of certified earnest money check. 


Step 5. What NOT to do while applying for your mortgage loan


Applying for a mortgage is not nearly the same as applying for unsecured credit, i.e., credit cards. Lenders will pull credit twice during the process; at the loan application and just a few days before the closing. This is to ensure that no new liabilities or derogatory information has taken place during the process. Some of the things that can change in the credit report are:

  •       Changes in debt-to-income ratio (DTI): Simply, the DTI equals your total monthly liabilities as reported on your credit report including new housing expenses divided by your monthly income. We understand you are excited to deck your new house with furniture and decorations, but now it’s not the time to do so. Acquiring new debt will have to be disclosed and the DTI recalculated. If your DTI was high to begin with, this may result in a loan denial.

  •         Derogatory credit information: Being late on a tradeline will not only hamper your credit score during the process but also you will have to show the lender an explanation on why you were late.

  •       Don’t inquire for extensions of credit. Again, your credit score will get pulled during the process and any new requests for credit will get scrutinized. Further, your FICO may take a hit for new inquiries.

Other things:

Also, restrain yourself from changing jobs during the loan process. Your lender will run a verification of employment (VOE) on your job status with your current employer. It is important to show job stability, which means you are less likely to default on your loan.

Hold making any large deposits into the bank account you are using to provide your sources for down payment. Any large deposits, especially those made in cash will have to be sourced

Step 6. Your mortgage closes!


You are now at the closing table and the lending process is finally done. Without any hiccups or unforeseen circumstances, a purchase loan should conclude within 20-30 days after you have submitted your initial documents. However, some special loan programs may take longer.

In the case that you have any questions, please send us an inquiry here


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