Five Steps to Obtaining a Mortgage

Buying a Home 101 series – Week 5

This step-by-step series will take you through the entire home-buying process — from finding a buyer broker to closing day, and all the details in between. Every home buyer will find this information-packed series easy to follow and understand. Make sure to tune in for the next few weeks!

Today’s mortgages are not “one-size-fits-all.” That means you’ve got lots of options out there that could fit your budget and finances. This is good news for many home buyers!

However, you do need to do your homework first so that your mortgage application can be processed properly and with success. The lending environment can be complex and complicated at times. Lenders, underwriters and mortgage insurers must all complete certain steps before they can have your financing in place.

It’s important to try and keep things going smoothly by taking on a few steps of your own, and knowing what needs to be done next. This preplanning will help get your mortgage and financing all figured out. That way you can avoid any snafus when you least want them to appear!

Once your mortgage situation is all set, you’ll be in a much better position to negotiate with the sellers and move forward on a purchase. Here’s what you need to keep in mind:

1. Evaluate your affordability and don’t forget about monthly budget.

Do you truly know how much mortgage you can afford and how lenders determine it?

Lenders and mortgage insurers look at a variety of factors, but the two most important are your monthly mortgage payment and your total debt load, relative to your gross income. You may hear a lender call this your “debt-to-income ratio.”

But wait, let’s hit pause first and ask this question instead: How much are you actually comfortable spending on a mortgage payment each month?

This is a much better way to determine your affordability.  It’s better to determine  what your monthly budget is for housing, NOT just the purchase price that your lender will approve you for!

Many of you may want your monthly housing expenses to be much lower than what a lender is willing to lend you. This topic was covered in detail in Do the Math – A Mortgage You Can Afford, the fourth article in this series. Go back and review if you need a refresher.

This article makes you carefully look at your monthly budget, including current expenses and future ones in your new home.

2. Shop around and interview lenders to find the best fit for your needs.

Talk to several lenders who are brokers and bankers. Rates and fees are typically very competitive between lenders, so it’s more important to focus on other factors, including the program options available, the level of service provided and how well they’ve executed transactions for other buyers.

For example, credit unions can often offer good mortgage rates, but they usually have a department working on your file, not an individual person. The department only works from 9-5pm, and you may be making an offer at 6pm. There is no one looking out for you, and answering the listing agent’s call at 7pm. You might get a great rate, but not get the home you want. You need a responsive individual who is committed to getting your loan closed on time.

The type of mortgage or mortgage program you are seeking may also impact your choice of lender, since some are more familiar with certain mortgage programs than others. Not all lenders work with a wide variety of investors who can properly value assets like RSUs or stock options. Not all lenders have good options for business owners, self-employed and long-term contractors.

3. Discuss your loan options with lenders and your broker.

Deciding which types of mortgage loans are best for you depends on your personal situation, your financial scenario, and your future plans. It’s something you’ll discuss during your lender interviews.

Mortgage programs are always changing. You need to sit down with your lender to understand the different options out there that could work for you and the type of home you most likely will purchase. And don’t forget that your broker is a good resource who can help guide you on your decision.  They know what has worked for other buyers who may have similar finances.

4. Get pre-approved (not pre-qualified) by your lender.

You don’t just want to get pre-qualified, which is just an estimate of what you could qualify for based on unverified information you provide to a lender. Plan to take it one step further and get fully pre-approved and complete a full loan application with one or more lenders.

By doing this you will know exactly what loan amount you will be approved for by the lender. (Remember, stick to your monthly budget no matter what you get approved for!) But this does give you the go ahead to look at homes in a certain price range.

To start this process, you will need to supply information to the lender along with your application. To get pre-approved, the lenders will perform an extensive check and verification of your financial background and credit rating. You will be notified in writing with the amount they are willing to lend you for a home purchase.

Without pre-approval, you won’t be able to make an offer that a reasonable seller would consider. Your pre-approval lets the sellers know that your lender has already performed much of the due diligence to approve your loan. Without pre-approval, they won’t be willing to take their property off the market in the hope that you will get approved.

5. Commit to a lender once you’re under contract.

As soon as you are under a contract to purchase a home, you must “lock-in” and commit to working with one lender to complete your mortgage application. This needs to happen immediately upon going under contract to meet the deadlines you’ve agreed to in your offer. 

You will probably be charged a fee at this point because this is when the lender starts incurring processing expenses on your behalf.

Show your lender that you are serious about working in partnership with them by submitting all the required documentation as quickly as possible.  At this point they also will be “approving” your home and will await its appraisal to determine if they will lend you money. You want the appraisal to come in at or above the sales price.

As you can see, there are several steps you’ll need to take to get a mortgage. And, the best way to know what you should do is to talk to an expert.  Email me gretchen@metropolist.com  and I’ll review your options and connect you with two to three lenders who have provided excellent service, lots of options for many financial scenarios and great prices to my clients.

 

Stay tuned for next week! It’s the Fun “House Hunting” Guide is the next article in Buying a Home 101 series. You’ll find out the ways you can shop productively (and smartly!) with tactics that will streamline your search.