How to Get a Mortgage

Now that you have decided to purchase a home, you will need to update yourself about the home loan process. Over the past few years the landscape of the mortgage market has changed dramatically and you will need to take a tour to familiarize yourself with new potential opportunities, and pitfalls. It is important to work with trusted professionals such as a good real estate agent and mortgage lender to guide you through this process.

Choosing a Lender and Getting Pre-Approved for a Mortgage

It is wise to know what you are getting into, before you get your hopes set on a particular home. The best way to be sure you are shopping in the right price range is to get pre-approved with a lender. By getting pre-approved for a certain price range, you will be sure your REALTOR is showing you homes that will satisfy your goals and work within your budget. A good lender will help you analyze your over all financial situation so that you can live in your home, and avoid undermining your long term financial goals.

Here are some tips on finding a lender that will be 'on your side'.

• Check with your bank first, even if it sounds like there is a better deal somewhere else. It is important to give your bank the first crack at your business, even if there are lower rates or more credit flexibility somewhere else. In the current lending climate, all financial institutions need to be competitive and your local lender is more likely to look out for your best interests.
• Shop rates between your bank, a mortgage broker, and on-line. It is recommended to balance service and trust against the rate, but the rate of interest is obviously one of the most important factors when it comes to making your monthly payment. When you are comparing rates, keep in mind you will have to root out the hidden fees, and possibly 'points' charged on the loan. Points are pre-paid fees that in effect 'buy down' your interest rate. This can be a good thing in some cases, but remember that you are going to have numerous other closing costs and fees before all is said and done. These fees can add up quickly and in some cases are more than your actual down payment, so beware and plan ahead for the total cost of your home at closing. If you are working with a trustworthy lender, they will disclose these costs and make them clear. Don't be too quick to sign documents indicating they were explained to you, unless you really understand them in full. It's easy to start scribbling your initials and signature in block after block when you are under the scrutiny of the lenders credit checking eyes so just take it slow, read, and ask questions when they arise.
• Watch out for low-ball rates. On-line lender and mortgage brokers sometimes quote very low rates initially. When you actually sign the deal, they charge a higher rate explaining that "the market has moved". This tactic is easy to spot. If the lender's rate is much less than the best competitor, the rate is too good to be true.

For more information on choosing a lender follow the link below for a brochure provided by the U.S. Department of Housing and Urban Development.

* HUD Buying Booklet for Choosing a Mortgage

Check Your Credit

How to Get All 3 Credit Reports in Your Hands in 30 Minutes

Once you are ready to apply for a home loan check your credit before 'they' do. If there is any inaccurate or out of date information on your credit report, you will want to know about it before your lender does. You may be able to rectify some of the inaccuracies before they become a problem and cause a delay in your home buying process.

The Fair Credit Reporting Act, part of the FACT ACT requires credit agencies to provide a free credit report to you every 12 months upon request. There are also several other events that can trigger your right to receive your credit report. For example if you are unemployed and are seeking employment within the next 60 days, or have recently been denied credit.

The on-line system for the free report required by the FACT ACT is located here. https://www.annualcreditreport.com/cra/index.jsp

This web site collects some basic information from you and then loops through all three of the credit reporting agencies web sites. It is very convenient for you to start at one place on the web, but be prepared, it takes about 30 minutes to complete the process and you will be asked some 9 different security related questions during the process. I would advise having some of your personal account information available to you before you begin.

Some of the questions will be about where you have worked in the last 15 years, I had trouble with this one! My last employers information was abbreviated in their records and I couldn't get it right after 4 tries! It didn't lock me out, so I had to enter an employer from about 15 years ago to get past that screen. If you have loan account information with you that is more accurate because there is no room for mis-spellings or abbreviations.

Load your printer with paper! You've got to love technology, I didn't have to wait 8 weeks and wait for the mail, however, I did run out of paper and had to print on the back of something else. All three reports will take about 50 pieces of paper. (Maybe I will order some paper on-line too!)

At every turn I was baited by offers to purchase extra services like identity theft protection, and so on. There is an extra fee if you want to see your actual credit score. I made it all the way to the last one, Equifix, before they got me for $7.95. I just couldn't resist being able to see my score after using up all the printer paper. Perhaps you can do better and click 'No Thanks' one more time than I did.

Gather Your Documentation

When you apply for a loan, you will be asked to provide certain documentation and/or information relating to your current financial status, employment, assets (including both real and personal property) and liabilities.  Before meeting with your lender, make sure to have your current pay stubs, bank statements, tax returns for the two years preceding your application and information relating to any debts that you currently owe.  If you are self-employed, you will also be asked to provide a year-to-date profit/loss statement, which is also known as an income statement.

Meet With Your Lender

Now that you have your documentation together, it's time to meet with your lender.  At this point, you will complete a mortgage application and submit it for approval.  Depending on the lender, it may take anywhere from several hours to several days before learning whether or not you are approved.  In most cases, however, a lender can provide you with an answer within 24 hours.

Last Minute Details

If your loan is approved, it's time to move forward to the next step in the mortgage process.  Your lender will order an appraisal and inspection to be completed on the property.  This is just as much for your own protection as it is for the lender because it may reveal hidden problems within the home.  The inspection and appraisal can take up to 30 days, at which point the results will be forwarded to the lender.  If all goes well, you will close on the loan and get ready to move into your new home.