5 Steps to Obtaining a Mortgage

5 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’s agent to settlement day, and all the details in between. Every first-time 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. We 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 much a lender will pre-qualify you for)?

We will 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. We 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 you can get qualified for!

Many of you will want your monthly housing expenses to be much lower than what we may be 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 as a homeowner.

2. Interview loan officers to find the best fit for your needs.

Rates and fees are typically comparable lender to lender, so it’s important to focus on other factors, including the level of service provided and how well they’ve executed transactions for other buyers.

The type of mortgage you are seeking may also impact your choice of lender, since some are more familiar with certain mortgage programs than others. For example, some of the state and local programs are not offered by all banks and lenders.

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

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.

For example, if you don’t have as much saved, you may want to consider some of the low down payment options. Additionally, you may qualify for an attractive first-time home buyer program offered by a local jurisdiction.

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 agent may be a good resource who can help guide you on your decision. They may know what has worked for other buyers with similar finances.

4. Get a pre-approval letter (not pre-qualified) from your Loan Officer.

Plan to complete a loan pre-approval application Make sure that you are getting a pre-approval letter and not just pre-qualified – there’s a difference!

By doing this you will know exactly what loan amount, monthly payment, and loan program you are eligible for. (Remember, stick to your monthly budget no matter what you get a pre-approval letter for!)

To start this process, you will need to supply documentation in addition to the online application. So make sure you’ve gathered the required documents before you meet with them.

The standard documents that will be requested are: Most recent 30 day pay stubs, Most recent 2 month bank statements, Most recent 2 years W2s/1099s, Most recent 2 years of Federal Tax Returns, and a copy of your Photo ID. Additional documentation may be requested based on your financial situation.

This process is an important step that will put you in a better negotiating position with sellers. Your pre-approval letter signifies to sellers that you are a committed buyer who has financing secured.

5. Choose your Loan Officer before you start shopping.

As soon as you are under a contract to purchase a home, things move quickly! We work to meet the deadlines that you’ve agreed to in your offer and protect your deposit. You want to make sure that the pre-approval letter that you submit with your offer is from the lender that you intend to use. Once you have an accepted offer and a signed contract, you can “lock-in” your interest rate and complete the formal loan application. Choosing your loan officer before you start shopping helps you establish a good working relationship with your real estate team and make the home buying process as stress free as possible!

As you can see, there are certain steps you’ll need to take to get a mortgage. Contact us if you are ready to find out how much home you can afford and what local incentive programs may be available to you!

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.